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HomeMy WebLinkAboutAlaska State Energy Corporation an Overview of the Restructuring Plan for the AEA March 16, 1992ALASKA STATE ENERGY CORPORATION AN OVERVIEW OF THE RESTRUCTURING PLAN FOR THE ALASKA ENERGY AUTHORITY MARCH 16 +1992 CHARLIE BUSSELL,Executive Director AEA S088 sae se SAE cepa cognac cesta sansa tec ser WALTER J.HICKEL,Governor THE ALASKA STATE ENERGY CORPORATION (A Restructuring Plan for the Alaska Energy Authority) An Overview of Plan Features and Proposed Legislation by The Alaska Energy Authority Charlie Bussell,Executive Director for use by The Office of The Governor Walter J.Hickel,Governor March 16,1992 92Q1\TJ2587(1) Nearly 16 years ago the legislature saw the narrow window of opportunity presented by the coming revenue windfall.They recognized that dollars generated by the extraction of a non-renewable resource (Prudhoe Bay oil)could be used to develop renewable energy supplies such as hydroelectric power.The Alaska Power Authority! (the Authority)was then created for the explicit purpose of developing Alaska's energy resources. This paper discusses the implications of reorganizing the Authority into the Alaska State Energy Corporation?(the Corporation),so that now,in the face of declining oil revenue,Alaska's energy needs could be better met.Once restructured,the Authority could provide a number of services,functions and features: 1.Legislative oversight of the Corporation would be ensured. Although the Corporation would not receive its operating budget funding through general fund appropriation,the Corporation would continue to be subject to the Executive Budget Act. 2.Administrative oversight of the Corporation would be maintained by continued Board of Directors authority over management policies. 3.In future years the restructured Authority would serve a purpose similar to that provided by the Rural Electrification Administration (the REA)during the development of the electrical infrastructure now serving the lower 48.Financial pro forma analysis of the Corporation's operations over the period 1993 through 2013 forecasts loan subsidies for energy | lajaska Statute Title 44,Chapter 83 enacted in 1976.That statute was amended by Executive Order #75,in 1989,changing the name of the Authority from the "Alaska Power Authority"to the "Alaska Energy Authority”. 2Upon restructuring the name of the Authority would be changed to the Alaska State Energy Corporation.This new name better reflects the reorganized Authority's purpose and mandate. 92Q1\TJ2587(2) infrastructure development to be about $100 million.That $100 million in loan subsidies translates to a subsidized loan program providing $10 to $20 million a year in low-cost energy loans. 4,Capital Projects would be presented to the legislature for approval complete with project financing plans.Current capital projects planning forecasts a program that would result in more than one billion (1991)dollars in construction over the next 20 years.Average annual spending,in inflated dollars should be about $100,000,000 per year. The graphic on the facing page compares programmed capital spending by region to Power Cost Equalization program spending over the 20 year period 1993 through 2013 by region. Total programmed capital spending (1993-2013): $1,140,000,000 in 1991 dollars Regional distribution of spending: 18%spent in Central/Interior 76%spent in Southeastern 6%spent in Northern and Western Alaska 5.In future years,no general fund appropriations for capital, operating or Power Cost Equalization program budgets will be required.Financial pro forma analysis provides the expenditure of $320 million in grants and assistance to rural communities over the next 20 years;this amount is exclusive of loan subsidies.Additionally,the Corporate financial program calls for $8.25 million to be invested in demand side energy management programs,state wide,over the period 1993 through 2001. 6.The Corporation would aggressively build power grids throughout Southeast and Central/Interior Alaska and tie villages in rural Alaska together to increase efficiency of operation and reduce cost. 92Q1\TJ2587(3) Southeastern Northern/Western Central/Interior Leverage Capital =$176 million Total Capital Construction =$1,167 million Northern/Western Central/nterior Southeastern PCE Replacement Program (RECAP over 20 years)=$310 million 7.The Corporation would export excess power generated by hydroelectric projects to Canadian markets. 