Legislature(2009 - 2010)BUTROVICH 205

02/04/2010 11:30 AM ENERGY

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11:36:19 AM Start
11:36:33 AM SB223
12:10:26 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Time Change --
Heard & Held
-- Teleconferenced <Public Testimony> --
          SB 223-ENERGY EFFICIENCY BONDS; LOANS; FUND                                                                       
11:36:33 AM                                                                                                                   
CHAIR MCGUIRE  said the  first order of  business to  come before                                                               
the committee was SB 223.                                                                                                       
DAN  FAUSKE, CEO  of Alaska  Housing Finance  Corporation (AHFC),                                                               
said SB 223  would establish an energy  efficiency revolving loan                                                               
fund in  AHFC and authorize  AHFC to sell  up to $250  million in                                                               
bonds to  fund the program.  As a  part of the  American Recovery                                                               
and Reinvestment  Act (ARRA,) the state  received $28.323 million                                                               
in  federal stimulus  money.  He reported  that  $18 million  was                                                               
designated  for  the  Alaska  Department  of  Transportation  and                                                               
Public  Facilities (DOT/PF,)  was  divided into  $10 million  for                                                               
state facilities  energy efficiency  projects and $8  million for                                                               
energy  efficacy projects  for schools  and municipal  facilities                                                               
managed under AHFC.                                                                                                             
MR.  FAUSKE said  AHFC recommended  that  a contract  performance                                                               
mechanism be  utilized, leveraging $18 million  into $250 million                                                               
in  bonds. Energy  savings produced  through building  retrofits,                                                               
developed  and  guaranteed  by  the  contractor,  are  sufficient                                                               
enough  to  pay  the  debt  service on  the  bonds.  Arizona  has                                                               
utilized this  system and  DOT/PF has  utilized performance-based                                                               
contracting in some of their facilities already.                                                                                
BRYAN BUTCHER,  Director, Public Affairs, Alaska  Housing Finance                                                               
Corporation  (AHFC),  said  the  US Department  of  Energy  (DOE)                                                               
approved the  plan a couple  of weeks  ago and said  turning this                                                               
part  of  the  ARRA  funds  into  something  long-term  would  be                                                               
MR.  FAUSKE  said  the  DOE   is  very  impressed  with  Alaska's                                                               
weatherization rebate program and this program.                                                                                 
11:41:16 AM                                                                                                                   
CHAIR  MCGUIRE said  Alaskans  are looking  for  ways to  improve                                                               
energy efficiency  in their buildings.  Every cent that  a school                                                               
saves can go  into the classroom; every cent saved  on a building                                                               
can go into other government  functions like fire and rescue. She                                                               
said it is  innovative and her intent  is to make it  part of the                                                               
Omnibus Energy Package.                                                                                                         
CHAIR MCGUIRE asked  if Mr. Butcher and Mr.  Fauske are confident                                                               
that $10 million  and $8 million are the right  amounts for state                                                               
facilities energy  efficiency projects and schools  and municipal                                                               
facilities energy efficacy projects, respectively.                                                                              
MR. BUTCHER  replied yes, $18 million  can be leveraged in  up to                                                               
$250 million  because it is a  revolving loan fund; it  should go                                                               
in perpetuity.  He explained that  when the  legislature overrode                                                               
former  Governor   Palin's  veto  and  the   $28  million  became                                                               
available, municipalities worried  that only a few  of them would                                                               
get anything  done before  the money  was gone.  A lot  of people                                                               
have been calmed knowing that the money will go farther.                                                                        
11:43:42 AM                                                                                                                   
CHAIR  MCGUIRE agreed  and said  she saw  the same  situation and                                                               
heard  the same  feedback from  those who  applied for  an Alaska                                                               
Energy Authority (AEA) Renewable Energy Grant.                                                                                  
SENATOR WIELECHOWSKI agreed and asked  how a $250 million program                                                               
can come out of $18 million.                                                                                                    
MR.  FAUSKE said  that it  is similar  to the  tobacco settlement                                                               
money which  came in annual payments  of $20 or $22  million that                                                               
were  leveraged into  $300 million  for  building rural  schools.                                                               
