Legislature(2009 - 2010)BUTROVICH 205

03/09/2009 03:30 PM Senate RESOURCES

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Heard & Held
Heard & Held
            SB  31-GEOTHERMAL ELEC. PROD. TAX CREDIT                                                                        
CHAIR WIELECHOWSKI announced the consideration of SB 31.                                                                        
3:38:06 PM                                                                                                                    
SENATOR MCGUIRE said SB 31 is a production tax credit bill; it                                                                  
mirrors many other tax credits like the recent one for film                                                                     
production. It will offer a  2.1-cent per kilowatt hour incentive                                                               
to  invest  in  hydro,  wave,  biomass,  in-river,  solar,  wind,                                                               
geothermal,  and tidal  energy projects.  The bill  allows public                                                               
utilities and co-ops to earn  tax credit certificates that can be                                                               
traded on  the open  market. Many  utilities are  publicly owned,                                                               
and  Senator McGuire  wants to  incentivize their  investments as                                                               
well.  The bill  has received  widespread support  in Alaska  and                                                               
even  outside of  Alaska. Energy  producers from  as far  away as                                                               
Israel are looking to use this  tax credit to reduce the risks of                                                               
investing. Wind can be costly  and isn't predictable. One company                                                               
said this  is one of the  more costly areas in  the world. Alaska                                                               
doesn't  have   a  lot   of  the   geological  data   that  other                                                               
jurisdictions have.  She is  hoping the  tax credit  will attract                                                               
new  projects to  Alaska  and provide  an  incentive for  current                                                               
utility companies.                                                                                                              
3:41:54 PM                                                                                                                    
SENATOR HUGGINS moved  to adopt the committee  substitute (CS) to                                                               
SB 31, labeled 26-LS0217\N [Version N].                                                                                         
CHAIR WIELECHOWSKI objected for the purpose of discussion.                                                                      
TREVOR  FULTON,  Staff to  Senator  Lesil  McGuire, Alaska  State                                                               
Legislature, said the biggest difference  in the CS from the bill                                                               
that passed  out of the Senate  Energy Committee is to  limit the                                                               
tax  credit to  projects or  expansions that  come on  line after                                                               
January  1, 2010.  Senator Stedman  was concerned  that expansion                                                               
projects  were  excluded  from  the  tax  credit,  and  they  are                                                               
important  "so we  changed the  language  that would  accommodate                                                               
expansion  projects while  excluding existing  projects that  are                                                               
already  on line."  The  CS  also changes  the  definition of  an                                                               
energy producer  to require independent  power producers  to hold                                                               
an  RCA  [Regulatory  Commission of  Alaska]  certification.  "We                                                               
wanted to  make sure that  the bill  applied to not  just anybody                                                               
who sticks a  windmill or wind generator on their  house. We want                                                               
there to be a certain level of power production involved."                                                                      
3:44:32 PM                                                                                                                    
MR. FULTON said the  third set of changes in the  CS are based on                                                               
suggestions from the reviser and are not substantive.                                                                           
SENATOR STEVENS  asked if  an electric  association that  puts up                                                               
wind turbines before 2010 will be excluded from this tax credit.                                                                
MR. FULTON said  yes. The bill is to incentivize  taking a harder                                                               
look at the  resources that are available in  Alaska to determine                                                               
if there  can be a  viable project. In Senator  Stevens' example,                                                               
the association has  already decided it is a  viable project, and                                                               
the project won't need an incentive.                                                                                            
CHAIR WIELECHOWSKI  asked what  the tax credit  would cost  if it                                                               
were made retroactive.                                                                                                          
MR. FULTON said he doesn't know.                                                                                                
3:46:42 PM                                                                                                                    
DAN  STICKEL, Economist,  Tax  Division,  Department of  Revenue,                                                               
Juneau, said  according to  the U.S.  Department of  Energy there                                                               
are  1.3  billion  kilowatt  hours  of  alternative  energy  used                                                               
annually in Alaska.  If it all qualified for the  credit it would                                                               
cost $27 million per year for four years.                                                                                       
MR.  FULTON said  the  director of  the  Alaska Energy  Authority                                                               
(AEA)  said if  the bill  had no  exclusions it  would cost  $133                                                               
million in credits just for the Bradley Lake hydro project.                                                                     
SENATOR HUGGINS noted  the mention of unused tax  credits on both                                                               
page 2 and 3. "Are those two correlated to one another?"                                                                        
3:48:53 PM                                                                                                                    
SENATOR  HUGGINS  said the  bill  mentions  carrying the  credits                                                               
forward for 20 years.                                                                                                           
MR. FULTON said that is correct,  and he asked if Senator Huggins                                                               
was seeing a redundancy.                                                                                                        
SENATOR HUGGINS said  he doesn't know what sum of  money is being                                                               
considered "when  you start carrying  tax credits forward  for 20                                                               
years potentially."                                                                                                             