8.The Corporation would act as facilitator for the construction of new generation plants. Adapting to Change Since its creation the Authority has reorganized itself a number of times.Each organizational change was undertaken to adapt the Authority's way of doing business to a changing role in the development of Alaska's energy production and delivery systems. Back in the late 1970s and early 1980s the Authority's role was to identify,design and construct large hydroelectric projects.With the decline in construction of large projects by the mid-1980s3,and a greater legislative emphasis on rural energy concerns,the Authority reorganized to become more responsive to that change in mandate. Over the past 5 years the mission of the Authority has evolved to that of manager of a broad array of energy-related programs'.With this new mandate,the Authority now functions as a reactive agency of State government;planning from legislative session to legislative session. As the state's primary energy agency,the Authority has served,and is now serving,a necessary role that benefits both private and public sectors.The Authority could however,take a more active role in shaping Alaska's energy future.With restructuring,the Corporation could better predict its annual revenue and gain access to a broader range of project financing methods;methods that do not rely on appropriations from the general fund. 3During the past 5 years the only large project undertaken by the Authority has been the construction of the Bradley Lake Hydroelectric Project. 4Power Cost Equalization Program,Power Project Loan Fund,Rural Electrification and waste heat project to namea few. 92Q1\TJ2587(4) The Purpose of the Alaska State Energy Corporation The purpose of the Alaska State Energy Corporation would remain unchanged from that cited in the 1976 legislation which created the Authority.The restructuring,however,would sharply focus on the specific mission's corporate objectives.The mission of the Corporation would continue to be to: Reduce energy costs to all Alaskans. Encourage long-term economic development within the State. Facilitate the development of energy policy. Enhance,modernize and expand the energy infrastructure of the State. Programs and Revenue In the past,capital projects have been financed by either direct appropriation from the general fund or a combination of loans and/or appropriation together with bond sale proceeds.In addition,"conduit financing"has made possible the construction of $39 million in powerhouse facilities constructed at Galena and Glennallen.In the future,the Corporation would seek out alternative sources of financing so that projects could be financed without legislative appropriation. Loan and financing policy is a matter for the Board of Directors; however,given the mission of the Corporation,it is reasonable to assume that before a utility would be able to participate in the Corporation's loan and assistance programs it would have to demonstrate how such participation could benefit the energy consumer.The Corporation would look for energy rate reductions, increased reliability or availability as an element of program qualification. 5 Projects owned by others have been financed by using the proceeds of revenue bonds issued through the Authority to finance the project. 92Q1\TJ2587(5) The long-term expense of the Power Cost Equalization (PCE) program must be considered even in light of diminishing state revenues.An adequately endowed and restructured Authority would be able to continue funding the PCE program's annual costs without perpetual appropriation from the general fund.The restructuring plan,however,proposes to replace the current PCE program with the Corporation's Rural Energy Cost Assistance Program (RECAP). Benefits to participants in RECAP include:concentrating program resources at the utility level rather than toward individual customers, providing incentives for utility cost improvements and passing resulting savings on to individual consumers,providing access to low-cost/no- cost loan programs,and providing a technical assistance program designed to meet the needs of smaller utilities. Actions of the Legislature Attached to this overview paper is a draft bill designed to accomplish the legislative requirements of restructuring the Authority to the Alaska State Energy Corporation.Assistant Attorney General for Governmental Affairs,James L.Baldwin,esq.,prepared the following analysis of that draft legislation: Section1.This section adds new provisions to AS 44.83 (enabling act for the AEA)that (1)creates a revolving fund in the AEA that would give the authority the ability to transfer amounts between existing funds and accounts.The provisions of this section are modeled after a similar section in the enabling statute of AIDEA.This kind of power is useful for accumulating assets in a single account to enhance the credit of a bond offering. 