Rather  than annual  payments, however,  this plan  would utilize                                                               
annual  savings,  generated  by  contracting, that  would  go  to                                                               
service the debt.                                                                                                               
JOE DUBLER, CFO  and Finance Director, AHFC,  said this revolving                                                               
loan fund would  be structured similarly to  mortgage bond deals:                                                               
the  $18 million  would represent  a small  debt service  reserve                                                               
fund,  and  the rest  would  rely  on the  corporation's  general                                                               
obligation  pledge.   Loans,  made  to  municipalities   to  make                                                               
repairs, would pay 100 percent of  the debt service on the bonds.                                                               
The  contractor guarantees  an energy  savings  which equates  to                                                               
cash savings every year. The cash  saved would be used to pay off                                                               
the loan that AHFC used to pay the contractor.                                                                                  
11:46:25 AM                                                                                                                   
SENATOR  WIELECHOWSKI proposed  an example  for clarification:  a                                                               
school in  Angoon wants  to get  weatherized and  retrofitted and                                                               
applies to AHFC. He asked what happens next.                                                                                    
MR.  DUBLER said  an  initial  assessment would  be  done on  the                                                               
building to determine if savings would be achieved.                                                                             
SENATOR WIELECHOWSKI asked who pays for the assessment.                                                                         
MR.  BUTCHER replied  that the  program would  pay for  an energy                                                               
performance contractor  to do the  initial audit. For  example, a                                                               
contractor determines that $100,000 worth  of work would create a                                                               
20 percent energy  savings. The school district  would borrow the                                                               
$100,000  from  the  program  and  pay  the  contractor.  If  the                                                               
weatherization saved $20,000 per year,  the school would then pay                                                               
the  loan back  with that  $20,000 per  year. Once  the loan  was                                                               
repaid, the school  could use that energy savings  of $20,000 per                                                               
year as it saw fit.                                                                                                             
MR. BUTCHER explained that  energy performance contractors assure                                                               
a savings  amount, 20 percent  in this  example, and if  the work                                                               
does not  save this amount,  the contractor pays  the difference.                                                               
This system assures that the loan  will be paid back and has been                                                               
working in  many states,  such as  Washington. The  Department of                                                               
Transportation  (DOT) has  used it  in eight  buildings over  the                                                               
last decade.                                                                                                                    
11:48:36 AM                                                                                                                   
SENATOR WIELECHOWSKI asked who pays  if Angoon takes out the loan                                                               
and defaults.  He asked if  the loan  for $100,000, taken  out by                                                               
the school, is paid to the construction firm.                                                                                   
MR. DUBLER  replied yes, the  school would  take out a  loan with                                                               
AHFC for  $100,000 and  AHFC would  pay the  contractor directly.                                                               
The annual energy  savings money would come directly  to AHFC. It                                                               
is assumed that the school would  pay but if not, AHFC would have                                                               
some  sort  of  mortgage  on  the property  and  could  take  the                                                               
property back.                                                                                                                  
MR. BUTCHER  said the  contracting mechanism is  in place  and is                                                               
similar to  AHFC's involvement with  teacher housing.  The energy                                                               
revolving loan  plan is  based on the  energy savings;  the money                                                               
saved  by the  resulting reduced  utility costs  is earmarked  to                                                               
service the debt on the loan until the loan is paid off.                                                                        
11:51:06 AM                                                                                                                   
CHAIR MCGUIRE asked if energy auditors are licensed and bonded.                                                                 
SENATOR  KOOKESH  asked  the  difference  between  a  performance                                                               
contractor and an energy auditor.                                                                                               
MR.  BUTCHER said  that an  energy performance  contractor is  an                                                               
employee of that contractor; it is all one company.                                                                             
SENATOR KOOKESH  said he  knows that an  energy auditor  goes and                                                               