3:50:03 PM                                                                                                                    
MR. FULTON said there is  an indeterminate fiscal note because it                                                               
is difficult to predict. He  doesn't think anyone would stockpile                                                               
the tax credits for  20 years and then cash them  in all at once.                                                               
The  vast majority  of tax  credits issued  through this  program                                                               
would be sold  or traded on an  open market at a  lower cost than                                                               
their face value.                                                                                                               
SENATOR HUGGINS  said it seems  like a  long time until  2028. It                                                               
appears to be a pretty dark hole.                                                                                               
MR. FULTON said that date was  chosen because the bill sunsets in                                                               
2025, which  is the governor's  goal of  when to have  50 percent                                                               
renewable energy. Then there are four years to use the credit.                                                                  
SENATOR  FRENCH wanted  clarification  that the  credit given  to                                                               
expansions  of existing  systems  would be  applied  only to  the                                                               
expansion and not to the whole system that it is part of.                                                                       
3:52:16 PM                                                                                                                    
MR. FULTON said that is correct.                                                                                                
SENATOR FRENCH said Fire Island is  noted in the fiscal note. The                                                               
state will participate  in that, so will the state  provide a tax                                                               
credit  against investments  that are  funded by  the state?  The                                                               
bill may be over-stimulating certain projects.                                                                                  
MR. FULTON said that was  just brought to the sponsor's attention                                                               
and she may need to revisit that.                                                                                               
3:53:17 PM                                                                                                                    
TOM  LAKOSH,  Anchorage,  said he  recognized  the  problem  with                                                               
double funding,  and he submitted  language to  preclude projects                                                               
with a  subsidy of more than  50 percent of prior  funding. Other                                                               
amendments he  suggested is applying the  subsidy to conservation                                                               
and  to  make  the  subsidy applicable  to  anyone  who  produces                                                               
alternative fuel,  instead of just  limiting it to those  who get                                                               
the RCA  certificate. It is  important to encourage all  folks to                                                               
provide alternatives. He suggested  the following change: on page                                                               
2,  line 1,  after  "for  each kilowatt-hour"  add  "or per  each                                                               
15,000 BTUs of heat value".                                                                                                     
MR. LAKOSH suggested  a change in the definition on  page 3, line                                                               
6, by adding  "conservation". Rural Alaska is  having issues with                                                               
sustaining  cultures  and  communities because  of  heating  fuel                                                               
costs - not just electricity  costs. If they could produce biogas                                                               
or liquid biofuels,  "then we should be encouraging  that type of                                                               
sustainable  community instead  of  them having  to  pay out  for                                                               
imported fuel." And they should be encouraged to conserve.                                                                      
3:56:51 PM                                                                                                                    
MR. LAKOSH  said it is important  that the subsidy is  applied to                                                               
all alternative  energy producers. It discounts  Alaska ingenuity                                                               
to limit it  to those who get an RCA  certificate. He suggested a                                                               
two-tiered system that takes  environmental impacts into account.                                                               
There  is an  air quality  problem in  Fairbanks and  in Juneau's                                                               
Mendenhall   Valley.  He   suggested   a  base   subsidy  and   a                                                               
supplemental subsidy. The supplemental  subsidy could be adjusted                                                               
depending  on  adverse  impacts   to  the  environment,  such  as                                                               
particulate  pollution  or  wildlife  impacts,  so  that  unclean                                                               
biomass  or  wood burning  could  have  the  subsidy cut  off  in                                                               
specific  places.  There  could  be  an  adjustment  for  locally                                                               
produced fuels  that lead to  a sustainable community.  If you're                                                               
going  through  this process  of  social  engineering, this  bill                                                               
could ... provide  for those things that we  know are beneficial,                                                               
like improved  air quality and sustainability.  He encouraged the                                                               
committee members to look at his prior recommendations.                                                                         
3:59:38 PM                                                                                                                    
SENATOR   HUGGINS  asked   about   the   certificate  of   public                                                               
convenience on Page 3, line 9.                                                                                                  
MR. LAKOSH said  that should be stricken  because all independent                                                               
power  producers   who  are   producing  alternative   energy  or                                                               
conserving should be  allowed to collect that 2.1  cents based on                                                               
kilowatt hours or  BTUs. It would help bring down  energy use and                                                               
produce alternative energy.                                                                                                     
4:01:17 PM                                                                                                                    
SENATOR HUGGINS  asked if  a small energy  producer would  not be                                                               
eligible for the credit without the certificate.                                                                                
MR.  LAKOSH  said  that is  the  way  he  sees  it. It  is  gross                                                               
discrimination and cuts out Alaskans  with ingenuity who can help                                                               
