Legislature(2009 - 2010)BUTROVICH 205

03/13/2009 03:30 PM Senate RESOURCES

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved SB 58 Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSSB 121(RES) Out of Committee
Moved CSSB 31(RES) Out of Committee
            SB  31-GEOTHERMAL ELEC. PROD. TAX CREDIT                                                                        
3:48:02 PM                                                                                                                    
CO-CHAIR   WIELECHOWSKI   announced   SB   31  to   be   up   for                                                               
CO-CHAIR MCGUIRE, sponsor of SB 31,  moved to adopt CS for SB 31,                                                               
labeled  26-LS0217\D,  as  the working  document.  There  was  no                                                               
objection and version D was before the committee.                                                                               
CO-CHAIR  MCGUIRE  explained  that  version  D  is  a  result  of                                                               
testimony from  the last  meeting. The  amount of  the production                                                               
tax credit  to a graduation  system that  ties the tax  credit to                                                               
the  retail cost  of  power  for a  community  in  Sec. 2(a)  was                                                               
changed to equal 15 percent of  the retail electricity rate for a                                                               
given  community. The  tax  credit  is a  minimum  of  2.1 and  a                                                               
maximum of  5 cents per kWh.  She explained that the  change ties                                                               
the amount  of the  production tax  credit to  the cost  of power                                                               
rather than the power plant  capacities or community populations.                                                               
It has  the advantages of  a tiered system without  the arbitrary                                                               
thresholds. The  original bill had a  flat rate of 2.1  cents per                                                               
kWh irrespective of  the utility rate in any  given community and                                                               
Sec. 2(a)(2)  was removed;  it allowed  power producers  to claim                                                               
the tax  credit if  they used the  electricity they  produced for                                                               
their own commercial purposes.                                                                                                  
CO-CHAIR MCGUIRE said the intent of  the bill is to encourage the                                                               
production and  distribution of  electricity to  communities that                                                               
need it the most. This  ensures that the power being incentivized                                                               
by the tax  credit makes it onto  the grid and into  the homes of                                                               
Alaskans  and   it  addresses  the  industry   concern  of  power                                                               
producers  claiming   the  tax  credit  by   simply  selling  the                                                               
electricity to themselves in a cyclical fashion.                                                                                
Sec.  2(b)  changes the  number  of  years  the credit  could  be                                                               
claimed from  4 to 5 years.  The concern was that  10 years would                                                               
add up  to massive subsidies; 4  to 5 years was  a middle ground.                                                               
They don't have  a figure for the amount of  the subsidy, because                                                               
they  don't  know   what  kind  of  energy   production  will  be                                                               
Sec.  2(g) caps  the aggregate  amount of  tax credit  plus state                                                               
grants at 10  percent of the capital cost of  a given project can                                                               
be  claimed. This  prevents over-subsidization  of projects  that                                                               
are eligible  for both  the production tax  credit (PTC)  and the                                                               
Renewable Energy Fund grants.                                                                                                   
Sec. 2(k)(2) changes the definition  of "energy producer" so that                                                               
independent  power  producers  are   not  required  to  obtain  a                                                               
Certificate  of Public  Convenience and  Necessity from  the RCA.                                                               
Senator  Huggins' concern  was that  they would  be limiting  the                                                               
eligibility  of  projects to  power  plants  with the  production                                                               
capacity of 100 kWh or more.                                                                                                    
3:52:54 PM                                                                                                                    
Sec. 2(k)(3)  changes all occurrences of  "alternative energy" to                                                               
"renewable  energy".  This  is   moving  toward  a  more  federal                                                               
definition of  renewables and they want  to be sure that  the PTC                                                               
program reflects the change to renewable energy.                                                                                
All sections moved  the tax credit language from  AS 43.98, which                                                               
is revenue,  taxation and miscellaneous  provisions to  AS 43.20,                                                               
which is  revenue and taxation,  but under the Alaska  Net Income                                                               
Tax. This was recommended by  the Tax Division because it ensures                                                               
that the credit  is applicable only against  the corporate income                                                               