audits  homes. He  is  not familiar  with  an energy  performance                                                               
11:52:45 AM                                                                                                                   
MR. FAUSKE  said the energy  rater does  the pre-audit on  a home                                                               
but does not do the work.  The homeowner hires a contractor to do                                                               
the work based on the energy  rater's study of the house. A post-                                                               
audit examines  what was done  and assesses the  home's increased                                                               
energy rating,  verified by utility  bills. Mr.  Fauske explained                                                               
that  the difference  in  this program  for  state and  municipal                                                               
buildings is that the energy  auditor is doing the assessment and                                                               
energy savings forecast which determine  the loan amount and debt                                                               
service repayment.                                                                                                              
SENATOR KOOKESH asked if such people are in the state already.                                                                  
JOEL ST.  AUBIN, Chief, Statewide Public  Facilities, DOTPF, said                                                               
the licensing  and bonding  of energy  auditors is  covered under                                                               
the Alaska  State Procurement Code, AS  36.30. Those requirements                                                               
are part  of the energy  performance contracts. The state  has at                                                               
least  four  contractors  that   do  energy  savings  performance                                                               
contracting  and  interest will  also  come  from Washington.  An                                                               
energy  savings performance  contractor has  energy engineers  on                                                               
staff  who  are trained  and  experienced  in energy  audits  and                                                               
investigating  the facility  to create  a project  and a  project                                                               
11:55:17 AM                                                                                                                   
SENATOR  WIELECHOWSKI said  he sees  SB 223  potentially creating                                                               
hundreds of jobs  across Alaska. He is concerned  that Alaska has                                                               
only four contractors  and asked if the work force  can be ramped                                                               
up quickly to ensure most or all jobs would go to Alaskans.                                                                     
MR. ST. AUBIN said the  four main contractors subcontract out the                                                               
bulk  of   the  physical  work  to   mechanical,  electrical  and                                                               
specialty  contractors. He  felt the  work force  is in  place in                                                               
CHAIR  MCGUIRE  asked  if a  weight  increase  for  Alaskan-owned                                                               
businesses is still in place under the Procurement Code.                                                                        
MR. ST. AUBIN believed there is a 5 percent preference.                                                                         
MR.  FAUSKE said  Alaska had  25  energy raters  when the  energy                                                               
weatherization and rebate  program began; Alaska now  has 130. He                                                               
expressed the opinion  that once the legislature  takes makes the                                                               
funding  available,  the  private  sector   will  see  it  as  an                                                               
opportunity  to   expand  business.  The   weatherization  rebate                                                               
program  created  approximately  2,500  jobs. He  said  this  new                                                               
program  would  generate interest  from  the  private sector  and                                                               
create good, high  paying and long-term work with  a good funding                                                               
11:57:50 AM                                                                                                                   
CHAIR  MCGUIRE  said  that  in  light  of  the  Omnibus  and  its                                                               
incentives,  perhaps the  committee  should  bring in  Associated                                                               
General  Contractors  (AGC),  plumbers,  pipefitters,  mechanical                                                               
engineers, and  other groups  for a two  hour summit  to increase                                                               
awareness about  the kinds of  jobs that  will come out  of these                                                               
bills.  She said  it would  be great  to get  the information  to                                                               
Alaskans early.                                                                                                                 
MR. FAUSKE suggested that some  ramp up time be allowed, ensuring                                                               
that an adequate work force is  available when the money and work                                                               
are introduced, to prevent people from getting frustrated.                                                                      
11:59:47 AM                                                                                                                   
CHAIR MCGUIRE said  hers and Senator Wielechowski's  main goal is                                                               
to  create   and  foster  a  new   energy  economy.  Conservation                                                               
efficiency  and   renewable  energy   were  previously   seen  as                                                               
antithetical to oil and gas  hydrocarbon development. She said it                                                               
is  good to  have some  synergy  now and  she would  like to  see                                                               