92Q1\TJ2587(6) (2)make it clear that (a)|the AEA is a public corporation of the state, therefore,exempt from the prohibition against assistance to private corporations set out in AS 37.10.085; (b)is not a municipal corporation;and (c)except for its operating budget,is exempt from the state fiscal procedures act. (3)affirms that AEA money is not state money;and exempts the AEA from regulation as a bank or insurance company. (4)|makes only the operating budget of the AEA subject to the Executive Budget Act -this means that the capital program of AEA would be totally "off budget"similar to the majority of the financial activity of AIDEA and AHFC. (5)|Exempts AEA from most of AS 37 (fiscal procedures Act)and the all statutes regulating the use and disposal of state land. Section 2.Changes the title of the executive director to president.This is consistent with the name change of the Alaska Energy Authority to the Alaska State Energy Corporation. Section 3.Deletes the requirement that the AEA obtain the concurrence of the state legislature before it contracts with a foreign country to finance a power project. Section 4.Makes the same amendment as section 3 for the purchase of power from a project located in a foreign country. 92Q1\TJ2587(7) Section 5.Deletes the requirement that appropriations be insufficient before the authority may determine to issue bonds to finance a power project. Section 6.Expands the power development fund by deleting the provision that requires the fund to be kept separate from other funds.Allows the board of directors to direct money to the fund by resolution. section 7.Allows repayments of principal and interest on loans made from the power project fund to be retained in the fund.Under existing law these assets and receipts are paid into the state general fund.It would be advisable to appropriate the underlying loans to the AEA to avoid the dedicated fund prohibition. Section 8.Substitutes the AEA for the legislature as the entity with the authority to forgive loans made for an infeasible power project. Section 9.Permits the AEA to use amounts in the power project fund to pay the cost of administration.Because the operating budget of the AEA would be subject to the executive budget Act,this amendment would not relieve the AEA from obtaining an appropriation from the legislature. Section 10.Allows the rural electrification revolving loan fund to retain repayments of interest. Section 11.Deletes the requirement that interest earned on rural electrification loans be paid into the state general fund. 92Q1\TJ2587(8) Section 12.Permits the AEA to use amounts in the rural electrification revolving loan fund to pay the cost of administration.Because the operating budget of the AEA would be subject to the Executive Budget Act,this amendment would not relieve the AEA from obtaining an appropriation from the legislature. Section 13.Expands the electrical service extension fund by deleting the provision requiring the fund to be kept separate from other funds.Allows the board of directors to direct money to the fund by resolution. Section 14.Deletes reference to the source of funding of the power development fund as_being legislative appropriations. Section 15.Changes the name of the power development fund to the energy development fund. Section 16.Makes the AEA responsible for the investment of the power development fund.Deletes provisions that make the Department of Revenue responsible for the custody and investment of power development fund assets. Section 17.Allows the AEA to include a reasonable rate of return in the wholesale cost of power charged for AEA power projects.This would serve as a revenue source to fund other AEA activities. Section 18.Allows the AEA to include a reasonable rate of return in the separate power rate charged for AEA intertie projects.This would serve as a revenue source to fund other AEA activities. 