Legislature(2017 - 2018)BELTZ 105 (TSBldg)


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Moved CSHB 333(CRA) AM Out of Committee
Heard & Held
        HB 374-ON-BILL FINANCING OF ENERGY IMPROVEMENTS                                                                     
3:37:34 PM                                                                                                                    
CHAIR  BISHOP called  the  meeting back  to  order and  announced                                                               
consideration  of HB  374. [CSHB  374(L&C), version  30-LS1333\E,                                                               
was before the committee]                                                                                                       
SENATOR STEDMAN moved  to adopt the SCS CSHB 374(  ), version 30-                                                               
CHAIR BISHOP objected for purposes of discussion.                                                                               
REPRESENTATIVE   WOOL,   sponsor   of  HB   374,   Alaska   State                                                               
Legislature, Juneau,  Alaska, said  the changes in  the committee                                                               
substitute (CS) came from Department  of Law (DOL) concerns about                                                               
consumer  protection.  Someone  who  chooses to  have  an  energy                                                               
device financed  through the  utility and  then after  having the                                                               
device installed in  their home had a problem with  it and didn't                                                               
want to  continue to  pay for  it, in doing  so, would  also lose                                                               
their  utility,  which  could be  dangerous,  especially  in  the                                                               
As  a solution,  the bill  now offers  a warranty  or maintenance                                                               
package  through  the  utility  that the  consumer  could  either                                                               
accept or  not. It would be  like an insurance policy  similar to                                                               
an  appliance  extended  warranty.  If  a  customer  accepts  the                                                               
policy, they  pay a  monthly charge, and  then if  something goes                                                               
wrong, it's  covered. It will  be repaired, and the  customer can                                                               
continue paying  his utility  bill, so  their utilities  won't be                                                               
shut off.                                                                                                                       
3:40:52 PM                                                                                                                    
SENATOR GARDNER asked if these  kinds of warranties are currently                                                               
available for the products covered in this bill.                                                                                
REPRESENTATIVE  WOOL   replied  that  most  appliances,   like  a                                                               
furnace, have an implicit factory  warranty for one or two years.                                                               
This  would  be  more  of  an  overall  maintenance  package  and                                                               
something a  utility would have  to acquire. They  probably don't                                                               
do this right now.                                                                                                              
CHAIR BISHOP asked  for a sectional analysis of SCS  CSHB 374( ),                                                               
version S.                                                                                                                      
3:41:55 PM                                                                                                                    
ROB   EARL,   staff   to  Representative   Wool,   Alaska   State                                                               
Legislature, Juneau,  Alaska, explained the changes  from version                                                               
E  to  version  S.  Language  on   page  2,  line  6,  inserts  a                                                               
requirement that  a customer  must be offered  by the  utility in                                                               
writing the  option to purchase  a maintenance agreement  for the                                                               
energy improvement  or else the on-bill  financing agreement will                                                               
not be valid. Under this provision,  the utility would be able to                                                               
work  with  an  insurance  provider  that  offers  this  type  of                                                               
maintenance product.                                                                                                            
Subsection (e) on page 2, line  20, inserts a requirement that if                                                               
the customer refuses the maintenance  agreement, he must agree to                                                               
pay  off   the  remaining  balance   of  the   on-bill  financing                                                               
agreement.  However,  a situation  could  be  possible where  the                                                               
interest rate  on the on-bill  financing agreement is  lower than                                                               
the interest rate  on a mortgage. So, a  subsequent purchaser can                                                               
waive that requirement.                                                                                                         
3:43:17 PM                                                                                                                    
On page 3, lines 8-9  are conforming language allowing a periodic                                                               
fee for the  maintenance agreement to be rolled into  the loan to                                                               
be recovered  by the  utility as part  of the  meter conservation                                                               
charge. An  insertion on page 4,  lines 7-9, makes sure  that the                                                               
existence  of   a  maintenance  agreement  is   included  in  the                                                               
notification requirements of the bill.                                                                                          
The  last changes  from "purchaser  or purchasers"  to "owner  or                                                               
owners" is  the only  change not requested  by the  Department of                                                               
Law (DOL).  It is  just clean-up language.  There are  five other                                                               
instances of this language on pages 3 and 4.                                                                                    
3:44:17 PM                                                                                                                    
CHAIR BISHOP  asked if the Department  of Law was fine  with this                                                               
version, because  their goal is  to protect the consumer,  at the                                                               
