Legislature(2003 - 2004)

03/04/2004 09:05 AM CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 515-MUNICIPAL WATER AND SEWER UTILITIES                                                                                    
CHAIR MORGAN announced that the  first order of business would be                                                               
HOUSE  BILL  NO. 515,  "An  Act  relating  to the  regulation  of                                                               
municipal  water  and sewer  utilities  not  in competition  with                                                               
other water and sewer utilities."                                                                                               
REPRESENTATIVE  ANDERSON,  as  chair   of  the  House  Labor  and                                                               
Commerce Standing  Committee, sponsor  of HB 515,  explained that                                                               
HB 515  would exempt the  Anchorage Water and  Wastewater Utility                                                               
(AWWU)  from regulation  by the  Regulatory Commission  of Alaska                                                               
(RCA).    In   Alaska,  no  other  municipally   owned  water  or                                                               
wastewater utility  is regulated  by the RCA,  save Pelican.   He                                                               
noted  that  Pelican  requested   regulation  of  its  wastewater                                                               
utility by  the RCA.   Representative  Anderson related  that the                                                               
Municipality  of  Anchorage  (MOA)   believes  that  current  RCA                                                               
regulation  processes   are  cumbersome,  slow,   expensive,  and                                                               
nonresponsive to Anchorage's needs.   The ratepayers are required                                                               
to pay  for the expensive  RCA regulatory process as  a surcharge                                                               
on  the  ratepayer's  monthly bill,  regardless  of  whether  the                                                               
ratepayer's utility has a case  pending.  For example, from 1993-                                                               
2003  AWWU didn't  have a  rate increase  before the  RCA or  its                                                               
predecessor,  the  Alaska  Public  Utilities  Commission  (APUC).                                                               
However,  AWWU ratepayers  have paid  a regulatory  assessment to                                                               
the RCA as  a part of every  bill.  In 2004,  AWWU ratepayers are                                                               
projected to  pay about  $500,000 to the  RCA, which  would cover                                                               
the  costs  of  regulation,  or  lack  thereof.    Representative                                                               
Anderson pointed out  that the greatest costs appear  in the form                                                               
of regulatory delay in obtaining approval of a requested change.                                                                
REPRESENTATIVE   ANDERSON  highlighted   that  MOA   is  directly                                                               
accountable to the ratepayers served  by its utilities.  He noted                                                               
that  MOA has  experienced  successful  regulation of  enterprise                                                               
activities,  such  as  the Port  of  Anchorage.    Representative                                                               
Anderson pointed out  that municipal public hearings  are held on                                                               
any  proposed  rate  increase.    In this  case  HB  515  changes                                                               
existing law by adding  lines 5-8, on page 2.   He noted that MOA                                                               
supports this [legislation].                                                                                                    
Number 0419                                                                                                                     
MARK  PREMO,  General  Manager, Anchorage  Water  and  Wastewater                                                               
Utility (AWWU), began by noting that  he has held his position as                                                               
general manager  since 1990.   Mr.  Premo provided  the following                                                               
     I am testifying  this morning in support  of House Bill                                                                    
     515.   This bill would  exempt AWWU from  regulation by                                                                    
     the RCA and place it in  the same status as every other                                                                    
     municipally  owned  water  and  wastewater  utility  in                                                                    
     Alaska, except one.                                                                                                        
     First,  some   background:     AWWU  is   two  separate                                                                    
     utilities, both  subject to  economic and  surface area                                                                    
     regulations by  the RCA.   The water utility,  a former                                                                    
     City  of   Anchorage  utility,   has  been   under  RCA                                                                    
     regulation since  inception of the  APUC in 1970.   The                                                                    
     Anchorage Sewer  Utility, which  was formerly  owned by                                                                    
     the  greater  Anchorage-area borough,  was  voluntarily                                                                    
     submitted  to the  APUC  for regulation  in  1971.   An                                                                    
     umbrella  organization,   AWWU,  was  formed   in  1975                                                                    
     following   unification   of    the   Municipality   of                                                                    
     Anchorage.    The  Municipality of  Anchorage  in  1991                                                                    
     petitioned  the  then-APUC  to   exempt  AWWU  and  its                                                                    
     electric utility  from regulation.   The  commission is                                                                    
     split  evenly by  a  2 to  2 vote  on  the question  of                                                                    
     exempting the  electric utility and AWWU.   The opinion                                                                    
     by the  commissioners opposing self-regulation  at that                                                                    