us get down this road.                                                                                                          
SENATOR HUGGINS  asked Mr.  Fulton if this  was discussed  in the                                                               
Senate Energy Committee.                                                                                                        
MR. FULTON  said that wasn't  discussed in the committee,  but it                                                               
came  up later.  The sponsor  is trying  to target  projects that                                                               
will  generate  substantial  amounts  of  energy.  "We  certainly                                                               
understand the value  of smaller projects ... but  we think there                                                               
needs to be some sort of  threshold there so this program doesn't                                                               
get too unwieldy." He doesn't want  to put too much burden on the                                                               
tax  division. He  didn't  look  into how  the  program would  be                                                               
structured  for a  person  who  sells power  to  a neighbor.  "We                                                               
didn't explore that route."                                                                                                     
4:03:41 PM                                                                                                                    
SENATOR  HUGGINS said  a certificate  of need  in health  care is                                                               
rather burdensome.  It may be the  right answer, but he  hates to                                                               
get into the same challenge as  is in the health field "and suits                                                               
and all  those sorts of things  over who can and  who cannot." He                                                               
would like to discuss it with the sponsor.                                                                                      
SENATOR MCGUIRE said she would be happy to consider that.                                                                       
CHRIS ROSE, Executive Director,  Renewable Energy Alaska Project,                                                               
Anchorage,  said  his  group includes  61  Alaska  organizations,                                                               
including  small and  large utility  companies, consumer  groups,                                                               
environmental groups, Native  organizations, government agencies,                                                               
and businesses. There is a  policy committee that meets regularly                                                               
and it  supports the  bill. At the  federal level  the production                                                               
tax  has  been  probably  the most  important  incentive  to  get                                                               
renewable energy projects  built around the country.  It has made                                                               
a  huge  difference,  despite its  shortcomings,  to  incentivize                                                               
industry to build these projects. He has potential amendments.                                                                  
4:05:55 PM                                                                                                                    
MR. ROSE said  the credit should be a tiered  system based on the                                                               
population  the project  serves. In  the Railbelt  it may  cost 7                                                               
cents  to produce  a kilowatt  hour, so  a 2.1-cent  incentive is                                                               
huge -  almost 32 percent of  the cost of producing  that energy.                                                               
The cost of  producing energy in a village may  be 30 cents, even                                                               
without the overhead, so the 2.1-cent credit is small. A four-                                                                  
tiered  system  would  incentivize  projects  across  the  state.                                                               
Projects serving communities under 1,200  people should get a 10-                                                               
cent per kilowatt hour credit.  The co-op would probably sell the                                                               
tax credits at a discount. This tax  credit won't add up to a lot                                                               
of lost revenue because it won't include that many total people.                                                                
4:08:09 PM                                                                                                                    
MR. ROSE  said the second tier  would be for projects  that serve                                                               
1,500 to 7,000 people, such  as hub villages and communities with                                                               
a smaller population than Sitka. The  credit could be 7 cents per                                                               
kilowatt hour. The  third tier would include  projects that serve                                                               
communities between  7,000 and 40,000  people. That  will capture                                                               
the rest of  Alaska except for the Railbelt. The  credit could be                                                               
4 cents. The last tier would  include the grid that serves all of                                                               
the  Railbelt communities,  from Homer  to Fairbanks.  The tiered                                                               
system will provide incentives to  all the different communities.                                                               
He also suggested extending the  credit for more than four years.                                                               
The  federal production  tax  credit  is ten  years.  There is  a                                                               
concern of what this may cost  the state in lost revenues, and he                                                               
said estimates  can be done,  but ten years gives  more certainty                                                               
to the folks who are taking the risk to build these projects.                                                                   
4:10:04 PM                                                                                                                    
MR. ROSE  said his group  is not  quite sure about  the provision                                                               
that allows for  the tax credit to be given  to producers whether                                                               
they are using  the power or selling it.  The sponsor's intention                                                               
is  to incentivize  the production  of power  for industrial  and                                                               
other  uses. "We  see the  merit in  that; we're  concerned about                                                               
actually  tracking  the  kilowatt  hours  produced."  It  may  be                                                               
difficult to  track the  kilowatt hours of  a company  within its                                                               
own system. One way around that  is to have the producer obtain a                                                               
certificate from the  RCA and sell the power  back to themselves.                                                               
He is not  sure that the RCA will allow  that. The committee will                                                               
have  to  wrestle with  the  idea  of  the  tax credit  going  to                                                               
projects  that  get  other  forms  of  state  funding.  The  last                                                               
suggestion  is  to  call it  renewable  energy,  not  alternative                                                               
energy. That  definition is consistent with  the Renewable Energy                                                               
