Legislature(2001 - 2002)

06/24/2002 03:13 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 3001                                                                                                           
                                                                                                                                
     "An Act setting  timelines for issuance  of final orders                                                                   
     by  the Regulatory  Commission of  Alaska, amending  the                                                                   
     authority   of  the  Commission   to  enter   compromise                                                                   
     settlement  orders,   and  extending   the  Commission's                                                                   
     termination date to June  30, 2006; and providing for an                                                                   
     effective date."                                                                                                           
                                                                                                                                
Vice-Chair  Bunde MOVED  to  ADOPT work  draft,  22-LS1841\C.                                                                   
There being NO OBJECTION, it was so ordered.                                                                                    
                                                                                                                                
In response to a question by Representative  Hudson, Co-Chair                                                                   
Mulder  noted that the  Regulatory Commission  of Alaska  has                                                                   
already been funded in the operating budget.                                                                                    
                                                                                                                                
WILLIAM  M.   NUGENT,  PRESIDENT,  NATIONAL   ASSOCIATION  OF                                                                   
REGULATORY    UTILITY   COMMISSIONERS    (NARUC),    provided                                                                   
information relating  to HB 3001. He noted  that the question                                                                   
is  whether the  Regulatory Commission  of  Alaska should  be                                                                   
continued  should it  sunset.  He noted  that  there are  two                                                                   
questions  that should be  addressed [in  order to  derive an                                                                   
answer]. The  first question  is: "Do  you want a  regulatory                                                                   
body to  operate in  Alaska, protecting  the rate payers  and                                                                   
the shareholders  who have invested  in an Alaskan  utility?"                                                                   
This  becomes a  question of  operation  under a  traditional                                                                   
rate of return  regulation or whether a choice  is being made                                                                   
to  restructure the  industry.  He noted  that  he could  not                                                                   
answer the  that question.  The second  question is:  "Do you                                                                   
want this Commission?"                                                                                                          
                                                                                                                                
Mr.  Nugent  observed  that Alaskan  commissioners  are  well                                                                   
regarded  by their  colleagues  outside  of the  state.  They                                                                   
aggressively  push Alaskan issues.   He  thought that  if the                                                                   
previous questions were answered  in the affirmative that the                                                                   
Commission should  be reauthorized now. He added  that if the                                                                   
decision  was  to  discontinue  the life  of  the  Regulatory                                                                   
Commission  of  Alaska that  it  would  still be  prudent  to                                                                   
extend its operation  at this time. Regulated  companies that                                                                   
require  authorization  from the  Commission  to operate  and                                                                   
change the  terms and conditions  of their service  offerings                                                                   
and rates would  be left in a questionable  position with the                                                                   
failure to extend. He noted that  entities need to know where                                                                   
to get information regarding regulation.                                                                                        
                                                                                                                                
Mr. Nugent  pointed out  that the  attention of the  existing                                                                   
Commission  would  be diverted  by  the uncertainty  if  it's                                                                   
continuation  after  June  30,   2003  was  in  question.  He                                                                   
observed that the Regulatory Commission  of Alaska could lose                                                                   
staff [due to their uncertainty]  and pointed out that issues                                                                   
concerning continuance  would be the same as  for any private                                                                   
industry whose future was somewhat cloudy.                                                                                      
                                                                                                                                
Representative  John  Davies  questioned  if Mr.  Nugent  was                                                                   
familiar   with  the  Telecommunications   Act.  Mr.   Nugent                                                                   
affirmed  that he  had  dealings with  the  Telecommunication                                                                   
Act.  He discussed  the  latitude of  states  once they  have                                                                   
decided  that a  market should  be competitive  to set  rules                                                                   
about bundling and rates of return.  Congress left the policy                                                                   
issues  largely with  the Federal  Communications  Commission                                                                   
(FCC) and a substantial burden  on state Commissions, who are                                                                   
typically  closer   to  each   of  the  telephone   companies                                                                   
operating  around  the  country  to  analyze  and  set  total                                                                   
element long-run incremental costs  (TELRIC) rates and to off                                                                   
comments to the  FCC as to how competition  was developing in                                                                   
the  state. This  often  involved extensive  proceedings,  as                                                                   
occurred in  Maine, between the  telephone companies  and the                                                                   
various local exchange carriers  as to how competition was to                                                                   
develop.   State   commissions   are   charged   to   oversee                                                                   
competition,   which   was   envisioned   and   embodied   in                                                                   
agreements,  and  to  monitor service  quality  standards  to                                                                   
assure that the  public receives the services  for which they                                                                   
have agreed  to pay. He noted  that the entrance  of numerous                                                                   
competitors due  to the Telecommunication Act,  which created                                                                   
a new competitive environment,  has complicated issues. There                                                                   
has been  a three-fold  increase  in the volume  of cases  in                                                                   
Maine during the past 11 years.                                                                                                 
                                                                                                                                
In  response  to  a question  by  Representative  Croft,  Mr.                                                                   
Nugent observed that Verizon is  the dominant provider in the                                                                   
state of Maine.  It's service territory covers  85 percent of                                                                   
the state.  Verizon is dominant  in all of the  urban centers                                                                   
and  has   approximately  90   percent  of  the   subscribers                                                                   
throughout their service area.                                                                                                  
                                                                                                                                
Representative  Croft  questioned  if  there  is  a  dominant                                                                   
carrier  in most  areas  throughout  the nation.  Mr.  Nugent                                                                   
noted that there is a larger proportion  of competition among                                                                   
smaller carriers in New York State,  particularly in New York                                                                   
City.                                                                                                                           
                                                                                                                                
Representative  Croft stated  that he  is interested  in what                                                                   
could be  done in establishing  public policy  on competition                                                                   
and its limits or constraints.  He noted that states could do                                                                   
generally what  they want  in regards to  the federal  act if                                                                   
they fulfill the two requirements.  Mr. Nugent explained that                                                                   
the  federal  act  restricted   the  dominant  carrier  until                                                                   
recently from  entering interstate long distance  service. In                                                                   
order to win the right to enter  the competition they were to                                                                   
support a change in the nature  of local telephone service so                                                                   
that other  local exchange  carriers could  come in  to enter                                                                   
the market. Competition for customers  at the local level was                                                                   
to  be balanced  by the  opportunities for  big companies  to                                                                   
enter into interstate service.  Within that context, the idea                                                                   
of protecting service quality  remains with the state. If the                                                                   
dominant carrier  locally wants  to be an interstate  carrier                                                                   
they must open their market to  local competition. States are                                                                   
asked  to offer  comments  to the  FCC as  to  the manner  of                                                                   
operation  allowing local competition.  Typically,  states in                                                                   
preparing  their  comments  to  the  FCC,  negotiate  certain                                                                   
assurances with the  dominant local carrier to  ensure that a                                                                   
competitive environment would  exist. He noted that the state                                                                   
of Maine negotiated for a rapid  response team to decide real                                                                   
matters   of  competition   between   small  local   exchange                                                                   
companies  seeking  to  enter  and grow  in  the  market  and                                                                   
Verizon.                                                                                                                        
                                                                                                                                