     time  site competition  by the  municipality's electric                                                                    
     utility and  telephone utility with other  utilities as                                                                    
     the primary reason why AWWU  should remain regulated by                                                                    
     the  state.   No  commissioner  suggested  then or  has                                                                    
     since suggested that competition  between the water and                                                                    
     wastewater was  present.  Nor is  there any competition                                                                    
     there today.                                                                                                               
     The  municipality   decided  its  exemption   from  RCA                                                                    
     regulation for  two broad reasons.   First, the current                                                                    
     RCA  regulation process  and  procedures  are slow  and                                                                    
     expensive.  From  1993 to 2003, AWWU  never requested a                                                                    
     rate  increase.   Yet, in  fact,  AWWU ratepayers  have                                                                    
     paid   approximately   $2.8   million   to   regulatory                                                                    
     assessments  to the  RCA during  this period  (indisc.)                                                                    
     every monthly  bill, and are projected  to pay $485,000                                                                    
     in 2004 ... to cover  the cost of regulation.  However,                                                                    
     the greater  cost to AWWU  and its customers is  in the                                                                    
     form  of  the  cost preparing  filings  and  regulatory                                                                    
     (indisc.).   History  shows  that  local regulation  is                                                                    
     faster,  less structured,  and  more  economical.   Our                                                                    
     second  reason  is  that current  RCA  regulations  and                                                                    
     procedures are  nonresponsive to local needs.   The RCA                                                                    
     process  is  very  structured.   The  RCA  process  was                                                                    
     designed  for public  utilities and  it's not  entirely                                                                    
     appropriate for municipal  utilities.  The municipality                                                                    
     is  more  responsive to  local  needs  and is  directly                                                                    
     accountable  to the  ratepayers who  are served  by the                                                                    
     utility.   These customers  are also  municipal voters.                                                                    
     Public  hearings are  held by  the municipality  on all                                                                    
     rate matters.   I ask the committee's  support of House                                                                    
     Bill  515,   self-regulation  has   worked  effectively                                                                    
     across the  nation and in other  Alaska communities and                                                                    
     in Anchorage.   Actually,  Anchorage has  regulated its                                                                    
     own  public  utilities for  many  more  years than  the                                                                    
     state regulators.  The Municipality  of Anchorage has a                                                                    
     proven  track  record  of successfully  regulating  the                                                                    
     Port  of  Anchorage,  Merrill Field,  and  Solid  Waste                                                                    
     Services.     All   are   financially  strong,   highly                                                                    
     reputable enterprises  that provide  excellent customer                                                                    
     service.   AWWU  has provided  its customers  excellent                                                                    
     service; low,  stable rates; and sound  finances.  Over                                                                    
     the  years  the  mayor  and assembly  have  made  sound                                                                    
     decisions  in   their  oversight  of  AWWU   and  other                                                                    
     municipally owned  utilities.  In conclusion,  with the                                                                    
     passage  of House  Bill  515,  municipal regulation  of                                                                    
     AWWU  will balance  customer protection  with financial                                                                    
     soundness and AWWU will continue  to operate on a sound                                                                    
     business basis.                                                                                                            
Number 0824                                                                                                                     
MARK  JOHNSON,  Commissioner,  Chair,  Regulatory  Commission  of                                                               
Alaska  (RCA), Department  of  Community  & Economic  Development                                                               
(DCED), noted  that he  worked with  Mr. Premo  [for the  City of                                                               
Anchorage] about 15 years ago.   Mr. Johnson characterized HB 515                                                               
as legislation that  represents a fundamental policy  call on the                                                               
part  of  the  legislature.   Obviously,  there  are  policy  and                                                               
political dimensions to this legislation.   He said that he would                                                               
address  the policy  issues today.   Mr.  Johnson mentioned  that                                                               
there  may  be  some  dispute   with  regard  to  the  amount  of                                                               
regulatory  cost  charge (RCC)  payments  from  AWWU to  the  RCA                                                               
because  the RCA  places [AWWU's]  payments from  last year  at a                                                               
little less than  what Mr. Premo suggested.  However,  he said he                                                               