end of the day.                                                                                                                 
MR. EARL answered yes. Consumers are protected.                                                                                 
SENATOR MACKINNON said language on  page 2, line 2, says interest                                                               
rates must  be clearly stated  and asked if  there is any  cap on                                                               
the interest rate. It would be  a willing customer and she thinks                                                               
of  rural Alaska  and the  cost  of the  smaller utilities  whose                                                               
overhead  costs are  extreme would  be allowed  to perform  these                                                               
renewable tasks.                                                                                                                
MR.  EARL answered  said an  earlier version  of the  bill had  a                                                               
provision that  the utilities  cannot charge  more than  2 points                                                               
over prime and  through feedback from a utility  they didn't want                                                               
to  have  that restriction.  They  further  reasoned that  nobody                                                               
would use it if it was an onerous interest rate.                                                                                
3:47:34 PM                                                                                                                    
CHAIR BISHOP opened public testimony.                                                                                           
GENE  THERRIAULT,   Alaska  Industrial  Development   and  Energy                                                               
Authority   (AIDEA),    Juneau,   Alaska,    referenced   Senator                                                               
MacKinnon's  last  question  saying  he looked  at  a  number  of                                                               
potential sources of federal funds  from the USDA Rural Utilities                                                               
Services (RUS) and the Rural  Energy Savings Program specifically                                                               
makes reference  to a loan  that is repaid  by an addition  to an                                                               
electric bill.  If their  payment is not  made, shutting  off the                                                               
utility is an  important component in order  to bid competitively                                                               
for some of the federal  sources. Because the federal sources are                                                               
low  cost  sources  of  capital,  use  of  RUS  monies  restricts                                                               
interest rates to no more than  3 percent. However, a utility may                                                               
work with a local lender as a source of capital.                                                                                
3:50:20 PM                                                                                                                    
SENATOR MACKINNON noted  that a bill from last year  has the same                                                               
issues as  this bill. A  utility is not responsible  for lending,                                                               
underwriting, or credit determination.  So, this bill is allowing                                                               
utilities to issue  money without any of the  restrictions or the                                                               
ability or  capability to actually  collect, because  language on                                                               
page  3, line  27,  explicitly  states that  they  don't have  to                                                               
comply: "If  the billing and  collection of a  meter conservation                                                               
charge  does  not  subject  a   utility  to  laws  that  regulate                                                               
financial   institution   escrow   depositories   or   collection                                                               
agencies." So, the utility is going  to make a loan for a product                                                               
that it can't remove and then  the utility and its ratepayers are                                                               
subject to paying for.  Then  page 4, line 2, says: "Notice under                                                               
this subsection does not constitute  a lien on the property." She                                                               
asked how  if someone isn't paying  for their meter and  is being                                                               
charged interest ever  recover once they get behind  and it can't                                                               
be removed. They  can't remove the meter based on  not paying for                                                               
the charge. "Help me understand."                                                                                               
MR. THERRIAULT  explained that, similar  to the  PACE legislation                                                               
last year,  which used the  property tax  as a means  of assuring                                                               
the obligation  is ultimately paid for,  this obligation attaches                                                               
to the utility  meter. So, the utility service  at that residence                                                               
can be terminated until that bill  is paid. That is the mechanism                                                               
that allows these programs to  have very low default rates across                                                               
the nation where they have been applied.                                                                                        
The  language  on  page  3  saying this  program  is  not  to  be                                                               
considered lending is to make  sure that the utility doesn't come                                                               
under Dodd Frank  restrictions. No utilities would  want to offer                                                               
their bill as a collection means:  the money comes to the utility                                                               
then is  passed back to  the entity  that provided the  funds for                                                               
the loan.  Utilities would  not offer that  service if  they were                                                               
going to be treated like a lender.                                                                                              
SENATOR MACKINNON  asked if  one has  to be  a property  owner to                                                               
apply for the loan or can a renter do that.                                                                                     
MR.  THERRIAULT  replied originally  the  bill  was available  to                                                               
renters who  had the utility in  their name, but due  to concerns                                                               
about  how  that  would  work, the  prime  sponsor  removed  that                                                               
section. Now, one can only get  this mechanism by being the owner                                                               
