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HomeMy WebLinkAboutMemo re REFAC 2018 Questions 8-15-2018MEMORANDUM STATE OF ALASKA DEPARTMENT OF LAW TO: Renewable Energy Fund Advisory Committee Cady Lister, Chief Economist, AEA DATE: August 15, 2018 ] THROUGH: FILE NO.: AN2016101883 FROM: Mary Lynn Macsalka Assistant Attorney General Labor and State Affairs, Anchorage SUBJECT: Questions Re: Administration of Renewable Energy Fund Grant Program Questions Presented and Short Answers: Due to a decline in legislative appropriations to renewable energy grant fund projects over the last several years, the Alaska Energy Authority (AEA) is exploring different ways to administer the renewable energy grant fund program. The Alaska Energy Authority’s staff has inquired whether statutory changes would be needed for certain options it is considering. This memorandum addresses two specific questions raised by AEA staff regarding administration of the renewable energy grant fund program and the requirements of the program’s statute (AS 42.45.045) and regulations (3 AAC 107.600-3 AAC 107.695). 1. May AEA make recommendations for renewable energy grants to the legislature only in years when there is money available in the renewable energy grant fund? Short answer: No. The renewable energy grant fund statute requires yearly recommendations to the legislature. There may also be unintended consequences to the funding for the program if recommendations to the legislature are not made each year. 2. May AEA decide to request applications for grants only every two to three years, instead of every year, depending on available or expected funding in the renewable energy grant fund? Short answer: Yes, consistent with advice we gave in 2016, AEA may choose to resubmit recommendations to the legislature for a second year or third year depending on funding expectations, instead of requesting new applications every year. REFAC August 15, 2018 Questions Re: Administration of REF Grant Program Page 2 Discussion and analysis: The Renewable Energy Grant Fund program (AS 42.45.045) was enacted in 2008, and was well funded for the first several years with legislative appropriations to grants totaling in the range of $25 million to $50 million each year. However, in 2015, the appropriations for Round VIII (FY16) of the program were significantly lower, around $11.5 million. Then, in 2016, the AEA and REFAC recommended 39 grants to the legislature for Round IX (FY17), but the legislature did not appropriate any funding to any of the Round IX recommended projects. The following year, in 2017, based on advice from our office,1 the AEA did not request a new round of grant applications, but instead submitted the same list of Round IX recommendations to the legislature. Again, the legislature did not fund any of the recommended projects for FY18. In 2018, for the first time, the Renewable Energy Grant Fund received $14 million from excess earnings of the Power Cost Equalization (PCE) Endowment Fund.2 This appropriation was made pursuant to AS 42.45.085(d)(2)(B), enacted in 2016, which allows excess earnings from the PCE Endowment Fund to be appropriated to specific state programs, including the renewable energy grant fund. The AEA submitted the Round IX list of recommendations to the legislature again in 2018, and the legislature appropriated $11 million in grants for FY19 to projects on the Round IX list. AEA staff is concerned about the burden and expense grant applicants incur to prepare grant applications each year when, due to the currently unpredictable funding climate, no or few grants are awarded. Staff would like to know whether a statutory change is required to make recommendations to the legislature only in years when the renewable energy grant fund is capitalized, and whether staff can continue to submit the same list of recommended projects to the legislature two to three years in a row as it did with the Round IX list. 1. May AEA make recommendations for renewable energy grants to the legislature only in years when there is money available in the renewable energy grant fund? No. The renewable energy grant fund statute, AS 42.45.045, requires the AEA to make grant funding recommendations to the legislature every year. The statute imposes two time-sensitive obligations on the AEA. First, “not later than 10 days after the first day of each regular legislative session”, the AEA must submit a report to the legislature summarizing and reviewing grant applications and prioritizing recommendations for 1 See July 11, 2016, Memorandum from Mary Lynn Macsalka, AAG, to REFAC. A copy of this memorandum is attached hereto for the REFAC’s reference. 