didn't want to get bogged down in a discussion of who pays what.                                                                
MR.  JOHNSON  related  the  RCA's   perspective  that  there  are                                                               
benefits to  RCA jurisdiction over  [AWWU].  The  primary benefit                                                               
has been  relative rate stability  over time.   There has  been a                                                               
suggestion  that  AWWU  has  paid for  services  that  it  hasn't                                                               
received.    However,  Mr.  Johnson pointed  out  that  the  true                                                               
beneficiary  of the  process  isn't the  utility  but rather  the                                                               
consumers.    As  a  result of  the  RCA's  composite  regulatory                                                               
approach, the consumers of water  and sewer services in Anchorage                                                               
have  benefited significantly  from having  stable rates  over an                                                               
extended period time.   Although Mr. Johnson opined  that AWWU is                                                               
a relatively  well-run utility, he  emphasized that  removing RCA                                                               
jurisdiction would result in  a fundamentally different framework                                                               
for the consideration  of rates for a significant  portion of the                                                               
state's population.  He suggested  that the benefits [of removing                                                               
RCA's  jurisdiction]   may  be  unclear.     For  example,  under                                                               
municipal  regulations rate  changes  would occur  with a  simple                                                               
adoption  of  an  ordinance  by  the  Anchorage  Assembly.    The                                                               
aforementioned is a fundamentally  different process than that of                                                               
the  RCA, which  bases its  decisions on  considerable detail,  a                                                               
written record,  and impartial commissioners who  sit independent                                                               
of one another.                                                                                                                 
MR.  JOHNSON commented  that the  alternative regulation  process                                                               
[proposed in  HB 515] isn't  particularly well suited  to address                                                               
some complex issues such as  rate discrimination, whereas the RCA                                                               
is well  suited and  constituted to conduct  inquiries on  such a                                                               
basis.   Furthermore, the RCA  believes it  does a good  job with                                                               
such [inquiries] and  is probably prepared to  deal with problems                                                               
inherent  in   municipal  operations,   such  as   assessing  the                                                               
reasonableness  of payments  in  lieu of  taxes.   Recently,  the                                                               
municipality  instituted  a  major  change  in  its  approach  to                                                               
[payments  in lieu  of taxes].   He  indicated that  some of  the                                                               
resulting  questions will  be  regarding when  an  exaction is  a                                                               
payment  from a  municipally  owned utility.   Further  questions                                                               
will  be  regarding  the  amount  of the  fee  and  whether  it's                                                               
reasonable.   Under municipal regulations,  the RCA  believes the                                                               
aforementioned  questions, that  is  the  line between  municipal                                                               
taxes [and utility expenses], will be blurry.                                                                                   
MR.  JOHNSON opined  that the  RCA has  special expertise  and is                                                               
uniquely situated to address issues  that pertain to service area                                                               
disputes.  Within  MOA there are entities that  provide water and                                                               
sewer service,  but aren't part  of AWWU,  he noted.   He further                                                               
opined  that   the  RCA  is   in  a  good  position   to  address                                                               
consolidation issues.   The  RCA, he  related, believes  that its                                                               
regulation of  AWWU has generally  been beneficial  to consumers,                                                               
which the RCA believes is  where the legislature should focus its                                                               
attention.    Mr.  Johnson acknowledged  that  Anchorage  is  the                                                               
largest municipal  water and sewer entity  subject to regulation.                                                               
However,  the  vast majority  of  water  and sewer  customers  in                                                               
Alaska are subject to RCA jurisdiction.                                                                                         
Number 1355                                                                                                                     
REPRESENTATIVE CISSNA inquired as to  situations in which the RCA                                                               
has utilized its regulatory authority.                                                                                          
MR. JOHNSON  informed the  committee that the  RCA serves  as the                                                               
appropriate  contact for  public complaints  regarding water  and                                                               
sewer  services by  AWWU  customers.   Over  the  last couple  of                                                               
years,  the RCA  has  received 18  complaints  of various  types.                                                               
Since 1989, there have been  69 filings, including tariff issues,                                                               
made by AWWU  before the RCA.  These matters  take time, he said.                                                               
Mr. Johnson  mentioned that  the RCA has  just considered  a rate                                                               