of the  properties with the utilities  in his name.   Some states                                                               
do allow renters to apply.                                                                                                      
3:54:38 PM                                                                                                                    
CHAIR BISHOP asked  how many other states have a  version of this                                                               
MR. THERRIAULT said  he wasn't sure, but HB 374  is modeled after                                                               
South Carolina's legislation. A number  of states have done it by                                                               
just  having their  utility commission  approve it  or they  have                                                               
done it in statute.                                                                                                             
SENATOR GARDNER  asked if the  person who is financing  this loan                                                               
is  a lender  and  the  utility company  is  processing the  loan                                                               
payments instead of going through bank.                                                                                         
MR. THERRIAULT  replied that the loan  could be done a  couple of                                                               
different ways and  explained that the utility may  strike a deal                                                               
with a  local lender to  provide the funds or  it may be  able to                                                               
tap into  some of the  RUS funds, and if  so, they would  have an                                                               
obligation  to pay  back the  RUS, but  the source  of the  funds                                                               
would  not  be the  utility.  It  is just  a  means  of using  an                                                               
existing relationship  in the monthly  bill that goes out  to the                                                               
consumer as a convenient way to  do the collection, and the power                                                               
to terminate  the service guarantees  that the payments  are made                                                               
and that the  obligation is ultimately paid off.  A utility could                                                               
come up with funds of their own, but that is very unlikely.                                                                     
CHAIR BISHOP  asked the assistant  attorney general if  he wanted                                                               
to add anything.                                                                                                                
3:56:22 PM                                                                                                                    
STUART GOERING, Senior Assistant  Attorney General, Department of                                                               
Law (DOL),  Anchorage, Alaska,  answered yes.  He said  his staff                                                               
had asked  earlier today if  version \S addressed  their concerns                                                               
in a  letter signed by  the Deputy Attorney General,  Ed Sniffen,                                                               
on the  previous version of  the bill,  and the simple  answer to                                                               
that  is  yes.  He  offered  to explain  why  this  bill  version                                                               
addresses those concerns.                                                                                                       
CHAIR BISHOP asked him to go ahead.                                                                                             
MR. GOERING said the initial  concern was that consumers could be                                                               
exposed to a couple different  potential problems that they might                                                               
not have  a remedy  for, one  of which would  be that  they would                                                               
have to pay  a financing charge on their bill  for an improvement                                                               
that no longer  worked, which is not typically  what happens when                                                               
getting a  service from a  utility; usually  if you pay  the bill                                                               
the utilities work.                                                                                                             
The second  concern was because  the obligation to pay  the meter                                                               
conservation  charge   could  be   passed  on  to   a  subsequent                                                               
purchaser, that someone who did  not make the initial decision to                                                               
install the energy efficiency device  might have an obligation to                                                               
pay for something  they either didn't want or that  was no longer                                                               
working. This bill  addresses that in two  important ways. First,                                                               
it gives the consumer a mechanism  to make sure that their energy                                                               
efficiency  and   conservation  improvement  continues   to  work                                                               
throughout the  entire duration of  the financing.  The mechanism                                                               
for that  is the provision  of repair and  maintenance agreement,                                                               
which has been  characterized as insurance, but the  idea is that                                                               
someone is available  to make sure this device  continues to work                                                               
for as long  as the customer has financed it.  It's important for                                                               
a consumer to know that even if  they decline to buy it, just the                                                               
offer helps  the consumer  understand the  life-time cost  of the                                                               
energy  conservation   or  improvement   device  that   they  are                                                               
installing instead  of having the  information about  the upfront                                                               
costs and  not knowing what  the maintenance  of it is  likely to                                                               
be. This is  not the sort of purchase, unlike  a motor vehicle or                                                               
a refrigerator that  people do routinely, that people  have a lot                                                               
of experience with. Knowing what  life cycle costs will likely be                                                               
is very  helpful even if they  choose not to take  the repair and                                                               
maintenance agreement.                                                                                                          
Secondly, if  the repair and  maintenance agreement  is declined,                                                               
the  subsequent  owner  of  the   property  would  not  have  the                                                               
consequences of  the decision to  decline that coverage  while at                                                               