92Q1\TJ2587(9) Section 19.Expands the purpose for which the power development revolving loan fund may be used by deleting reference to certain statutes describing limited activities. Section 20.Permits the AEA to use amounts in the bulk fuel revolving loan fund to pay the cost of administration. Because the operating budget of the AEA would be subject to the Executive Budget Act,this amendment would not relieve the AEA from obtaining an appropriation from the legislature. Section 21.Allows the AEA to deposit fees and collection charges earned under the bulk fuel loan program to be deposited and retained in the bulk fuel revolving loan fund rather than be paid into the state general fund. Section 22.The following statutes would be repealed: (1) 44.83.080(16)(G):allowing the AEA to recommend appropriations to finance projects financed under the Energy Program for Alaska; (2) 44.83.361(h)requiring the lapse of unexpended and unobligated balance of the rural electrification revolving loan fund on June 30 of each year; (3) 44.83.388 requiring the AEA to maintain records of allotments fro the power project fund for each project financed by the fund;Requires earnings on investment of the fund to be paid into the state general fund; (4)44.83.390 allows the legislature to reappropriate amounts in the power project fund for another power project serving the same market area as the original project; 92Q1\TJ2587(10) (5) 44.83.392 requires the lapse of excess appropriations made for a project after the project is constructed; (6) 44.83.398(c)requires AEA to send receipts earned from the four dam pool (other than pledged amounts)to the general fund;and (7) 44.83.950(a)making the AEA subject to the Executive Budget Act. In addition to the foregoing bill,it would be necessary to enact a bill appropriating the balance of the railbelt energy (intertie)fund and other assets of the AEA's funds to the AEA. 92Q1\TJ2587(11) DRAFT LANGUAGE for Alaska Energy Authority Restructuring Legislation 92Q1\TJ2587(12) *Section1.AS 44.83 is amended by adding a new sections to read: Sec.44.83...ALASKA STATE ENERGY CORPORATION REVOLVING FUND.The Alaska State Energy Corporation revolving fund is established in the corporation.The revolving fund consists of appropriations made to the revolving fund by the legislature,money or other assets transferred to the revolving fund by the corporation, and unrestricted payments on loans made or purchased by the corporation.The board of directors may establish operations and self insurance reserve accounts within the revolving fund.Unless otherwise expressly stated,the funds created in this chapter are accounts in the revolving fund. The corporation may create additional funds or accounts either within the revolving fund or outside the fund.Subject to agreements made with the holders of the corporation's bonds or with other persons,the corporation may transfer amounts in a fund or account in the fund to another fund or account in the revolving fund.Amounts deposited in the fund may be pledged to the payment of bonds of the authority or expended for the purposes of the authority under this chapter. Sec.44.83...OPERATION OF CERTAIN STATUTES EXCEPTED.(a)The authority may not be considered or constitute (1)a political subdivision of the state as the term is used in AS 37.10.085,(2)a municipal corporation or political subdivision of the state as the terms are used in AS 29,or (3)except as provided in AS 44.88.000 (Executive Budget Act coverage),a state agency as the term is used in AS 37,but for all other purposes the authority constitutes a political subdivision and an instrumentality of the state as provided in this chapter. (6)The fund,income or receipts of the authority may not be considered or constitute money of the state,or may real property in which the authority has an interest be considered land owned in fee by the state or to which the state may become entitled or in any way land belonging to the state,or state land referred to in article Vill of the Alaska Constitution. (c)A loan purchased or financed by the authority in whole or in part is exempt from the provisions of AS 45.45.010.A guarantee or insurance provided under this chapter does not constitute insurance for the purposes of AS 21.03.010. Sec.44.83.__.COMPLIANCE WITH EXECUTIVE BUDGET ACT;AUTHORITY FINANCES.The operating budget of the authority is subject to AS 37.07 (Executive Budget Act). Sec.44.83.___.APPLICATION OF EXISTING LAWS. Unless specifically provided otherwise in this chapter,the following laws do not apply to a the operations of the corporation: (1)AS 37.05; (2)AS 37.07; (3)AS 37.10.010 --37.10.060; (4)AS 37.10.085: (5)AS 37.20 (6)AS 37.25; (7)AS38; *Sec.2.AS 44.83.045(c)is amended to read: (c)The authority shall employ a_president [AN EXECUTIVE DIRECTOR]who may,with the approval of the authority,employ additional staff as necessary.In addition to its staff of regular employees,the authority may contract for and engage the services of legal and bond counsel, consultants,experts,and financial and technical advisors the authority considers necessary for the purpose of conducting studies,investigations,hearings,or other proceedings.The board of directors shall establish the compensation of the president [EXECUTIVE DIRECTOR].The president [EXECUTIVE DIRECTOR]of the authority is subject to