Legislature(2015 - 2016)SENATE FINANCE 532
03/16/2016 09:00 AM Senate FINANCE
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SENATE BILL NO. 196 "An Act relating to the use of certain unexpended earnings from the power cost equalization endowment fund." 10:01:06 AM Senator Hoffman related that the Power Cost Equalization program (PCE) had been in existence for 36 years with the primary purpose of assisting with the high cost of electrical energy throughout rural Alaska. He said that many communities participate and that there had been discussion related to the program's high earnings that had transpired in FY 13 and FY 14. He stated that the bill would ensure that during the high earning years of the fund, the fund should only pay for its intended purpose and any excess earnings would be distributed to two other programs. 10:02:18 AM TIM GRUSSENDORF, STAFF, SENATOR LYMAN HOFFMAN, pointed out to the committee that the bill was available in their packets, as well as a document that illustrated the earnings of the program at 4.3 percent, and a sectional analysis. He discussed the sectional analysis (copy on file): Section 1 adds a new sentence to AS 54.4.0820(c) requiring that the commissioner of revenue determine the earnings on the power cost equalization endowment fund (PCE fund) for the fiscal year on June 30 each year. Section 2 adds a new subsection to AS 42.45.085 that allows the legislature to appropriate the part of the annual fiscal year earnings of the PCE fund in excess of the expenditures necessary to achieve the purposes under AS 42.45.085(a) to the general fund and the renewable energy grant fund, and to appropriate some funds back to the PCE fund. 10:04:37 AM SARAH FISHER-GOAD, EXECUTIVE DIRECTOR, ALASKA ENERGY AUTHORITY, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, testified in support of the legislation. She stated that the authority supported the concept of being able to use the excess earnings for the general and renewable energy funds listed in the legislation. She said that the earnings in FY 16 were difficult to predict, and that she would work with the bill sponsor to clarify which fiscal year to use and how much funds would be available for extra purposes. 10:05:38 AM Senator Hoffman announced there was a section in the bill that would require an amendment that would create a single mechanism for dispensing excess earnings. 10:06:06 AM Co-Chair MacKinnon stated that she had researched the issue and had proposed that projects that were currently being funded at the Alaska Energy Authority should have some nexus with the PCE fund. 10:06:54 AM Co-Chair MacKinnon remarked that as revenue opportunities in the state shrank, rural Alaska remained in need of many dollars for investment in energy to keep families warm. She contended that it the state had an energy project that had cost millions from in communities, she wondered why PCE would need to continue. Ms. Fisher-Goad appreciated the conversation. She assured that committee that AEA was eager to participate in discussions concerning to how programs related to each other. She mentioned that the PCE program, for electrical projects, hit approximately 30 percent of the kilowatt hours generated in rural Alaska communities; approximately 193 communities benefitted from the PCE program. She furthered that the remaining 70 percent of the kilowatt hours were not eligible for cost under the program. She said that the Renewable Energy Fund complimented the PCE by participating in reducing costs for communities, across all kilowatt hours. She pointed out to the committee that schools benefitted greatly from the partnership; they were not eligible for PCE, but if a utility that serviced a school had a renewable energy project that reduce costs, the school would receive the benefit. She stressed that the issue was not limited to electricity, but included heating projects that benefitted community facilities and other programs. She assured the committee that the authority would work with committee on their continued investment in the PCE and renewable energy programs. 10:10:35 AM Co-Chair MacKinnon remarked that Senator Hoffman had advocated for heating projects under the statute. She remarked that electricity consumption was a big issue, but that heating homes was the top priority. She said that as the state moved into an uncertain fiscal climate, there would be tension between electricity versus heating. 10:13:13 AM Co-Chair Kelly noted that there was a letter of support that made reference to the 2000 capitalization of the PCE fund (copy on file). He said that when the state capitalized the fund, the $100 million had counted against the state. He stated that Fairbanks would receive subsidies on the gas project thorough loans. 10:14:41 AM Senator Hoffman commented that the state formerly had appropriations to fund the PCE with the intent to set up the endowment. He stated that the anticipation had been that the program would require additional General Fund appropriations for several years, but because of earnings on the fund those appropriations were reduced; in 2015, the fund was self-functioning and did not require a general fund appropriation. He believed that energy continued to be a major issue throughout the state and the legislature should strive to make Alaska a more affordable place to live for all Alaskans. 