the same time  having the obligation of paying  for the no-longer                                                               
functional improvement.                                                                                                         
SENATOR MACKINNON said lenders have  reasons for having rules for                                                               
loans: one  is consumer protection,  and another is  the lender's                                                               
protection. She  is also  a big  supporter of  renewable projects                                                               
and wants to reduce carbon  emissions wherever possible. Then she                                                               
asked what  the terms for  these loans  are. For instance,  if it                                                               
was a  bond for a maintenance  project, one couldn't pay  off the                                                               
maintenance  project  before the  life  cycle  was complete.  She                                                               
didn't see any of that in this bill.                                                                                            
4:04:19 PM                                                                                                                    
REPRESENTATIVE WOOL said he understood  her concern. This bill is                                                               
very broad in terms of products -  a solar panel might have a 30-                                                               
year life-span  and a  heat pump  which may  have a  10-year life                                                               
span -  and the  length of  the loan will  not extend  beyond the                                                               
expected  life  of  the  product.  This  legislation  came  about                                                               
envisioning conversion from  heating oil to gas  in the Interior,                                                               
and  since this  covers a  broad  range of  products they  didn't                                                               
insert a defined length of term  on the loan. He would think that                                                               
the parties  involved in  the transaction would  all be  aware of                                                               
these parameters  and structure the loan  accordingly. He pointed                                                               
out  that it  is optional  for the  utilities to  enter into  the                                                               
transaction as well as the consumer.                                                                                            
He also stated  that the Department of Law mentioned  a new owner                                                               
wouldn't  want to  buy  a  house that  they  would  have to  make                                                               
payments on that had an  appliance that didn't work. If something                                                               
doesn't work between a buyer and  seller either it's not paid for                                                               
or it's repaired.                                                                                                               
4:08:25 PM                                                                                                                    
SENATOR MACKINNON  said another  concern she  had is  because the                                                               
utility is  being used as  a conduit  for payments no  matter who                                                               
finances it  and it's not  subject to financial  documentation of                                                               
any kind,  if you owe something  and your property is  being held                                                               
as the  backer of that, it  would be listed  on a plat note  as a                                                               
lien against  the property.  How would a  future owner  know that                                                               
there is a  lien against the property as  the utilities transfer?                                                               
That is not part of the closing process.                                                                                        
REPRESENTATIVE WOOL agreed that it's not  on the deed and a title                                                               
search wouldn't  turn it  up. He  would hope  the buyer  would be                                                               
aware of this contract through some contractual mechanism.                                                                      
4:09:22 PM                                                                                                                    
MR.  GOERING added  that  he could  cut  through this  discussion                                                               
quickly for  Senator MacKinnon. Language  on page 3, line  29 and                                                               
following, and  the new  section AS  42.05.752 provides  that the                                                               
utility has to place a notice  in the recording district in which                                                               
the residence or  building is located and it has  to include that                                                               
there is a  meter conservation charge, what the  balance owed is,                                                               
whether or  not the system or  device is covered by  a repair and                                                               
maintenance  agreement and  the  length of  time  that the  meter                                                               
conservation charge is  expected to remain in  effect. This would                                                               
be sufficient to notify a subsequent purchaser.                                                                                 
4:10:29 PM                                                                                                                    
SENATOR MACKINNON  said she appreciated  that it is  noticed, but                                                               
language  on page  4, line  2, saying  that the  notice does  not                                                               
constitute  a lien  on the  property doesn't  mean there  isn't a                                                               
lien on their utility bill.                                                                                                     
MR. GOERING  agreed that the notice  is similar to a  lien in the                                                               
sense that a bill is going  to be collected over the objection of                                                               
the purchaser. However,  two things protect the  customer in this                                                               
case.  The first  is that  a  lien can  be foreclosed  on by  the                                                               
lender and sold to satisfy the debt.  HB 374 says it's not a lien                                                               
so  it's  not subject  to  those  provisions. But  secondly,  the                                                               
person who  agreed to  install the  energy efficiency  device for                                                               
improvement has  committed in writing  to pay off the  loan prior                                                               
to transferring  the property to  a subsequent purchaser.  So, if                                                               