Representative Croft asked if  the ultimate hook over a local                                                                   
exchange carrier  is a report to the federal  government that                                                                   
they have not conducted themselves  competitively. Mr. Nugent                                                                   
noted  that the  matter  of entry  is  the  issue. The  state                                                                   
continues to regulate according  to state law. The gatekeeper                                                                   
access  to interstate  service, which  is subject to  federal                                                                   
law, is  based on  the company's  willingness to support  the                                                                   
development of a competitive environment for local service.                                                                     
                                                                                                                                
Representative  Croft  questioned if  a state  could  declare                                                                   
that they have  moved past the point of monopoly.  Mr. Nugent                                                                   
noted that there  is nothing in the federal  regulations that                                                                   
requires  a state  to continue  to  regulate local  telephone                                                                   
companies.                                                                                                                      
                                                                                                                                
Representative  Croft  asked if  there  is any  local  market                                                                   
where the  dominant carrier has  less than 85 percent  of the                                                                   
market. Mr. Nugent promised to provide the information.                                                                         
                                                                                                                                
Representative  Hudson  observed  that  the  commissions  are                                                                   
present to  assure consumer  access and  fair cost.  He asked                                                                   
how the Maine  commission is overseen. Mr. Nugent  noted that                                                                   
there  is  a  standing  legislative  oversight  committee  in                                                                   
Maine. Their commission  meets at least once a  week. He felt                                                                   
that their commission does a good  job. He suggested that the                                                                   
same process goes on throughout the country.                                                                                    
                                                                                                                                
Representative   Lancaster   asked    if   other   regulatory                                                                   
commissions  oversee  the  same  industries  as  Alaska.  Mr.                                                                   
Nugent  thought  that  40  -  45  states  have  multi-purpose                                                                   
commissions    that    oversee    electricity,    gas,    and                                                                   
telecommunications  industries. Some  states divide  out gas,                                                                   
such  as  Texas. Maine  has  1.2  - 1.3  million  people  and                                                                   
receives  approximately  1,000 cases  a  year. Cases  include                                                                   
consumer   complaints  but   are   typically  requests   for:                                                                   
authority  to serve,  changes  in task,  approval of  special                                                                   
contracts,  and rate cases.  There is  a working backlog  but                                                                   
they have not  missed their statutory deadline.  There are 57                                                                   
employees including 3 commissioners in Maine.                                                                                   
                                                                                                                                
Co-Chair Mulder  referred to issues pertaining  to timelines.                                                                   
He asked what  would be Maine's timeline for  a complex case,                                                                   
such as an electrical utility  that impacts 70 percent of the                                                                   
residents in  the state. Mr.  Nugent noted that,  by statute,                                                                   
rate cases must  be resolved over a 9-month  period. However,                                                                   
arrangements have been made to  work over a longer period. He                                                                   
gave examples of  some rate cases in Maine.  The timeline can                                                                   
be as long as a year or as short  as five months. Some issues                                                                   
are turned  around in a  week to 10  days, such  as licensing                                                                   
applications,  special  contract  reviews and  other  routine                                                                   
matters  with a special  urgency to  meet market  conditions.                                                                   
The  Maine  regulatory  commission  has  a  budget  of  $5.25                                                                   
million  dollars.   A  million  dollars  of   the  budget  is                                                                   
available for  consultants in  areas where ongoing  expertise                                                                   
is not needed.                                                                                                                  
                                                                                                                                
In  response to  a  question  by Representative  Hudson,  Mr.                                                                   
Nugent guessed  that 30 of the  1,000 cases are  dismissed as                                                                   
frivolous.  He  noted that  even  frivolous cases  require  a                                                                   
fairly careful  investigation under Maine law.  He noted that                                                                   
approximately 5 cases are completely frivolous.                                                                                 
                                                                                                                                
Representative  Hudson  asked  what  would  be  the  greatest                                                                   
negative impact  of sun-setting the Regulatory  Commission of                                                                   
Alaska. Mr. Nugent observed that  responsibilities would have                                                                   
to  be reassigned  by  the legislature.  He  thought that  it                                                                   
would  require the  development of  special court  expertise.                                                                   
The  legislature  might  be  lead back  to  the  creation  of                                                                   
another commission. He expressed  concern that consumers in a                                                                   
relatively  confusing   market  place  may   find  themselves                                                                   
without an entity to resolve disputes.                                                                                          
                                                                                                                                
Vice-Chair Bunde  questioned how  fairness would  be achieved                                                                   
when  a delay  would  cost one  side  or another  money.  Mr.                                                                   
Nugent noted  that the  docket would  be moved along  tightly                                                                   
and a timeline would be developed.  He acknowledged that some                                                                   
cases  are  difficult  and  some  persist  for  a  multi-year                                                                   
period.                                                                                                                         
                                                                                                                                
Co-Chair Mulder noted that the  next testifier would be David                                                                   
W.  Wirick,  National  Regulatory   Research  Institute.  Mr.                                                                   
Wirick  did   a  review  of   the  Alaska  Public   Utilities                                                                   
Commission  in 1998  and a  second report  on the  Regulatory                                                                   
Commission of Alaska, June 13, 2000.                                                                                            
                                                                                                                                
DAVID  W.  WIRICK,  NATIONAL  REGULATORY  RESEARCH  INSTITUTE                                                                   
(NRRI)  testified   via  teleconference.  The   NRRI  is  the                                                                   
official research  arm of NARUC. The 1998 report  on the APUC                                                                   
found that there were a number  of areas in need of attention                                                                   
including  the: commissioner's  staff, the commissioner,  the                                                                   
commissioner's  relations,  the time  limits  of orders  (the                                                                   
estimated backlog was between  500 - 750 orders), the quality                                                                   
and  speed  of  orders,  increases   in  consumer  complaint,                                                                   
questions about  the adequacy of consumer  protection section                                                                   
staffing, project filing and management  information systems.                                                                   
                                                                                                                                