2 Lines 24-25, p. 88, sec. 25, ch. 17, SLA 2018. REFAC August 15, 2018 Questions Re: Administration of REF Grant Program Page 3 grant awards.3 Second, “at least once each year”, the AEA must solicit funding recommendations from the REFAC.4 While we concluded in 2016 that the AEA was not required to solicit new grant applications each year, we advised then, and reiterate now, that the AEA must solicit from the REFAC recommendations for grant funding each year and make recommendations to the legislature each year. The statute imposes these obligations regardless of the balance in the renewable energy grant fund. To change whether reports and recommendations to the legislature are required every year based on the fund having a certain balance would require a statutory change. Unless and until such a change is made, the AEA and the REFAC must continue to carry out their statutory obligations to review applications and make recommendations to the legislature each year. Even though there were two recent years in which the legislature did not appropriate any amounts for renewable energy fund grants, this can change from year to year. Grants from the renewable energy fund are typically funded with budget year receipts, meaning the legislature appropriates money to the renewable energy fund for a particular fiscal year, and appropriates money from the renewable energy fund for specific grants effective in that same fiscal year. In other words, the legislature does not typically capitalize the renewable energy fund in one fiscal year and then wait until the next fiscal year to award grants from the balance appropriated in the prior year. Even if the AEA could choose not to submit grant recommendations to the legislature each year, doing so could have unintended consequences for the renewable energy grant fund. The legislature makes its funding decisions based on the prioritized list of grant application presented to it by AEA and REFAC each year. If the AEA did not submit a list of recommended grant projects, the legislature would may feel less compelled to consider appropriating funds to or from the renewable energy fund. A new factor affecting the renewable energy grant fund is the potential spillover from PCE endowment fund earnings. Under AS 42.45.085(d)(2)(B), enacted in 2016, if excess earnings from the PCE endowment fund are available, the legislature may appropriate up to $25,000,000 to the renewable energy grant fund, the bulk fuel revolving loan fund, or the rural power systems upgrades program. The legislature has full discretion to allocate the available excess earnings among those three programs. If AEA did not present recommended renewable energy grants to the legislature each year, the legislature may be more inclined to direct excess PCE earnings to the other two programs. 3 AS 42.45.045(d)(3) (emphasis added). 4 AS 42.45.045(e) (emphasis added). REFAC August 15, 2018 Questions Re: Administration of REF Grant Program Page 4 2. May AEA decide to request applications for grants only every two to three years, instead of every year, depending on available or expected funding in the renewable energy grant fund? Yes, consistent with advice we gave in 2016 (see attached July 11, 2016, memo), AEA may choose to submit the same list of recommendations to the legislature for a second year or third year depending on funding expectations, instead of requesting new applications and making a new list of recommendations to the legislature every year. All of the provisos and recommendations we made in the July 11, 2016, memo still apply if the AEA chooses to continue to do this. While resubmitting a list to the legislature for one or two years may be permissible, we do not recommend doing so if it can be avoided, and we definitely do not recommend submitting the same list more than three times for a number of reasons. First, while resubmitting a list and not issuing a request for applications may save applicants the cost of submitting new grant applications each year, it also deprives would-be applicants the opportunity to apply for renewable energy grants. Second, each year the AEA submits the same list, the list grows increasingly stale. Projects may have changed, work may have been done on projects with other funding, or conditions may have changed that make the project substantially different from what was originally presented in a grant application. If AEA and REFAC use a list more than once without reexamining the grant applications and status of proposed projects, the AEA and REFAC run the risk of resubmitting a list to the legislature that does not reflect the current reality of the projects on the list. A final consideration to keep in mind is that the legislature has full discretion to fund renewable energy grants each year whether or not there is money already available in the renewable energy grant fund. Moreover, the legislature has discretion whether or not to allocate excess PCE endowment fund earnings to the renewable energy grant fund. If the AEA wishes to change the administration of the renewable energy fund program to only request applications for grants and only make recommendations to the legislature in years when there is a certain balance in the fund, then legislation amending AS 42.45.045 would be necessary, and such a change may have the unintended consequences discussed above. If you have any additional questions about the requirements of the renewable energy grant fund statute or regulations, please let me know.