10:16:26 AM CRYSTAL ENKVIST, EXECUTIVE DIRECTOR, ALASKA POWER ASSOCIATION, ANCHORAGE (via teleconference), spoke in support of the legislation. She read from prepared testimony (copy on file): Alaska Power Association (APA), the statewide electric utility trade association, supports Senate Bill 196, which would protect funding for the Power Cost Equalization Program (PCE) while allowing appropriation of funds from the PCE Endowment for other valuable purposes. APA members believe this legislation will allow the PCE program to continue providing a vital measure of relief to ratepayers in communities throughout our State where electric rates are the highest, while sharing benefits with the General Fund, the Renewable Energy Grant Fund and the PCE Endowment. This distribution of benefits is especially important in these difficult financial times. Many APA members throughout the state have integrated wind and hydroelectric power into their systems through funding from the Renewable Energy Grant Fund, and their customers see the results in lower or stabilized bills. Through SB 196, work could continue on renewable energy systems that will positively impact Alaskans for generations to come. APA member utilities serve communities from Barrow to Unalaska, through the Interior and Southcentral and down the Inside Passage. We appreciate your decades- long leadership in assisting our home grown industry in striving to provide affordable and reliable electric power to Alaskans. Your sponsorship of SB 196 continues these collaborative efforts, and we urge passage of this legislation. 10:18:43 AM INGEMAR MATHIASSON, ENERGY MANAGER, NORTHWEST ARCTIC BOROUGH, KOTZEBUE (via teleconference), spoke in support of the legislation. He stated that the borough had recently complete a large wind/diesel project that would benefit several communities. He said that funding for the project had been granted through the Alaska Renewable Energy Fund, and had hedged against the rising cost of diesel fuel, which had threatened the existence of remote communities. He stressed the importance that the PCE fund had been established to assist rural Alaska communities with the rising cost of diesel fuel for their electric utilities. He said that communities had embraced energy efficient alternatives, which would lessen the need for the PCE fund in the future. He stressed that allowing as much of the excess PCE funds as possible to be transferred into the renewable energy fund would provide the state a path forward to eventually build itself out of the need for PCE. He concluded that the future for rural Alaska's energy structure was to utilize locally available resources as much as possible. 10:20:31 AM PETER CRIMP, SELF, ANCHORAGE (via teleconference), testified in support of the legislation. He stated that reliable and reasonable priced energy needed to be maintained on order to support the state's investments and to provide fairness in the funding for rural and non-rural energy projects. He noted that the rural energy fund had proven to be a successful vehicle for stimulation technically and economically viable projects since it was established by the legislature in 2008. He noted that AEAs annual report indicated that 54 projects were in operation, and that every dollar invested in the projects would have a $2.50 return. He believed that the state should maintain its investment in maintaining clean, renewable energy. 10:22:32 AM DAVID MESSIER, RURAL ENERGY COORDINATOR, TANANA CHIEFS CONFERENCE, FAIRBANKS (via teleconference), spoke in strong support of the legislation. He lamented that rural Alaska experience electricity costs that ranged upward of $1 per kilowatt hour, due not only to the cost of oil, but also the administrative costs of managing a small, rural electric utility. He said that the PCE endowment supported the PCE program, which reduced the cost per kilowatt for 80,000 rural Alaskans across the state. He lauded the benefits of the PCE program. He noted that the renewable energy fund had a proven track record of bringing money into the state and reducing the long-term cost to the PCE program. He asked legislators to consider adding language to the bill that would allow some portion of the 30 percent allocated to the Alaska Renewable Energy Grant fund to support the Village Energy Efficiency Program (VEEP), which had an even stronger track record of reducing the long-term costs of the PCE program. He said that he would be submitting a letter with over 100 signatures, from across the Interior, showing individual support for SB 196. 10:25:01 AM PIPER FOSTER-WILDER, DEPUTY DIRECTOR, RENEWABLE ENERGY ALASKA PROJECT, ANCHORAGE (via teleconference), spoke in support of the legislation. She asserted that SB 196 would provide an opportunity to provide secure and predicable funding for renewable energy projects across the state. She recounted a brief history of the successes of the PCE fund. She stressed that the renewable energy fund provided significant savings, which would continue to occur regardless of the price of oil. She relayed that the funds that SB 196 would provide to renewable energy projects across the state was significant enough to continue to leverage private capital to build projects. She furthered that such public/private partnerships were crucial to Alaska's future. She urges the committee to pass SB 196, with the provision to use excess earnings to fund the renewable energy fund beginning 2016. Co-Chair MacKinnon CLOSED public testimony. 10:28:19 AM AT EASE 10:28:56 AM RECONVENED 10:29:00 AM Co-Chair MacKinnon looked at the fiscal note, which reflected a loss in 2015. She thought that further discussion of the fiscal note should occur after the bill was amended. 10:29:48 AM Vice-Chair Micciche asked whether the bill would take affect after the return reached 7 percent. Senator Hoffman replied that for several years he had advocated that the 7 percent was too high, and had recommended that the rate of return for investment should be 4.5 percent because investment decisions would have to be riskier at a 7 percent return. He believed that the prudent investment rule needed to be addressed as it related to the 7 percent investment. 10:31:21 AM Co-Chair MacKinnon said that the 7 percent was a cap that would ensure that no more than that was withdrawn. Senator Hoffman agreed, but felt that it should be clarified further that the number was not a "hard" number. He reiterated that it was important to be clear about the bill's intent, as well as what funds would be available. SB 196 was HEARD and HELD in committee for further consideration. Co-Chair MacKinnon discussed housekeeping.