Mr. Wirick discussed the follow-up  review conducted in April                                                                   
2000 on the  Regulatory Commission of Alaska.  The review was                                                                   
at  the request  of  Commissioner  Thompson.  The report  was                                                                   
based   on   interviews   with   commissioners,   staff   and                                                                   
stakeholders.  The report  found  substantial improvement  in                                                                   
each  of the  areas identified  as needing  attention in  the                                                                   
1998  report.  The  report  concluded   that  the  Regulatory                                                                   
Commission  of  Alaska  was fairing  far  better  than  their                                                                   
predecessor.  Vertical  communications   had  been  improved.                                                                   
Docket backlog was being worked  on. An environment of mutual                                                                   
respect  among  commissioners  was established.  Orders  were                                                                   
moving more quickly and were improved,  but still needed some                                                                   
work. An  attempt was being made  to end an over  emphasis on                                                                   
process  and   to  streamline  administrative   process.  The                                                                   
consumer  protection  section  had also  been  provided  more                                                                   
resources  and appeared to  be less  stressed. Some  areas of                                                                   
concern  remained, such  as the high  workload. He  expressed                                                                   
concern that it would be difficult  for any agency to sustain                                                                   
the workload over  time. He also expressed  concern regarding                                                                   
the continued  evolution of the  public advocacy  section and                                                                   
the role  of advisory  staff.  Staffing and  the role of  the                                                                   
public protection  section were discussed. There  was a heavy                                                                   
reliance on the  efforts of the chairman. He  summarized that                                                                   
there were tremendous positive changes.                                                                                         
                                                                                                                                
Vice-Chair Bunde asked  if there is a rule  of thumb template                                                                   
regarding the  commission size, number of  commissioners, and                                                                   
staff relating  to the population size regulated.  Mr. Wirick                                                                   
did not have a working ratio.                                                                                                   
                                                                                                                                
Vice-Chair  Bunde   summarized  that  one  of   the  concerns                                                                   
regarding the Regulatory Commission  of Alaska is the lack of                                                                   
staff and  compensation. Mr.  Wirick noted that  compensation                                                                   
was not addressed.                                                                                                              
                                                                                                                                
Vice-Chair   Bunde   questioned   the  parameters   of   time                                                                   
limitations. Mr.  Wirick thought that  9 to 12 months  is the                                                                   
general limit applied to state actions.                                                                                         
                                                                                                                                
Representative  John   Davies  noted  that  Mr.   Wirick  had                                                                   
concerns that the Regulatory Commission  of Alaska had a high                                                                   
workload. Mr.  Wirick pointed  out that the report  indicated                                                                   
that the  workload was  related to the  backlog of  cases and                                                                   
that  the  commission  was attempting  to  work  through  the                                                                   
backlog. He could not comment on the current workload.                                                                          
                                                                                                                                
Co-Chair  Mulder  noted  that the  Regulatory  Commission  of                                                                   
Alaska has been accused of having  a difficult time in making                                                                   
decisions  in complex cases  in a  timely manner. Mr.  Wirick                                                                   
stated that he did not observed  anything that would indicate                                                                   
that  the  Commission  would have  difficulty  making  timely                                                                   
decisions.  There   was  a  good  working   relationship  and                                                                   
interest  by  the commissioners  to  understand  the  complex                                                                   
issues before them.                                                                                                             
                                                                                                                                
Representative  Croft noted that  there have been  complaints                                                                   
that  the  Commission  files temporary,  rather  than  final,                                                                   
orders. Mr.  Wirick did not  find that the Commission  issued                                                                   
temporary  orders. He did  not have  a list of  stakeholders.                                                                   
Representative Croft  stated that he  would like to  know the                                                                   
entities that were interviewed.                                                                                                 
                                                                                                                                
Representative  Hudson  asked how  good  management could  be                                                                   
assured and questioned the staff  size. Mr. Wirick noted that                                                                   
state's staffing  size range from  25 - 1,000.  Staffing size                                                                   
varies regarding to function.                                                                                                   
                                                                                                                              
TAPE HFC 02 - 1, Side B                                                                                                       
                                                                                                                                
In  response to  a  question  by Representative  Hudson,  Mr.                                                                   
Wirick  noted that  the Commission  is  a fairly  independent                                                                   
body. There  is legislative oversight  of budget  function in                                                                   
every commission that he is aware of.                                                                                           
                                                                                                                                
KRISTY CATLIN,  GOVERNMENT RELATIONS, AMERICAN  TELEPHONE AND                                                                   
TELEGRAPH,  testified  via teleconference  in  support of  HB
3001.   She   noted   that   AT&T    Alascom   supports   the                                                                   
reauthorization of the RCA.                                                                                                     
                                                                                                                                
     We support  this reauthorizing for  4 years, or  for the                                                                   
     longest period  possible, such as the 2  years contained                                                                   
     in this committee's draft bill.                                                                                            
                                                                                                                                
     With the current state of  telecommunications and market                                                                   
     forces in  this state, not reauthorizing  the Commission                                                                   
     and allowing  it to go into its wind-down  year, or even                                                                   
     a  short  reauthorization   (for  example:  a  one  year                                                                   
     reauthorization)  may  not  necessarily serve  the  best                                                                   
     interests of the process.  Regulated industries need the                                                                   
     attention of the Commission;  Critical decisions must be                                                                   
     made    within   the    next    year,   otherwise    the                                                                   
     telecommunications infrastructure  of this state will be                                                                   
     in serious jeopardy. For  those decisions to be made, it                                                                   
     is  best  for  the  Commission  to  have  its  attention                                                                   
     directed  toward regulatory  matters rather than  toward                                                                   
     reauthorization,  which would  resurface in either  case                                                                   
     again  in  January.  For  these  reasons,  AT&T  Alascom                                                                   
     supports a minimum reauthorization of 2 years.                                                                             
                                                                                                                                