increase that  is in  connection with  the [municipal  payment in                                                               
lieu of taxes].   The RCA has  allowed the rates in  this case to                                                               
go  into effect  on  a temporary  basis,  although the  permanent                                                               
rates are  suspended pending  an investigation by  the RCA.   Mr.                                                               
Johnson  clarified,  "Certainly,  ...  it's  not  been  intensive                                                               
relative  to  this  utility  [AWWU] over  the  last  decade,  but                                                               
certainly  the  activity,  in  our estimation,  is  going  to  be                                                               
picking up."                                                                                                                    
REPRESENTATIVE  CISSNA  related  her   understanding  that  if  a                                                               
utility has any change  at all, it has to approach  the RCA.  She                                                               
inquired as to what the 18 complaints and 69 filings look like.                                                                 
MR. JOHNSON said  that he could forward [the  committee] the list                                                               
of tariff  filings.  The  most recent  filing from AWWU  was very                                                               
well  prepared.   However, these  are detailed  issues addressing                                                               
the  revision of  services to  particular  customers; how  people                                                               
hook up to  the utility; the rates charged for  hooking up to the                                                               
utility.  The filings are quite varied, he stated.                                                                              
Number 1703                                                                                                                     
REPRESENTATIVE  SAMUELS  turned  to  a situation  in  which  AWWU                                                               
wanted  a rate  increase  or  decrease, and  inquired  as to  the                                                               
mechanism  or  process the  municipality  would  have to  address                                                               
MR. PREMO, with regard to the  type of filing, answered that from                                                               
1992 [to present] AWWU could  account for three different type of                                                               
filings based on  the workload for the RCA.   One type of filing,                                                               
such as for a rate increase,  would require detailed work.  There                                                               
are  also filings  that require  low  to moderate  work, such  as                                                               
minor  service   area  questions,   tariff  rule   questions,  or                                                               
miscellaneous fee  questions.  Furthermore, there  are the annual                                                               
filings, such  as the annual RCC  rate increases.  From  1992 [to                                                               
present] there  were five in-depth  filings regarding  rate cases                                                               
and the  cost of  service.   In the low  to moderate  work level,                                                               
there were  13 filings.   However, there  were 48 filings  in the                                                               
category of  routine, annual work.   Therefore, since  1992 there                                                               
were 129  filings, with only  five being classified  as requiring                                                               
in-depth work.                                                                                                                  
MR. PREMO  turned to the  process for rate setting  envisioned in                                                               
Anchorage.   There  have been  extensive  conversations with  the                                                               
mayor and  the chair  of the Anchorage  Assembly on  this matter.                                                               
The aforementioned parties are in  agreement that a better way to                                                               
do business  needs to be established.   He expressed the  need to                                                               
create  a  structure  that  [allows]  full  engagement  with  the                                                               
customers and  runs as  a business  enterprise with  a long-term,                                                               
healthy  organization.    This  points   to  a  strong  board  of                                                               
governance.   He  likened  the structure  to  the ATU  [Anchorage                                                               
Telephone Utility]  board in the  late 1990s.  He  specified that                                                               
he envisioned a  board with rate-setting powers  along with three                                                               
to   four   steps  that   would   require   concurrence  of   the                                                               
administration  and the  assembly through  an ordinance  process.                                                               
[Those  steps]  would  specifically discuss  [AWWU's]  long-range                                                               
financial plan and  annual budget.  Mr. Premo  clarified that the                                                               
strong board governance  model would go through  the rate process                                                               
similar to  the RCA, including holding  public hearings regarding                                                               
the rate case.   Additionally, the standard accounting principles                                                               
that  apply in  [AWWU's] filings  with RCA  will remain  the same                                                               
with the board.                                                                                                                 
REPRESENTATIVE SAMUELS asked whether  AWWU is self-sufficient, or                                                               
receives  state or  municipal money.   He  asked if  AWWU pays  a                                                               
dividend to the municipality.                                                                                                   
MR. PREMO  replied that AWWU  does receive money from  the state,                                                               
but  he pointed  out that  it's related  to the  capital program.                                                               
With  regard to  operating  dollars, AWWU  is  100 percent  self-                                                               