tax and not any other state taxes that might accrue.                                                                            
3:54:53 PM                                                                                                                    
MERRA KOHLER, President/CEO,  Alaska Village Electric Cooperative                                                               
(AVEC), said they  are a non-profit electric  utility that serves                                                               
53 villages.  They are also proud  to take the lead  in the state                                                               
to  develop  renewable  energy  projects  to  serve  their  small                                                               
communities.   They  now   have  wind   projects  serving   seven                                                               
communities. Two  more are  going on  line this  year and  two or                                                               
three  more again  next year.  She supported  the intent  of this                                                               
bill. She  pointed out that  their most difficult project  in the                                                               
last couple  of years has been  a 300 kW project,  which consists                                                               
of three 100  kW machines. They have achieved as  high as a 25-30                                                               
percent penetration  of renewable energy into  their conventional                                                               
systems.  A project  that is  300 kW  in size  in a  remote rural                                                               
village costs  approximately $4 million  - including  the control                                                               
equipment that is needed to interface with the diesel system.                                                                   
She said  a 5  cent kWh  production tax  credit over  a five-year                                                               
period would translate into a  total credit of $197,000, a modest                                                               
percentage of the  total cost of the project. So,  she urged them                                                               
to  keep a  10  cent  kWh limit.  Otherwise,  a  lot fewer  large                                                               
projects would consume a much  larger chunk of the production tax                                                               
3:57:53 PM                                                                                                                    
She  also  said  an  immediate   effective  date  would  be  very                                                               
beneficial  because of  two AVEC  projects that  will go  on line                                                               
this year including a small hydro project in Southeast Alaska.                                                                  
3:58:39 PM                                                                                                                    
SENATOR  STEVENS asked  if  the January  1  effective date  would                                                               
delay the starting date for the projects.                                                                                       
MS. KOHLER  replied that she didn't  think so, but if  delaying a                                                               
project  for three  would  net another  $200,000,  they might  be                                                               
inclined to  put it off.  They could absorb operating  costs from                                                               
the system for another three or four years.                                                                                     
CO-CHAIR WIELECHOWSKI said he has  concluded that "the 2 cents is                                                               
pretty generous; the 5 cents  is extremely generous; the 10 cents                                                               
was  a lot."  He and  Mr.  Fulton tried  to figure  out what  the                                                               
subsidy would be  for 1 mgW hydro  plant and they came  up with a                                                               
half million dollars a year in tax credit.                                                                                      
TREVOR FULTON,  staff to Senator  McGuire, added that  it depends                                                               
on  the size  of  the project,  but it  could  amount to  several                                                               
millions of dollars.                                                                                                            
4:01:51 PM                                                                                                                    
CHRIS  ROSE  supported  Ms.  Kohler's   comments  on  SB  31.  He                                                               
supported  an  immediate  effective  date  and  suggested  middle                                                               
ground between 5 and 10 cents.                                                                                                  
DAN  STICKEL, Petroleum  Economist,  Department  of Revenue,  was                                                               
available to answer fiscal note questions.                                                                                      
4:03:49 PM                                                                                                                    
TOM  LAKOSH thanked  them for  adopting  the 15  percent that  he                                                               
recommended. However, he  said they made a  miscalculation in how                                                               
it would be  applied and that would cause them  to reconsider the                                                               
5-cent and 5-year limit.                                                                                                        
He explained that what happens when  you have a 15 percent of the                                                               
retail  rate subsidy  is that  as  soon as  the renewable  energy                                                               
comes  on line,  it  lowers  the rate  at  which  the utility  is                                                               
charging for its  per kilowatt. So, the  rate falls precipitously                                                               
immediately.  So  the  second  year   when  the  retail  rate  is                                                               