     The  RCA, if  it is  allowed to  do so, is  in the  best                                                                 
     position to deal with complex  regulatory issues because                                                                   
     of the  expertise it  has developed  iii the areas  over                                                                   
     which it regulates. This  expertise does not come easily                                                                   
     or quickly.  Amassing this expertise takes  a great deal                                                                   
     of  time and  effort on  the part  of the  Commissioners                                                                   
     themselves,  but also  on the part  of Commission  staff                                                                   
     and all affected industry  players. If you play a sunset                                                                   
     out  to   its  logical   conclusion,  the   prospect  of                                                                   
     educating another Commission  is daunting and introduces                                                                   
     a great deal of uncertainty for all involved.                                                                              
                                                                                                                                
     This committee  has expended a  great deal of  effort to                                                                   
     create language that all  interested parties can accept.                                                                   
     AT&T  Alascom has  reviewed  the language.  With  slight                                                                   
     modification  to  include   an  interexchange  (or  long                                                                   
     distance)  carrier  in  the   make-up  of  the  advisory                                                                   
     committee, AT&T  Alascom supports the  amended language.                                                                   
     Without  an 1XC representative,  a  huge portion  of the                                                                   
     RCA's regulated  market is  left out of the  discussion,                                                                   
     Without an IXC representative  on the committee; Alascom                                                                   
     could not support the amendment.                                                                                           
                                                                                                                                
Co-Chair Mulder noted that an  amendment was being drafted to                                                                   
address the shortcoming discussed by Ms. Catlin,                                                                                
                                                                                                                                
MATTHEW  FAGNANI,   NANA  DEVELOPMENT  CORPORATIONS,   ARCTIC                                                                   
UTILITIES,   ANCHORAGE,  testified   via  teleconference   in                                                                   
support  of HB  3001.  Arctic  Utilities has  some  important                                                                   
issues that must be brought before  the Regulatory Commission                                                                   
of Alaska  for approval. He  expressed concern  that movement                                                                   
of the  Commission  to a sunset  mode would  prevent it  from                                                                   
taking on  their new case. A  delay would have  a significant                                                                   
financial cost to their company.  Arctic Utilities supports a                                                                   
minimum extension  of two years. He urged that  the committee                                                                   
considered natural  gas, water, electrical,  sewage companies                                                                   
and other non-telecommunication  companies in their decision.                                                                   
                                                                                                                                
BUCKY  WRIGHT,  GENERAL MANAGER,  AURORA  ENERGY,  FAIRBANKS,                                                                   
testified  via teleconference.  He observed  that they  are a                                                                   
small local  utilities  in Fairbanks regulated  for heat  and                                                                   
electric.  He expressed  support for  the proposed  committee                                                                   
substitute and  a minimum extension  of 2 years.  Issues that                                                                   
come before the Regulatory Commission  of Alaska affect their                                                                   
company. He emphasized the importance of timely resolution.                                                                     
                                                                                                                                
Mr.  Wright  noted that  the  proposed  committee  substitute                                                                   
provides  provision  for  monthly meetings  and  an  advisory                                                                   
committee. The  advisory committee  terminates once  its work                                                                   
is  completed.  The  committee  would provide  a  report  and                                                                   
address issues  in the  legislation. He  spoke in support  of                                                                   
the advisory committee and its  termination and questioned if                                                                   
the committee  could extend  their scope.  He suggested  that                                                                   
monthly meetings might be excessive.                                                                                            
                                                                                                                                
DANA  TINDALL, SR.  VICE  PRESIDENT, LEGAL,  REGULATORY,  AND                                                                   
GOVERNMENTAL  AFFAIRS, GCI, Juneau,  testified in  support of                                                                   
HB  3001.  She   noted  that  GCI  would  support   a  4-year                                                                   
extension. She  maintained that the Regulatory  Commission of                                                                   
Alaska  is  a good  commission  and  vastly superior  to  the                                                                   
former Alaska  Public Utilities Commission.  She acknowledged                                                                   
that the  Commission could  be improved  and maintained  that                                                                   
the  timelines and  advisory committee  would be  beneficial.                                                                   
She  pointed  out that  there  is  a  learning curve  in  new                                                                   
commissions. Starting over would  not fix any of the problems                                                                   
of  those  that  have  spoken  against  reauthorization.  She                                                                   
observed  that  the  Commission  has  tried  to  resolve  the                                                                   
backlog and that sunsetting would cause further delays.                                                                         
                                                                                                                                
Ms.  Tindall   observed  that   the  Telecommunications   Act                                                                   
directed  the  FCC  to  come  up with  a  set  of  rules  and                                                                   
regulations.  The FCC  rules and  regulations  say how  rates                                                                   
should be  set between carriers;  how arbitrations  should be                                                                   
conducted;  and  to what  extent  they should  be  unbundled.                                                                   
State legislatures  or state regulatory commissions  can work                                                                   
to increase competition but may  not decrease completion. She                                                                   
maintained  that  the  Regulatory  Commission  of  Alaska  is                                                                   
necessary  for business  stability.  Any utility  in need  of                                                                   
public  financing  for  capital   funds  needs  a  regulatory                                                                   
commission or  there is too much  doubt and funding  would be                                                                   
jeopardized. There is no reason  that any legislative changes                                                                   
that need to  be made to the Regulatory Commission  of Alaska                                                                   
can't be  made at any time.  Reauthorization does need  to be                                                                   
held up in  order to make changes.  It is not worth  the cost                                                                   
to the industry and the state  in instability and the cost to                                                                   
consumers.                                                                                                                      
                                                                                                                                
Representative  Croft  asked  where  flexibility  exists  for                                                                   
state  policy. Ms.  Tindall  replied that,  unless  utilities                                                                   
come  to agreement  themselves during  the 135-day  mediation                                                                   
window,  then  rates  that  are set  pursuant  to  the  total                                                                   
element  long run  incremental cost  structure (TELRIC).  The                                                                   
rate  that  a new  competitor  pays  an  incumbent  telephone                                                                   
company are long run, which means  that they are rates that a                                                                   
new  entrant with  the  most cost  effective  and least  cost                                                                   
technology would face  to build a new network  in the market.                                                                   
The FCC sets this. The TELRIC  cannot be changed and has been                                                                   
upheld by the US Supreme Court.                                                                                                 
                                                                                                                                
In response to  a question by Co-Chair Williams,  Ms. Tindall                                                                   
spoke  in support  of  monthly  meetings. She  observed  that                                                                   
communication  where  all  parties  are present  or  have  an                                                                   
opportunity to be present could only improve things.                                                                            
                                                                                                                                
Co-Chair Williams  asked if there had been  trouble with some                                                                   
of the competitor's claims or reports.                                                                                          
                                                                                                                                