sufficient.   The rates  cover the operating  expenses.   At this                                                               
time  AWWU doesn't  pay  a dividend  to  the general  government,                                                               
although AWWU  does pay money  to the general  government through                                                               
the "IGC" formula  for services it provides.   Additionally, AWWU                                                               
pays a payment in lieu of taxes.                                                                                                
Number 2019                                                                                                                     
CRAIG  GOODRICH, Deputy  Fire Chief,  Anchorage Fire  Department,                                                               
testified in  support of HB  515 and  AWWU.  Mr.  Goodrich opined                                                               
that  no one  has a  "bone  to pick"  with the  RCA, rather  it's                                                               
merely a matter of philosophy.   He noted that the Anchorage Fire                                                               
Department  works   hand-in-hand  with  AWWU  as   water  is  the                                                               
department's  primary   source  of  extinguishing  fires.     Mr.                                                               
Goodrich pointed  out that  the Anchorage  Fire Department  has a                                                               
direct and constant interface with  the water utility.  He opined                                                               
that  [AWWU]  has  exercised   exemplary  service  and  primarily                                                               
focuses on  customer service.   Therefore, he  reiterated support                                                               
for HB 515.                                                                                                                     
Number 2108                                                                                                                     
ROBERT  LOHR,  Office of  Management  &  Budget, Municipality  of                                                               
Anchorage,  informed  the committee  that  he  was the  executive                                                               
director  of the  APUC from  1991-1999  and now  is advising  the                                                               
mayor  of  Anchorage on  utility  regulatory  issues.   Mr.  Lohr                                                               
opined that there  is real value in what the  RCA does.  However,                                                               
the  legislature  has  essentially,   on  balance,  decided  that                                                               
municipally  owned utilities  are  exempt from  rate service  and                                                               
practice regulation,  that is economic  regulation by  the state.                                                               
He  noted that  there are  exceptions to  that rule  in cases  in                                                               
which  any one  utility directly  competes with  another utility.                                                               
For example, if  Municipal Light & Power sold  wholesale power to                                                               
Fairbanks and Chugach Electric, a  cooperative, and also wants to                                                               
sell  power   to  Fairbanks,  then   one  could  argue   that  is                                                               
competition.    Under  AS   42.05.711(b)  all  municipally  owned                                                               
utilities  of  Anchorage are  required  to  be regulated,  simply                                                               
because  of the  competition on  the  power end.   However,  this                                                               
legislation would  change the aforementioned standard  to specify                                                               
that the exemption applies as  long as the utility itself doesn't                                                               
directly  compete with  another  water or  sewer  utility.   This                                                               
legislation  would have  the effect  of exempting  one additional                                                               
water  and sewer  utility from  economic regulation  by the  RCA.                                                               
Mr.  Lohr  turned  to  the  power  of  the  commissioner  to  set                                                               
boundaries, and  noted that the  service area boundaries  for all                                                               
utilities would  be retained.  Therefore,  the exemption wouldn't                                                               
speak to certificate boundaries, which  the RCA would continue to                                                               
regulate as it would interconnection disputes.                                                                                  
REPRESENTATIVE  ANDERSON highlighted  that  no  other [water  and                                                               
sewer] utilities  are regulated  by RCA, other  than the  City of                                                               
Pelican, which requested RCA regulation.   Furthermore, AWWU is a                                                               
political  subdivision  and if  the  rates  were increased  by  a                                                               
couple   of   dollars,   there  could   be   a   public   outcry.                                                               
Representative  Anderson  applauded the  job  the  RCA does,  but                                                               
noted that  the RCA process  can be intimidating.   Moreover, the                                                               
accessibility  of the  hearing process  is a  bit more  difficult                                                               
than  a hearing  process in  Anchorage.   Representative Anderson                                                               
opined that it's  easier [to keep the regulation of  AWWU] in the                                                               
city, where it would be uniform.                                                                                                
Number 2371                                                                                                                     
REPRESENTATIVE ANDERSON moved  to report HB 515  out of committee                                                               
with  individual  recommendations  and  the  accompanying  fiscal                                                               
notes.   There being no objection,  HB 515 was reported  from the                                                               
House Community and Regional Affairs Standing Committee.                                                                        

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