Grant Fund that was passed last  year. The definition in the bill                                                               
does  relate to  renewable  energy,  but it  is  good  to make  a                                                               
distinction between the two. So the title will need to change.                                                                  
4:12:08 PM                                                                                                                    
SENATOR HUGGINS  said the Legislative Budget  and Audit committee                                                               
approved $100  million worth  of projects. He  asked how  many of                                                               
those would be eligible.                                                                                                        
MR.  ROSE said  they would  all be  eligible unless  they are  in                                                               
before 2010. The CS may give  some incentive to wait. The credits                                                               
are tradable -  which is a very good thing  because most of these                                                               
entities don't pay  taxes. By setting a period of  time, like ten                                                               
years,  the bill  could say  that  every project  gets that  many                                                               
years. The  Bradley Lake project  has been in existence  for over                                                               
ten years and would not benefit because its ten years are up.                                                                   
4:13:59 PM                                                                                                                    
SENATOR HUGGINS said the RCA is  made up good people and some are                                                               
his  friends.   He  asked  about   "their  task   management  and                                                               
efficiency and ultimately being able to satisfy the public."                                                                    
MR. ROSE said  it is the same with other  agencies that deal with                                                               
energy in  the state. This  is big and  Alaska needs to  get more                                                               
people, and perhaps the RCA needs more resources.                                                                               
SENATOR STEDMAN asked what tax credit Sitka projects would get.                                                                 
MR. ROSE said his group came  up with the tier idea this morning.                                                               
The intent was to include Sitka in the second tier at 7 cents.                                                                  
SENATOR STEDMAN said Sitka,  Ketchikan, Wrangell, Petersburg, and                                                               
Juneau are all in the 10 or  11-cent range in kilowatts, so he is                                                               
curious why Mr. Rose is using a population category.                                                                            
4:16:13 PM                                                                                                                    
MR.  ROSE  said  different  ideas were  discussed,  and  everyone                                                               
wanted to use a percentage of  the cost of energy, but that might                                                               
be  politically and  administratively difficult.  His group  also                                                               
talked about the  size of projects, but a small  project could be                                                               
built in  Anchorage. He is not  wedded to the idea  of population                                                               
parameters. The cost of energy is  really the issue, and he wants                                                               
incentives for communities where costs are high.                                                                                
SENATOR STEVENS asked how tax credits are traded.                                                                               
MR.  ROSE said  there are  big corporations  in Alaska  that have                                                               
high tax  bills, and they would  be able to buy  the credits. The                                                               
nature  of the  market may  create competition  that would  bring                                                               
down  the price.  The federal  tax credit  doesn't have  the same                                                               
provision, and that has hurt the co-ops in Alaska.                                                                              
4:18:30 PM                                                                                                                    
SENATOR STEVENS asked if there would be a clearinghouse.                                                                        
MR.  ROSE  said there  are  already  provisions for  trading  tax                                                               
credits, but he isn't that familiar with them himself.                                                                          
SENATOR  HUGGINS said  oil and  gas production  tax credits  were                                                               
debated  for  hours.  He  believes   the  legislature  put  in  a                                                               
provision  where  the  state  could  buy  them  so  that  smaller                                                               
companies wouldn't  get gouged  by larger  ones. The  state would                                                               
then be a leveling mechanism.                                                                                                   
MR.  ROSE said  he needs  to look  into it,  but there  may be  a                                                               
disadvantage to  smaller, less  sophisticated entities  trying to                                                               
sell their credits to larger, more sophisticated ones.                                                                          
SENATOR HUGGINS asked about the RCA certificate.                                                                                
4:20:20 PM                                                                                                                    
MR. ROSE  said there is  a lot of  concern about net  metering in                                                               
Alaska. "If you don't require  the certificate, then you're doing                                                               
backdoor net metering  because you're giving some  kind of credit                                                               
back to  producers." It  is not true  net metering  where someone                                                               
gets  paid the  retail  price, but  it will  open  up that  whole                                                               
debate about  it. "We felt  it was a good  idea to have  either a                                                               
minimum amount  of production ...  or go to an  independent power                                                               
producer level and  have the RCA regulate it." He  doesn't have a                                                               
huge preference one way or the  other, whether it is a limit like                                                               
400 kilowatts  or if  it's an  IPP [independent  power producer].                                                               
"If it looks  like it's going to be very  difficult for all these                                                               
folks to apply  for IPPs, maybe that's too much.  If you allow it                                                               
to everybody,  then essentially you're  getting all the  way into                                                               
that other issue of net metering."                                                                                              
CHAIR WIELECHOWSKI set SB 31 aside.                                                                                             

Document Name Date/Time Subjects
SB 31 Bill Packet.pdf SRES 3/9/2009 3:30:00 PM
SRES 3/13/2009 3:30:00 PM
SB 31
SB 121 Bill Packet.pdf SRES 3/9/2009 3:30:00 PM
SRES 3/13/2009 3:30:00 PM
SB 121