Ms.  Tindall responded  that there  has  been decisions  that                                                                   
they  would have  liked to  see go  the other  way. The  time                                                                   
lines  would be  helpful. She  noted that  the timelines  are                                                                   
very  quick for  regulatory  proceedings  and suggested  that                                                                   
there  may be  due  process complaints.  In  general, GCI  is                                                                   
supportive of the timelines.                                                                                                    
                                                                                                                                
Co-Chair  Williams asked  if the timelines  would affect  the                                                                   
speed of the  decisions being made. Ms. Tindall  replied that                                                                   
the timelines could go either way.                                                                                              
                                                                                                                                
Representative   Hudson   asked    for   GCI's   professional                                                                   
assessment  of the Commission.  Ms. Tindall  stated that  the                                                                   
Commission  is good at  prioritizing work  in the  consumer's                                                                   
interest. Prioritizing means that  not everything can be done                                                                   
at  once.  She   noted  that  the  Alaska   Public  Utilities                                                                   
Commission   was  not   functioning   well.  The   Regulatory                                                                   
Commission   of  Alaska   has   a  good   prioritization   of                                                                   
proceedings and good focus on consumer issues.                                                                                  
                                                                                                                                
Vice-Chair Bunde  asked what should be changed  regarding the                                                                   
Regulatory Commission  of Alaska. Ms. Tindall  responded that                                                                   
more authority  should be delegated  to the hearing  officers                                                                   
in order to spread the workload  and empower them to speed up                                                                   
decisions.                                                                                                                      
                                                                                                                                
Co-Chair  Mulder  referred  to   settlement  agreements.  Ms.                                                                   
Tindall explained  that as long  there is a right  of finding                                                                   
that the settlement  is in the public interest it  would be a                                                                   
good thing.  She stated  that she would  be concerned  if the                                                                   
Commission was forced to take any settlement agreement.                                                                         
                                                                                                                                
Representative  Lancaster  inquired  if there  were  problems                                                                   
with  the  education  level  of  the  hearing  officers.  Ms.                                                                   
Tindall did  not think this was  an issue and  voiced support                                                                   
for the quality of the hearing officers.                                                                                        
                                                                                                                                
Representative Croft asked if  water and electricity could be                                                                   
declared  competitive   and  brought  outside   of  the  cost                                                                   
shifting requirements.                                                                                                          
                                                                                                                                
Ms.  Tindall observed  that  an incumbent  telephone  company                                                                   
could  petition  to  be  declared  non-dominant.  There  will                                                                   
always   be  a   need   for   some  regulations   under   the                                                                   
Telecommunications  Act. Telephone  systems must  be able  to                                                                   
call one another. There needs  to be regulations to call from                                                                   
company to company. She doubted  if states could do away with                                                                   
telecommunication   regulations,   but   they   could   treat                                                                   
individual  competitors  with  less regulatory  oversight  if                                                                   
they make a competitive finding.                                                                                                
                                                                                                                                
Representative Croft questioned  the impact of a non-dominant                                                                   
local exchange determination.                                                                                                   
                                                                                                                                
Ms. Tindall observed  that ACS, as a dominant  local exchange                                                                   
company, could lower rates, but  not raise them without going                                                                   
through a full rate case. If they  were deregulated as a non-                                                                   
dominant carrier,  then they would have the  ability to raise                                                                   
rates  as  well. This  is  the  only difference,  along  with                                                                   
certain bundling requirements  (which aren't enforced anyway)                                                                   
of  regulatory treatment  between  dominant and  non-dominant                                                                   
carriers in the local telephone  business today. Market power                                                                   
is the standard for determination  of dominance. Market power                                                                   
does not just go on market share.  It is the ability to raise                                                                   
or lower  rates and  control price.  It also  has to  do with                                                                   
whether  or  not an  entity  has  control over  a  bottleneck                                                                   
facility.                                                                                                                       
                                                                                                                                
Ms. Tindall explained  that in the lower 48  states that Bell                                                                   
marketing companies  are not allowed  to compete in  the long                                                                   
distance market until their local  telephone market is opened                                                                   
to  competition. This  is because  they have  control over  a                                                                   
bottleneck facility  and control over  the loop that  goes to                                                                   
customers' homes.  A long distance carrier has  to go through                                                                   
the local  telephone company to  be able to carry  its calls.                                                                   
The Bell operating company, which  owns the loop, has control                                                                   
over the long distance market  because they have control over                                                                   
this essential  facility that  the long distance  carrier has                                                                   
to use. Alaska  has the same situation but  because the local                                                                   
Alaskan  companies are  independents  they  fall through  the                                                                   
cracks. Alaskan  independent telephone companies  have always                                                                   
been able  to go into the  long distance business.  Incumbent                                                                   
local  telephone  companies  still   have  control  over  the                                                                   
majority  of those  loops  when  competition  begins. When  a                                                                   
customer  in Juneau,  where  competition  is just  beginning,                                                                   
decides  to switch  from ACS (which  has 100  percent of  the                                                                   
market) to  GCI, ACS  has to physically  unplug the  customer                                                                   
from  its switch  and connect  them  to GCI's  switch. A  set                                                                   
market share  for control is  difficult to set.  The dominant                                                                   
carrier in Anchorage  doesn't have as large a  share. She did                                                                   
not  think that  GCI would  oppose a  petition by  ACS to  be                                                                   
deregulated as a non-dominant carrier.                                                                                          
                                                                                                                                
In  response  to  a question  by  Representative  Croft,  Ms.                                                                   
Tindall stated that 9 out of 10  local competition cases have                                                                   
been upheld.  She observed that  GCI opposed a tariff  of the                                                                   
Alaska   Exchange   Carriers  Association.   The   Commission                                                                   
rejected the tariff without a  hearing and the Superior Court                                                                   
remanded it back for a hearing.                                                                                                 
                                                                                                                                