the provisions of AS 39.25. *Sec.3.AS 44.83.080(10)is amended to read: (10)to enter into contracts with the United States or any person and,subject to the laws of the United States [AND SUBJECT TO CONCURRENCE OF THE LEGISLATURE],with a foreign country or its agencies,for the financing,construction,acquisition,operation and maintenance of all or any part of a power project,either inside or outside the state,and for the sale or transmission of power from a project or any right to the capacity of it or for the security of any bonds of the authority issued or to be issued for the project; *Sec.4.AS 44.83.080(11)is amended to read: (11)to enter into contracts with any person and with the United States,and,subject to the laws of the United States [AND SUBJECT TO THE CONCURRENCE OF THE LEGISLATURE],with a foreign country or its agencies for the purchase,sale,exchange,transmission,or use of power from a project,or any right to the capacity of it; *Sec.5.AS 44.83.105 is amended to read: Sec.44.83.105.BONDS FOR POWER PROJECTS UNDER THE ENERGY PROGRAM FOR ALASKA._The authority may borrow money and issue its bonds for the acquisition or construction of power projects to be acquired or constructed under the energy program for Alaska.The principal of and interest on the bonds are payable from money derived from the sale of wholesale power from power projects financed under AS 44.83.380 --44.83.425 from the power development fund or from a source referred to in AS 44.83.100 as the authority determines.The bonds may be issued if [((1)APPROPRIATIONS TO THE POWER DEVELOPMENT FUND FOR THE POWER PROJECT ARE INSUFFICIENT TO COVER THE COST OF ACQUIRING OR CONSTRUCTING THE POWER PROJECT;AND (2)]the authority determines that the amount of interest the authority will pay on its bonds is not more than alternative costs of securing money from other sources, except from [FOR]the general fund,to pay for the acquisition or construction of the power project. *Sec.6.AS 44.83.170(a)is amended to read: (a)There is established [AS A SEPARATE FUND]the power project fund [THAT SHALL BE DISTINCT FROM ANY OTHER MONEY OR FUNDS OF THE AUTHORITY,AND] that includes [ONLY]money appropriated by the legislature and other money deposited in the fund or provided in a resolution adopted by the board of directors. *Sec.7.AS 44.83.170(g)is amended to read: (g)Loan repayments and interest earned by loans from the power project fund shall be deposited in the power project [STATE GENERAL]fund. *Sec.8.AS 44.83.170(h)is amended to tead: (h)The corporation [LEGISLATURE]may forgive the repayment of a loan made from the power project fund for a reconnaissance study or a feasibility study when the board of directors [AUTHORITY]finds that the power project for which the loan was made is not feasible. *Sec.9.AS 44.83.170(i)is amended to read: (i)Money in the power project fund may be used [BY THE LEGISLATURE TO MAKE APPROPRIATIONS]for costs of administering the fund. *Sec.10.AS 44.83.361 (a)is amended to read: (a)The rural electrification revolving loan fund is established in the Alaska Energy Authority.The fund consists of (1)appropriations made to the fund;and (2)principal and interest payments on loans made under this section. *Sec.11.AS 44.83.361(c)is amended to read: (c)A loan from the rural electrification revolving loan fund shall bear an annual rate of interest of two percent of the unpaid balance of the loan.[INTEREST RECEIVED ON A LOAN MADE UNDER THIS SECTION MUST BE TRANSFERRED MONTHLY TO THE COMMISSIONER OF REVENUE FOR DEPOSIT IN THE GENERAL FUND.] *Sec.12.AS 44.83.361(g)is amended to read: (g)Money in the rural electrification revolving loan fund may be used [BY THE LEGISLATURE TO MAKE APPROPRIATIONS]for costs of administering the fund. *Sec.13.AS 44.83.370(a)is amended to read: (a)The electrical service extension fund is established [AS A SEPARATE FUND]in the authority.The fund consists [ONLY]of money appropriated to it by the legislature and amounts deposited_in_the fund by a resolution adopted by the board of directors. *Sec.14.AS 44.83.380(b)is amended to read: (b)The energy program for Alaska is a program by which the authority may acquire or construct power projects with money in_the Energy Development Fund [APPROPRIATED BY THE LEGISLATURE TO THE POWER DEVELOPMENT FUND]established in AS 44.83.382.A power project may be acquired or constructed as part of the energy program for Alaska only if the project is submitted to and approved by the legislature in accordance with procedures set out in AS 44.83.177 --44.83.187. *Sec.15.AS 44.83.382 is amended to read: AS 44.83.382.ENERGY [POWER]DEVELOPMENT FUND ESTABLISHED.