growth  and increased  Alaskan jobs  in renewable  energy, energy                                                               
efficiency and  conservation technology.  She said AHFC  could be                                                               
involved in  a hearing  on jobs and  job training,  ensuring that                                                               
relevant agencies are ready.                                                                                                    
MR. FAUSKE said  weatherizing one school can  accomplish the same                                                               
amount of  energy savings as  20 to 25  houses in a  village. The                                                               
two  types  of projects  together  greatly  impact a  community's                                                               
overall energy usage and the associated costs.                                                                                  
12:02:15 PM                                                                                                                   
SENATOR  MCGUIRE  said  giving  handouts to  the  private  sector                                                               
causes  some discomfort,  however,  if the  overhead is  reduced,                                                               
especially  in  a  small  market,  the benefit  goes  on  to  the                                                               
consumer. A lot of Alaskan  businesses are competing with outside                                                               
groups and a reduced overhead makes them more competitive.                                                                      
CHAIR MCGUIRE  said Bob  Brean, Director  for Research  and Rural                                                               
Development, AHFC  and Scott  Waterman, Energy  Specialist, AHFC,                                                               
were on line for questions.                                                                                                     
CHAIR MCGUIRE asked  Mr. Fauske and Mr. Butcher to  come back and                                                               
do a  presentation to help  educate Alaskans about what  they can                                                               
MR.  FAUSKE said  that AHFC  has  been sharing  data with  Enstar                                                               
[Natural  Gas  Company]  and  other   energy  suppliers  and  the                                                               
predicted energy bill  reductions are proving to  be accurate. He                                                               
said the  system is  working and  this plan is  just on  a larger                                                               
12:04:41 PM                                                                                                                   
SENATOR KOOKESH  said a  lack of  energy auditors  is one  of the                                                               
biggest  problems with  weatherization  in rural  Alaska. He  has                                                               
asked the Denali Commission if  they can put energy auditors into                                                               
the  housing  authorities  or train  existing  housing  authority                                                               
employees.  Most  rural  Alaskans  do not  participate  in  state                                                               
energy programs  because they  cannot get  an energy  auditor out                                                               
MR. BUTCHER said that AHFC will  pay energy raters to go to rural                                                               
Alaska and this  is improving now that the urban  areas no longer                                                               
have waiting lists. He explained  that the energy rater that does                                                               
the  rating for  the home  energy rebate  program and  the energy                                                               
auditor that works on the  weatherization program have previously                                                               
been separate.  AHFC is working  to train them together  so every                                                               
regional housing  authority and weatherization provider  in rural                                                               
Alaska  will also  be qualified  to work  for the  weatherization                                                               
company and to do energy rebates in rural Alaska.                                                                               
SENATOR KOOKESH  said the message is  not out there yet  and that                                                               
must be the next step.                                                                                                          
12:07:02 PM                                                                                                                   
MR. FAUSKE  said the  legislature will soon  need to  discuss and                                                               
determine  if the  program will  continue and  at what  level. He                                                               
said 7200 homes  are scheduled for weatherization  next year. The                                                               
rebate side is fully encumbered. He  said he would hesitate to do                                                               
large scale advertising without  funding to support ongoing work.                                                               
He said  he has met  with the Association of  Housing Authorities                                                               
(AHA) and delivering the message is a priority.                                                                                 
MR.  BUTCHER explained  that  the first  group  to have  received                                                               
ratings is  nearing the end of  the process; 70 percent  used the                                                               
program and  received a rebate by  the end of 18  months. AHFC is                                                               
contacting people  who signed up but  did not use the  program to                                                               
find out why.  AHFC is also tracking the program  by community to                                                               
determine  which communities  should  be targeted  with a  second                                                               
wave of information.                                                                                                            
[SB 223 was held in committee.]                                                                                                 

Document Name Date/Time Subjects
SB 223 Bill Packet.pdf SENE 2/4/2010 11:30:00 AM
SB 223