DANIEL  DIECKGRAEFF,  VICE  PRESIDENT,   FINANCE  AND  RATES,                                                                   
ENSTAR,  NATURAL  GAS COMPANY,  testified  in  support of  HB
3001. He noted  that ENSTAR provides natural gas  for heat to                                                                   
about half  of Alaska's  population and  serves over  109,000                                                                   
homes.   ENSTAR   strongly   supports    a   minimal   2-year                                                                   
reauthorization of the Regulatory  Commission of Alaska as an                                                                   
essential governmental  function. He spoke in  support of the                                                                   
timelines and  new settlement  language and pointed  out that                                                                   
frequent sunset  reviews are  disruptive. Time and  resources                                                                   
are taken by sunset reviews, which  create staff uncertainty,                                                                   
Commission and financial markets.  He maintained that changes                                                                   
could   be  proposed   and   made  without   sunsetting   the                                                                   
Commission.    He noted  that  the Regulatory  Commission  of                                                                   
Alaska has many important issues  before it. He stressed that                                                                   
abolishment  of   the  Commission  would  result   in  a  new                                                                   
education  process, wasted  time, lost  expertise, and  cases                                                                   
would pile up.                                                                                                                  
                                                                                                                                
In  response to  a  question  by Representative  Hudson,  Mr.                                                                   
Dieckgraeff noted that there are  annual gas cost adjustments                                                                   
and adjustments for growth, which  come before the Commission                                                                   
each year. Rate cases are infrequent.  He noted that 1991 was                                                                   
the  last  time  that  they  had   a  rate  case  before  the                                                                   
Commission.                                                                                                                     
                                                                                                                                
Representative   Hudson  asked   if   rates  for   Regulatory                                                                   
Commission of  Alaska administrative costs were  in line with                                                                   
the  service.  Mr. Dieckgraeff  noted  that costs  have  been                                                                   
changed for the better.                                                                                                         
                                                                                                                                
Co-Chair Mulder  reiterated that  there have been  complaints                                                                   
regarding   the   Commission's   ability  to   make   complex                                                                   
decisions.  Mr. Dieckgraeff  noted that  they have had  three                                                                   
cases before  the Commission.  The first  was issued  in 1999                                                                   
and resolved  in 1999. The second  case was resolved  in less                                                                   
than  45 days.  The  third  case  before the  Commission  was                                                                   
resolved   in  a  year,   which  was   within  the   timeline                                                                   
established by  the Commission. They have a  complicated case                                                                   
currently  before the  Commission.  He pointed  out that  the                                                                   
Commission is working through a 700 case backlog.                                                                               
                                                                                                                              
ERIC  YOULD,   EXECUTIVE  DIRECTOR,  ALASKA   RURAL  ELECTRIC                                                                   
COOPERATIVE  ASSOCIATION  (ARECA),  in  support of  a  2-year                                                                   
extension.   He    noted   that   ARECA    members   generate                                                                   
approximately  90  percent  of  the power  in  the  state  of                                                                   
Alaska.  The   Board  of   Directors  advocates   a  two-year                                                                   
extension of the Regulatory Commission  of Alaska, contingent                                                                   
on a  number of concerns  being addressed.  He noted  that HB
3001 addressed  some of those ARECA's concerns.  The proposed                                                                   
committee  substitute adopts timelines,  provides a  two-year                                                                   
sunset  and  creates a  committee  that  would act  over  the                                                                   
course of  one year to  address many  of the issue  raises in                                                                   
ARECA's resolution of February 22, 2002.                                                                                        
                                                                                                                                
Mr. Yould  presented suggestions  for  change. He noted  that                                                                   
the timelines would  only apply to dockets opened  after July                                                                   
1, 2002. He  expressed concern that dockets  currently in the                                                                   
system would be  regulated to secondary status.  He suggested                                                                   
that  the Regulatory  Commission  of  Alaska  be required  to                                                                   
review the dockets in the system  and adopt a completion time                                                                   
for each, consistent with the timelines.                                                                                        
                                                                                                                                
Co-Chair  Mulder questioned  how a  meaningful and  realistic                                                                   
timeline  could  be  established.  Mr.  Yould  suggested  the                                                                   
following  language:  The  Regulatory  Commission  of  Alaska                                                                   
shall review  all dockets initiated  before July 1,  2002 and                                                                   
issue  a date within  the timelines  in section  1 above  for                                                                   
completion in  accordance with  the provisions of  section 1.                                                                   
He  gave an  example  of a  service jurisdiction  case  where                                                                   
there is  no more than  a six-month period  of time  in which                                                                   
the docket should be complete.  An appropriate timeline would                                                                   
be established based on the percentage of completion.                                                                           
                                                                                                                                
TAPE HFC 02 - 2, Side A                                                                                                       
                                                                                                                                
Co-Chair Mulder questioned if  more staff is needed to reduce                                                                   
the backlog. Mr. Yould hesitated  to support additional funds                                                                   
to reduce  the backlog. He  suggested that better  management                                                                   
by the Commission would reduce  dockets better and added that                                                                   
the Commission needs to know when  to end the public process.                                                                   
                                                                                                                                
Mr. Yould  observed that  the advisory  committee is  heavily                                                                   
loaded  with  representatives  from  telephone  entities.  He                                                                   
suggested  that an  additional  member be  selected from  the                                                                   
electrical utility industry.                                                                                                    
                                                                                                                                
Representative  Croft suggested  that  timelines could  start                                                                   
from July  1, 2003. Mr. Yould  stressed that it  would depend                                                                   
on  where the  case was  in the  process.  Adopting the  time                                                                   
lines from  July 1, 2003 might  slow a large case  already in                                                                   
the system.                                                                                                                     
                                                                                                                                
Representative   Hudson  expressed   concern  regarding   the                                                                   
backlog.  He  questioned  if  it would  be  better  to  bring                                                                   
additional  resources  to  expedite the  backlog.  Mr.  Yould                                                                   
stated  that it is  difficult  to say, but  pointed out  that                                                                   
almost  every   community  has   it's  own  central   station                                                                   
generation.                                                                                                                     
                                                                                                                                
Representative  Foster referred to  an audit by  the Division                                                                   
of  Legislative Audit  (copy on  file.)  The report  suggests                                                                   
that  the  Regulatory  Commission  of  Alaska  should  either                                                                   
require small water and sewage  facilities to be certified or                                                                   
establish  a meaningful  exemption system  by regulation.  He                                                                   
pointed out that  certifying 220 villages would  increase the                                                                   
backlog.  Mr. Yould  noted that  the same  level of  economic                                                                   
regulation  as large  utilities  would  make rural  utilities                                                                   
almost inoperable.                                                                                                              
                                                                                                                                
