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HomeMy WebLinkAboutRes 2014-05-PPF Regulations amendmentsTO: FROM: DATE: MEMORANDUM Board of Directors Alaska Energy Authority Sara Fisher-Goad \r. · "-) Executive Director Q ~ December 16 ,2014 SUBJECT: Power Project Fund (PPF) Regulations; Resolution No. 2014-05 Staff recommends the adoption of the attached regulations which will enable the Alaska Energy Authority ("AEA" or "Authority") to improve the administration of the Power Project Fund loan program. PPF Background The Power Project Fund (PPF) loan program is an AEA loan program established under Alaska Statute 42.45.01 0. The primary purpose of the PPF program is to provide loans to local utilities, local govemments or independent power producers for the development, expansion or upgrade of power facilities , including altemative energy and fossil fuel generation facilities, efficiency and conservation, heat recovery and bulk fuel storage. Loan te1ms are related to the life of the project and applicant preference, and interest rates range from a presumptive statutory rate (equal to the preceding 12-month average weekly yields of municipal bonds) down to zero . The interest rate may be reduced below the statutory rate if the Authority determines that the lower interest rate will allow a project to meet criteria for financial feasibility. The PPF loan program can also defer payments for up to 10 years. PPF loans of up to $2 million can be authorized by the PPF loan committee, which is comprised of the AEA Executive Director and the four Deputy Directors. Loans of more than $2 million but less than $5 million require AEA Board authorization. If a loan is $5 million or greater, or total state investment in the project is $5 million or greater, the applicant must receive approval from the legislature. Once legislative approval has been obtained, the AEA Board is responsible for making the final lending decision. The PPF program has helped numerous communities access funds to expand, improve and construct power generation facilities throughout the state. The current portfolio of loans made and pending range from $40,000 to pay for an in-frame overhaul of a diesel engine to $20 million to finance new hydro construction. PPF Proposed Regulations Changes Description of Regulations and Changes. The following describes the regulation changes, including changes the Authority made to the initial publicly noticed draft regulations. 3 AAC 106.1 OO(a)(6) requires the applicant to request specific loan te1ms, including if they are requesting a reduced interest rate. a ken e rgyaut h o rity. o rg 813 West Northern Lig hts Bouleva rd Anchorage. Alaska 9950 3 T 907.771.3000 Toll Free (Al aska O nly) 888.300.8534 F 907.771.3044 PPF Regulations Board memo December 16, 2014 Page 2 of 4    3 AAC 106.100(a)(7)(D) requires the applicant to provide a detailed description of the project, including its purpose, timelines, annual operating costs and revenues. 3 AAC 106.100(a)(8)(A) requires the applicant to provide information from which the authority can determine financial feasibility, the criteria for which are set forth under a new section, 3 AAC 106.125. 3 AAC 106.100(a)(10) requires financial statements for the prior two complete fiscal or calendar years. 3 AAC 106.100(c) was deleted due to redundancy with 3 AAC 106.100(a). 3 AAC 106.100(d) is a new subsection requiring applicants to provide information justifying a request for a reduced interest rate on a loan. 3 AAC 106.110(b)(1)(C) directs the authority to provide written analysis regarding financial feasibility of the project based on the criteria established in the new subsection of 3 AAC 106.125(a). 3 AAC 106.110(d) moves the requirement that the authority provide applicants with a written determination within 30 days of a final decision from subsection (e) to this subsection (d). 3 AAC 106.110(e) clarifies what needs to be included in a written determination approving an application. 3 AAC 106.110(h) is a new subsection specifying what needs to be included in a written determination denying an application. 3 AAC 106.120(a)(1) states that the loan must bear interest at the rate defined in statute unless the applicant provides sufficient information for the authority to determine that the project meets the criteria for financial feasibility defined in the new subsection 3 AAC 106.125(b). 3 AAC 106.120(a)(2)(A) is revised to include waste heat recovery, energy efficiency and conservation projects, solar thermal, solar PV, hydrokinetic, energy storage, transmission facilities and alternative energy facilities on the list of projects that can receive loans with up to a 20 year term. All of these projects were previously eligible under existing regulation. The change makes clear the maximum length of a loan for these types of projects. 3 AAC 106.120(a)(2)(B) is revised by deleting the MW cap on hydroelectric generation facilities which may receive financing through PPF. The existing regulations state that hydroelectric generation facilities are only eligible if they are designed to produce one MW or less of power. Elsewhere in existing regulations there is no limit to generation for PPF Regulations Board memo December 16, 2014 Page 3 of 4    alternative energy facilities, which are defined to include hydroelectric facilities. This change clears up any conflicting statements in the regulations. The originally proposed regulations added a new subparagraph 3 AAC 106.120(a)(2)(D) that reduced the 20- or 50-year loan terms for reconnaissance and feasibility studies to five years. However, in response to public comment by the Alaska Power Association that a five-year term may not be financially feasible for smaller rural utilities, the proposed subparagraph (D) has been removed from the final regulations. 3 AAC 106.125(a). This new section establishes criteria that the authority will consider when making a written determination under section 3 AAC 106.110 regarding the financial feasibility of a project. These criteria are summarized below:  The revenue generating capability of the project, including the local need for power from the project within any interconnected transmission grid.  Whether the applicant has, or will have, sufficient revenue from all sources to repay the loan; complete the project; and operate and maintain the project.  Whether the collateral provided is sufficient to secure repayment of the loan, including, but not limited to, whether the loan is secured by a means other than by a pledge or revenues of the project.  Whether the applicant has obtained regulatory approval for any proposed power sales agreement.  