(a)An_energy [A POWER] development fund is established in the Alaska Energy Authority to carry out the purposes of AS 44.83.380 -- 44.83.425. (b)The fund includes money appropriated to it by the legislature and_amounts_deposited _in_the fund by resolution adopted by the board of directors. *Sec.16.AS 44.83.386 is amended to read: Sec.44.83.386.INVESTMENT OF FUND.The corporation [DEPARTMENT OF REVENUE]shall invest the money in the fund in accordance with AS 37.10.070, 37.10.071,and 37.10.075.{THE DEPARTMENT OF REVENUE SHALL PROVIDE MONEY IN THE FUND TO THE AUTHORITY ONLY AFTER COSTS HAVE BEEN INCURRED OR AMOUNTS IN THE FUND HAVE BEEN OTHERWISE OBLIGATED UNDER CONTRACTS FOR THE ACQUISITION AND CONSTRUCTION OF A PROJECT.AMOUNTS THAT HAVE BEEN OBLIGATED,BUT FOR WHICH COSTS HAVE NOT YET BEEN INCURRED,MAY BE SEGREGATED BY THE DEPARTMENT OF REVENUE OR TRANSFERRED TO THE AUTHORITY ONLY WITH THE PRIOR APPROVAL OR AGREEMENT OF THE COMMISSIONER OF REVENUE. INCOME RECEIVED ON MONEY THAT IS SEGREGATED OR TRANSFERRED UNDER THIS SECTION MUST BE DEPOSITED IN THE GENERAL FUND.] *Sec.17.AS 44.83.398(b)is amended to read: (6)The authority shall establish a wholesale power rate structure applicable to sales of power to the customers of a power project as follows: (1)the authority shall establish and maintain a separate wholesale power rate applicable to each power project that it has acquired or constructed under the energy program for Alaska,other than a project described in (f)of this section;the wholesale power rate established by the authority for the initial project shall be a rate calculated under this paragraph except that the portion of the rate applicable to (A)and (C)of this paragraph shall be adjusted for the hydroelectric facilities in the initial project as set out in (3)of this subsection;the wholesale power rate shall be computed by the authority annually,or more frequently as may be necessary,and shall equal the rate that the authority estimates is necessary to produce revenue that is sufficient to pay (A)operation,maintenance,and equipment replacement costs of the power project; (B)the power project's proportionate share of the debt service on state loans and bonds for all power projects in the energy program for Alaska,determined in accordance with (g)of this section; (C)safety inspections and investigations of the power project by the authority; and (D)a reasonable rate of return; (2)[Repealed,§7 ch 169 SLA 1984.] (3)for the purposes of determining amounts to be allocated to each hydroelectric facility in the initial project under (1)(A)and (1)(C)of this subsection,the authority shall determine for each hydroelectric facility its individual operation,maintenance,equipment replacement, safety inspection,and investigation costs. *Sec.18.AS 44.83.398(f)is amended to read: (f)The provisions of (b)in this section do not apply to an intertie that is authorized as a separate project under AS 44.83.380.The authority shall establish and maintain separate power rate schedules applicable to each intertie that it has acquired or constructed as a separate power project under the energy program for Alaska.The power rate schedules shall produce sufficient revenue from utilities connected by the intertie to pay (1)operation,maintenance, and equipment replacement costs of the intertie;(2)debt service of the intertie;[AND](3)safety inspections and investigations of the intertie by the authority;and (4)a reasonable rate of return.If the authority determines that an intertie has ceased to function as a separate project and has become a part of one or more other power projects as a transmission line,the power rate schedules established under this subsection shall be terminated and a wholesale power rate applicable to the former intertie shall be calculated under (b)of this section for the project or projects of which it has become a part. *Sec.19.AS 44.83.500(a)is amended to read: Sec.44.83.500.CREATION OF FUND.(a)There is established in the Alaska Energy Authority the power development revolving loan fund[TO CARRY OUT THE PURPOSE OF AS 44.83.500 --44.83.530.THE FUND MAY BE USED FOR NO OTHER PURPOSE]. *Sec.20.AS 44.83.600(b)is amended to read: (6)Money in the fund may be used [BY THE LEGISLATURE TO MAKE APPROPRIATIONS ]for costs of administering this chapter. *Sec.21.AS 44.83.630 is amended to read: Sec.44.83.630.FEES.The authority may collect the fees and collection charges established under AS 44.83.625 and shall deposit the money in the Bulk Fuel Revolving Loan Fund [GENERAL fund]. *Sec.22.AS 44.83.080(16)(G);AS 44.83.361(h);AS 44.83.388,44.83.390,44.83.392,44.83.398(c)and 44.83.950(a)are repealed. *Sec.23.This Act takes effect July 1,1992.