JIM ROWE,  EXECUTIVE DIRECTOR, ALASKA TELEPHONE  ASSOCIATION,                                                                   
testified in  support of HB  3001. Rural communities  receive                                                                   
$75  million  dollars  in  federal  funds  annual  for  rural                                                                   
companies. The Commission is needed  to identify utilities in                                                                   
rural communities to  the FCC and to assure the  FCC that the                                                                   
money  is  being used  for  the  purposes  for which  it  was                                                                   
intended. He  urged a minimum  4-year extension.  He stressed                                                                   
the need  for a regulatory  commission. He acknowledged  that                                                                   
he has disagreed with many of  the Commission's decisions due                                                                   
to their  interpretation  of the  Telecommunications Act.  He                                                                   
did  not  attribute  any of  the  Commission's  decisions  to                                                                   
inappropriate  bias nor  did he question  their integrity  or                                                                   
their  ability   to  do  their  job.  He   expressed  concern                                                                   
regarding  section 7.  He  observed that  the  makeup of  the                                                                   
Commission  is  broad,  but  pointed   out  that  if  GCI  is                                                                   
represented  that  ACS  should  also be  represented  on  the                                                                   
advisory committee.  He felt that the legislation  was better                                                                   
before the addition of section  7. He stressed the need for a                                                                   
regulatory   commission  and   maintained  that  the   public                                                                   
interest is being protected. He  spoke in support of a strong                                                                   
chair.                                                                                                                          
                                                                                                                                
Representative   Foster   questioned    if   the   Regulatory                                                                   
Commission  of Alaska  worked to create  monopolies  in rural                                                                   
areas. Mr.  Rowe pointed out that  fuel is more  expensive in                                                                   
rural areas; only universal service  brings telecommunication                                                                   
service to rural  areas. There is not a great  deal of profit                                                                   
to  be  made in  rural  areas.  The $75  million  dollars  in                                                                   
federal support to  Alaska comes from the rest  of the United                                                                   
States, as  a means to provide  national service. There  is a                                                                   
huge cost of providing services to rural areas.                                                                                 
                                                                                                                                
Representative  Croft  referred  to  the  universal  services                                                                   
issue.  Mr.  Rowe clarified  that  regulatory  agencies  must                                                                   
certify that  federal regulations are  being met in  order to                                                                   
receive  universal funding.  He noted  that Alaska  companies                                                                   
would not  exist without the  $75 million dollars  in federal                                                                   
support.                                                                                                                        
                                                                                                                                
Co-Chair Mulder  questioned if  entities are afraid  to speak                                                                   
their  mind before  the Commission.  Mr. Rowe  did not  think                                                                   
that there was  intimidation. He pointed out  that two public                                                                   
meetings  are scheduled  a month,  which have  been open.  He                                                                   
found  the   workshops  helpful.  He  thought   that  monthly                                                                   
meetings may be burdensome. He  suggested quarterly meetings.                                                                   
                                                                                                                                
MARIE DARLIN,  VOLUNTEER COORDINATOR, AARP,  JUNEAU testified                                                                   
in support  of the legislation  of the Regulatory  Commission                                                                   
of Alaska. She noted that their  members rely on the RCA just                                                                   
as they rely on the AARP.                                                                                                       
                                                                                                                                
    We believe the  RCA offers our  members and  all Alaskans                                                                   
    the best  opportunity  to  achieve  the  following  basic                                                                   
    consumer protections:                                                                                                       
                                                                                                                                
    The  ability  to  make  informed  CHOICES  about  utility                                                                   
    services.  The   assurance  that   sales  practices   and                                                                   
    advertisements are  FAIR, so  that they  do not  confuse,                                                                   
    mislead or frighten the public.                                                                                             
                                                                                                                                
    And, the  Regulatory  Commission  of  Alaska  reassurance                                                                   
    that    consumers    receive    ACCURATE     information,                                                                   
    communicated  clearly  and   in  plain  language   so  we                                                                   
    understand our rights and remedies.                                                                                       
                                                                                                                                
    The RCA assures consumers  the right to  affordable rates                                                                   
    and access to such  basic necessary service  as utilities                                                                   
    and communications.                                                                                                         
                                                                                                                                
Ms. Darlin pointed  out that more than half  of their members                                                                   
are over 65 years  of age and the issue is  very important to                                                                   
them.  She  emphasized  the need  for  affordable  and  rural                                                                   
access. She  noted that the  Regulatory Commission  of Alaska                                                                   
protects consumer  rights and spoke  in support of  a minimum                                                                   
2-year reauthorization.                                                                                                         
                                                                                                                                
BRUCE DAVISON, PRESIDENT, CHUGACH BOARD OF DIRECTORS, noted                                                                     
concerns regarding the Regulatory Commission of Alaska.                                                                         
                                                                                                                                
     The  legislation  creating   the  RCA  included  routine                                                                   
     sunset  provisions, calling  for an  expiration date  of                                                                   
     July  1, 2003.   If  the  RCA is  not reauthorized  this                                                                   
     year,  it  must begin  a  year long  phase-down  period.                                                                   
     During  this period,  the 2003  legislature could  still                                                                   
     consider  an  appropriate  fix  for the  process  as  an                                                                   
     alternative to outright elimination.                                                                                       
                                                                                                                                
     As President  of the Board of Alaska's  largest electric                                                                   
     utility,  I  believe the  RCA  needs to  accomplish  its                                                                   
     mission in  a timelier, less-costly  manner. We  need to                                                                   
     address  the  RCA's  delays  in  deciding  matters,  the                                                                   
     manner in  which the RCA  controls its proceedings,  and                                                                   
     its apparent reluctance to  decide issues. These factors                                                                   
     carry a hefty  price tag for Chugach consumers  at every                                                                   
     level.                                                                                                                     
                                                                                                                                
     To  date,  Chugach  Electric has  provided  over  60,000                                                                   
     pages  of  information  to  each  of  the  four  parties                                                                   
     involved  in a legal  discovery  process in our  pending                                                                   
     rate  determination proceedings.  At least another  such                                                                   
     "discovery"  is  scheduled.  Producing  this  amount  of                                                                   
     paper is a costly and monumental task!                                                                                     
                                                                                                                                
     In other dealings with the  RCA, we frequently find that                                                                   
     important   issues   are  not   resolved.   We  end   up                                                                   
     considering the same issues  in multiple proceedings. In                                                                   
     our current  case, we are again considering  a financing                                                                   
     issue that  has been considered twice before.  This type                                                                   
     of repetition is costly and unnecessary.                                                                                   
                                                                                                                                