The relationship between the estimated user fees or charges upon completion of the project and the estimated user fees or charges if consumers of services provided by the project would have continued to receive services from existing sources.  The relationship between the estimated user fees or charges upon completion of the project and the present or estimated user fees or charges for similar services in the state. 3 AAC 106.125(b). This new section defines the criteria to be considered in establishing financial feasibility when making a determination about reducing the interest rate charged on a loan. These criteria are summarized below:  Whether and how much the local cost of energy exceeds the weighted average residential rate in Anchorage, Fairbanks, and Juneau under AS 42.45.110(c)(2).  The financial impact on non-industrial ratepayers expected to use energy or heat produced by the project.  Whether the project will provide immediate benefits to support the stability and sustainability of local energy or heat systems, including replacement of failing generation systems.  Whether the project will help meet new load demands or diversify the local energy system’s energy resource portfolio. 3 AAC 106.150 is a new section added to establish and define application fees, which are permitted under the Power Project Fund statute. Fees range from $200 for applications for loans up to $100,000, to $5,000 for loans of more than $1 million. Application fees are non- refundable but may be deducted from closing costs if the loan is approved. Closing costs are PPF Regulations Board memo December 16, 2014 Page 4 of 4    defined as 1% of total loan amount. This section also gives the authority the right to obligate the applicant to reimburse the authority’s costs associated with conducting a feasibility analysis for a proposed project. 3 AAC 106.900(a)(2) amends the definition of “financial feasibility” by referencing the new criteria established in 3 AAC 106.125. 3 AAC 106.900(c) is amended to add a definition of “alternative energy” to mean energy or fuel that is used for production of electricity, heat, or mechanical power, and that is derived from renewable or local sources other than liquid petroleum and includes: wind, solar, geothermal, hydroelectric, and biomass, as well as local sources of coal and natural gas. 3 AAC 106.900(d) amends the definition of “independent power producer” to define when an IPP qualifies as an eligible PPF borrower. The originally proposed regulation would have defined an eligible IPP by reference to the generation or production of energy “for sale to” residents, local government, or businesses in a municipality or unincorporated community. To clarify that the regulations do not provide for “energy sales,” AEA deleted “primarily for sale to” and replaced it with the original language, “for use by” residents, etc. Public notice and comment Public notice was published by newspaper and on the State of Alaska Online Public Notice System. The notice was also sent to the Alaska Power Association and the Alaska Independent Power Producers Association. A public hearing was held on November 3, 2014. The public notice period closed November 14, 2014. The comments made at the public hearing and received by the authority are provided in an attached matrix. Conclusion Staff recommends adoption of the proposed PPF regulations. The PPF loan program will serve an increasingly important role if grant funds for energy projects continue to decline. Attachments Proposed regulations; public comments and response matrix; Resolution 2014-05 ALASKA ENERGY AUTHORITY RESOLUTION NO. 2014-05 RESOLUTION OF THE ALASKA ENERGY AUTHORITY ADOPTING AMENDED REGULATIONS RELATING TO THE POWER PROJECT FUND LOAN PROGRAM WHEREAS, AS 42.45.010 establishes the Power Project Fund (“PPF”) loan program, the purpose of which is to provide loans to local utilities, local governments, or independent power producers for the development, expansion, or upgrade of power facilities, including alternative energy and fossil fuel generation facilities, efficiency and conservation, heat recovery, and bulk fuel storage; WHEREAS, pursuant to AS 42.45.010, the Alaska Energy Authority (the “Authority”) must adopt regulations to establish the standards, criteria, procedures, terms and conditions for making loans under the PPF loan program; WHEREAS, staff of the Authority has proposed that the regulations implementing the PPF loan program be amended as set forth in the proposed amendments to the Power Project Fund regulations attached to this resolution as Exhibit A (the “Regulation Amendments”); WHEREAS, the Regulation Amendments provide clarification for the administration of the PPF loan program, implement application and closing fees, establish criteria for financial feasibility, and provide additional guidance regarding loan terms; WHEREAS, the Authority provided public notice of the proposed regulations, solicited public comment through November 14, 2014, conducted a public hearing on November 3, 2014, and otherwise followed procedures required by the Administrative Procedures Act; WHEREAS, the time period for public comment has passed, and the Authority has reported about the oral and written public comment received and the consideration the Authority gave to each public comment in the “Record of Public Comments Received Dealing with Proposed Changes in Chapter 106 Article 1 of the Alaska Administrative Code, Relating to the Power Project Fund Loan Program” dated December 3, 2014; and Dealing with Proposed Changes in Chapter 106 Article 1 of the Alaska Administrative Code , Relating to the Power Project Fund Loan Program" dated December 3, 2014 ; and WHEREAS, the proposed regulations attached as Exhibit A reflect the originally proposed regulations , as revised by the Authority in response to public comments and further evaluation by the Authority. NOW, THEREFORE, BE IT RESOLVED BY THE ALASKA ENERGY AUTHORITY AS FOLLOWS: Section 1. The Board of Directors of the Authority adopts the Regulation Amendments, a copy of which is attached as Exhibit A. Section 2 . The Executive Director of the Authority is authorized and directed to file the regulations with the lieutenant governor, and take other steps necessary or desirable under the Administrative Procedures Act to make the regulations become effective. Section 3. This Resolution shall become effective immediately upon its passage and approval. DATED at Anchorage , Alaska, this ~day of December, 2014. Vzf~ · Chairman Secretary AEA Resolution No . 2014-05-PPF regulations Page 2