recalculated, the  subsidy goes  way down,  because they  are now                                                               
taking 15 percent of a much  cheaper cost. So this isn't as large                                                               
a subsidy as they assume. He advised:                                                                                           
4:06:34 PM                                                                                                                    
     In  order  to give  enough  incentive  to move  to  the                                                                    
     renewable  resource,  you  need to  have  this  heavily                                                                    
     front loaded  so that because  as soon as  they produce                                                                    
     cheap energy, their subsidy essentially goes away.                                                                         
The same  situation happens with  the five-year  recovery period.                                                               
Because the utility cost is  recalculated every year, the subsidy                                                               
goes  way down  as soon  as  it comes  on  line. This  is a  real                                                               
problem, and he suggested upping the  limit on capital costs to a                                                               
maximum  total  subsidy of  20  percent,  because it's  extremely                                                               
expensive  to develop  these projects  in  rural communities.  If                                                               
they get  the subsidy upfront,  companies will be  competing with                                                               
each other to  fully replace the diesel so they  can get the full                                                               
10 cents the first year.                                                                                                        
4:10:04 PM                                                                                                                    
DOMINIC  LEE, CEO,  Little Susitna  Engineering and  Construction                                                               
Company, said  two kinds of  people want  to use the  tax credit.                                                               
The non  profits want to  sell the  credit to somebody  else, but                                                               
the private for profit companies would  like to keep it to reduce                                                               
their  tax. His  private  for profit  project organization  would                                                               
like the  state to give them  longer term, like 10  years, but at                                                               
half the rate - 2.5 cents.                                                                                                      
4:11:50 PM                                                                                                                    
Another concern, he said, is  their project has funding available                                                               
right now, but  they will lose the $2.8 billion  from their Asian                                                               
investor  if  they can't  find  money  for  the $10  million  AEA                                                               
feasibility study.                                                                                                              
CO-CHAIR WIELECHOWSKI closed public testimony.                                                                                  
4:13:01 PM                                                                                                                    
SENATOR STEVENS asked how many households 100 kW serves.                                                                        
MR. ROSE replied roughly 100 households.                                                                                        
SENATOR  STEVENS said  he  was concerned  that  the subsidy  only                                                               
applies to  projects placed into  service on or after  January 1,                                                               
2010. The Kodiak Electrical Association  has been planning a wind                                                               
project for  five years  and this  summer installed  the concrete                                                               
foundations  for three  wind mills  on Pillar  Mountain and  will                                                               
install  the towers  next year.  This effective  date would  make                                                               
them  miss the  opportunity  to  receive a  tax  credit by  three                                                               
months. The  credit for Kodiak  would amount to $1.2  million. He                                                               
said their goal  is not to retard  the use of wind  power, and it                                                               
would make sense to change the effective date to July 1.                                                                        
4:16:44 PM                                                                                                                    
SENATOR STEVENS  moved to  change the effective  date to  July 1,                                                               
2009 on page 2, lines 14 and  16. There were no objections and it                                                               
was so ordered.                                                                                                                 
4:18:19 PM                                                                                                                    
CO-CHAIR  MCGUIRE moved  to report  CS for  SB 31,  version D  as                                                               
amended,  from  committee  with  individual  recommendations  and                                                               
attached fiscal  note(s). There being no  objection, CSSB 31(RES)                                                               
moved from committee.                                                                                                           

Document Name Date/Time Subjects
CS for SB 121 (Version W).pdf SRES 3/13/2009 3:30:00 PM
SB 121
CS for SB 121 (W) compared with (P).doc SRES 3/13/2009 3:30:00 PM
SB 121
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
SB 31 - Blank CS (Version D).pdf SRES 3/13/2009 3:30:00 PM
SB 31
SB 31 - Explanation of Changes (Version D).doc SRES 3/13/2009 3:30:00 PM
SB 31
SB 58 - Bill Packet.pdf SRES 3/13/2009 3:30:00 PM
SB 58