the  subsequent purchaser  doesn't waive  that requirement,  that                                                               
meter  conservation  charge  will   never  apply  to  them.  That                                                               
provision  is found  on  page 2,  line  23, of  the  bill (in  AS                                                               
42.05.750 (e)).                                                                                                                 
SENATOR MACKINNON remarked:  So, they get a  notice if everything                                                               
goes as planned in this bill.                                                                                                   
MR.  GOERING replied  that would  be  correct. Another  provision                                                               
satisfied  them that  this is  not an  issue and  that is  if the                                                               
utility doesn't  file a notice  correctly, then they  wouldn't be                                                               
able to collect  the meter conservation charge  from a subsequent                                                               
SENATOR  MACKINNON thanked  him for  those comments  and said  if                                                               
it's not  a lien, the potential  new owner doesn't have  a lot of                                                               
recourse.  Her experience  in closing  on a  few homes  over long                                                               
periods of  time is that people  sign a lot of  paperwork without                                                               
reading it.                                                                                                                     
CHAIR  BISHOP commented  that  a  home purchase  has  to have  an                                                               
appraisal.  Years ago,  when he  purchased a  home in  Fairbanks,                                                               
banks required  a new  sewer system before  providing a  new home                                                               
4:14:21 PM                                                                                                                    
SENATOR GARDNER wanted  to know if she got it  right. Language on                                                               
page 2, line 23,  says at the time of transfer  of ownership of a                                                               
home  if she  hasn't  explicitly waived  a  requirement that  the                                                               
original purchaser  pays the  balance, then  she is  not assuming                                                               
the balance owed and is responsible for the utility only.                                                                       
CHAIR  BISHOP responded  that  at that  point,  the title  agency                                                               
would be  double-checking that box,  because they don't  want you                                                               
to have a clouded title.                                                                                                        
REPRESENTATIVE WOOL  said that  is correct;  a title  search will                                                               
show this item.                                                                                                                 
SENATOR GARDNER asked if this  means she cannot be surprised that                                                               
there is this extra little charge.  The utility has to be told in                                                               
writing that a purchaser is willing to take over those charges.                                                                 
SENATOR MACKINNON wanted the DOL to confirm that.                                                                               
MR. GOERING said  that is correct. The  meter conservation charge                                                               
can't be collected  from a subsequent purchaser  unless they have                                                               
explicitly waived  in writing the  requirement for it to  be paid                                                               
off. If  for some  reason it  wasn't paid off  in closing  by the                                                               
previous purchaser,  that would be  a matter between  the utility                                                               
and the  original owner of the  property because that is  who the                                                               
utility contracted with.                                                                                                        
SENATOR  MACKINNON asked  who owns  the  device at  the point  at                                                               
which  the property  is sold  and  someone else  is still  making                                                               
payments on it.                                                                                                                 
MR. GOERING answered most of  these devices, probably 100 percent                                                               
of  them, would  be considered  fixtures, which  would make  them                                                               
part of the  real estate. So, if the seller  transferred title to                                                               
the real estate,  the improvement would be part of  that, and the                                                               
subsequent purchaser would own everything.                                                                                      
4:19:31 PM                                                                                                                    
CHAIR BISHOP  closed public  testimony and said  HB 374  would be                                                               
held in committee.  He asked that any amendments  be submitted by                                                               
tomorrow at 9 a.m.                                                                                                              

Document Name Date/Time Subjects
01 - HB 333 CRA Amended.PDF SCRA 4/25/2018 3:30:00 PM
HB 333
02 - HB 333 Sponsor Statement, 24 April 2018.pdf SCRA 4/25/2018 3:30:00 PM
HB 333
03 - HB 333 Summary of Changes ver D.A 4.24.18.pdf SCRA 4/25/2018 3:30:00 PM
HB 333
04 - HB 333 Fiscal Note HB0333-1-2-041318-DPS-N.PDF SCRA 4/25/2018 3:30:00 PM
HB 333
05 - HB 333 Supporting Document - AAA Letter, 12 April 2018.pdf SCRA 4/25/2018 3:30:00 PM
HB 333
06 - HB 333 Supporting Document - ASD Resolution, 5 March 2018.pdf SCRA 4/25/2018 3:30:00 PM
HB 333
07 - HB 333 Supporting Document - ASD Resolution Memo, 12 April 2018.pdf SCRA 4/25/2018 3:30:00 PM
HB 333
08 - HB 333 Additional Documents - Legislative Legal Services Memo, 22 February 2018.pdf SCRA 4/25/2018 3:30:00 PM
HB 333
01 - HB 374 House Labor & Commerce.PDF SCRA 4/25/2018 3:30:00 PM
HB 374
02 - HB 374 Sponsor Statement.pdf SCRA 4/25/2018 3:30:00 PM
HB 374
03 - HB 374 Sectional Analysis.pdf SCRA 4/25/2018 3:30:00 PM
HB 374
04 - HB 374 Explanation of House Changes.pdf SCRA 4/25/2018 3:30:00 PM
HB 374
05 - HB 374 Fiscal Note HB0374-1-2-030918-CED-N.PDF SCRA 4/25/2018 3:30:00 PM
HB 374
06 - HB 374 Supporting Document - AIDEA and Renewable Juneau.pdf SCRA 4/25/2018 3:30:00 PM
HB 374
07 - HB 374 Supporting Document - DOE Summary of On-Bill Financing, 27 February 2018.pdf SCRA 4/25/2018 3:30:00 PM
HB 374
08 - HB 374 Agency Response - Department of Law letter, 20 April 2018.pdf SCRA 4/25/2018 3:30:00 PM
HB 374
09 - Draft Senate CS CSHB 374 Version S, 25 April 2018.pdf SCRA 4/25/2018 3:30:00 PM
HB 374
10 - HB 374 Explanation of Changes from Vers E to Vers S, 25 April 2018.pdf SCRA 4/25/2018 3:30:00 PM
HB 374