     I believe  that the existing process is  inefficient and                                                                   
     our members are not receiving  value from the regulatory                                                                   
     processes before  the RCA.  Chugach members  pay for the                                                                   
     operation  of the  RCA in  their  monthly electric  bill                                                                   
     through the regulatory cost  charge - $360,000/year.  In                                                                   
     addition,  base  electric  rates are  also  impacted  by                                                                   
     these inefficiencies  (that is,  costs are driven  up by                                                                   
     the expenses  of outside counsel and the  heavy costs of                                                                   
     finding,  organizing  and  packaging  documents  in  the                                                                   
     discovery process  to the tune  of $800,000/year.   In a                                                                   
     typical year, Chugach employees  spend 7,700 hours - not                                                                   
     including outside consultants  and attorneys.  CEA loses                                                                   
     $200,000/month  in  lost revenues  because  RCA has  not                                                                   
     ruled on  our permanent rate  increases.)    The Chugach                                                                   
     Board of  Directors and management has an  obligation to                                                                   
     its members  to assure that  costs incurred are  for the                                                                   
     benefit  of its  members.   The  current  high costs  of                                                                   
     regulation  and more importantly,  the diversion  of key                                                                   
     staff resources, are benefiting no one.                                                                                    
                                                                                                                                
     Chugach is  not the only utility that has  concerns with                                                                   
     the RCA.  Others have  noted that the  RCA has  a larger                                                                   
     budget and  more people than its predecessor,  the APUC,                                                                   
     but still  operates too slowly.  The  executive director                                                                   
     of   ARECA,    (Alaska   Rural   Electric    Cooperative                                                                   
     Association) stated in a  recent letter to House Finance                                                                   
     Co-Chairman  Eldon Mulder:   "...the regulatory  process                                                                   
     is still broken and must  be fixed.  The present process                                                                   
     costs the  electric utility  industry much time  and ...                                                                   
     money to run the regulatory gauntlet."                                                                                     
                                                                                                                                
     I  firmly  agree.    In  fact,  we  prefer  no  economic                                                                   
     regulation,  as   the  elected  boards  of   co-ops  are                                                                   
     perfectly  capable   of  balancing  the  needs   of  the                                                                   
     association  with the  needs of  the member/owners.   In                                                                   
     fact, in 31 of the 46 states  that have co-ops, there is                                                                   
     no economic regulation, as it is optional.                                                                                 
                                                                                                                                
     I appreciate the willingness  and involvement the Senate                                                                   
     Judiciary  Committee  has  shown toward  addressing  the                                                                   
     problems  that plague the  RCA's ratemaking  process and                                                                   
     welcome a  more thorough  examination of all  the issues                                                                   
     involved.  Addressing the  ineffectiveness of  the RCA's                                                                   
     current regulatory  process will ultimately  benefit all                                                                   
     consumers.    I  believe  there  are  solutions  to  the                                                                   
     problems we  are encountering.   These solutions  can be                                                                   
     worked out before the next legislative session                                                                             
     convenes.                                                                                                                  
                                                                                                                                
JOE GRIFFITH,  GENERAL MANAGER,  CHUGACH ELECTRIC,  testified                                                                   
in support of a review of the  ruling process. He stated that                                                                   
Chugach  does not  think that  the  Regulatory Commission  of                                                                   
Alaska looks anything like the  Easter Bunny and acknowledged                                                                   
that money  [from requested rate  increases] would  come from                                                                   
the  pockets of  their consumers.  He  observed that  Chugach                                                                   
Electric  is  a  big electric  utility  and  that  there  are                                                                   
experiences across  the board. There are experiences  on both                                                                   
sides  of  the  question.  He clarified  that  they  are  not                                                                   
complaining  about rulings, but  are asking  for a  review of                                                                   
the  processes by  which the  rulings are  derived. He  noted                                                                   
that  money  lost  [because  RCA   has  not  ruled  on  their                                                                   
permanent  rate  increases]  is  taken directly  out  of  the                                                                   
economy of the entire Railbelt area.                                                                                            
                                                                                                                                
Mr. Griffith  recalled  the most difficult  case they  faced,                                                                   
which was  opened in 1996.  The case  was under APUC  and was                                                                   
the product of  a settlement agreement. The  agreement worked                                                                   
for about a  year before the Regulatory Commission  of Alaska                                                                   
was established  and picked  up the  case. He explained  that                                                                   
they  were  then  in  the  process   of  dealing  with  three                                                                   
simultaneous rate  cases. He emphasized  that rate  cases are                                                                   
demanding  undertakings for  a company  that is in  business,                                                                   
not to  do rate cases, but  to provide electric  service. The                                                                   
first hearing  was held  in September  2001. He  acknowledged                                                                   
that the Regulatory Commission  of Alaska inherited the case.                                                                   
A decision  was given  six months  later in  March 2002.  The                                                                   
rate review still in process.                                                                                                   
                                                                                                                                
Mr. Griffith reviewed the 2000  Test Year Rate Case, in which                                                                   
they are currently  involved. He stated that  he can document                                                                   
$600,000 dollars  in direct expenditures associated  with the                                                                   
case. The case  was filed in July 2001 and he  does not think                                                                   
that there would be a decision prior to the next spring.                                                                        
                                                                                                                                
Mr. Griffith  did not believe  the Commission  controls their                                                                   
proceedings well.  He pointed  out that the Chugach  Electric                                                                   
Company has created  over 60,000 pages of discovery  for four                                                                   
participants after  two rounds. They submitted  approximately                                                                   
5,000 pages last  week in the third round and  he anticipated                                                                   
that there would be a forth round  and possibly more. He felt                                                                   
that  the  Commission has  the  tendency  to make  the  least                                                                   
permanent  decision in  many circumstances,  so nothing  goes                                                                   
away. Issues are not resolved  and "any time you show back up                                                                   
in front  of the Commission somebody  can bring this  back up                                                                   
and  the problems  resurfaces  and you  have  to litigate  it                                                                   
again." He  noted that  a financing  issue that they  thought                                                                   
had been resolved  twice before was now back  before them. He                                                                   
explained that the Commission  dealt with the financial issue                                                                   
once before in a separate docket:  deciding whether or not to                                                                   
investigate a  claim. It was closed,  finding no basis  for a                                                                   
claim, but  they allowed  consideration of  the issue  in the                                                                   
case that  has been open for  six years. The claim  was again                                                                   
rejected but is now back in the  year 2000 Test Year Case. He                                                                   
suggested that  the Commission  has a problem  with finality.                                                                   
The Regulatory  Commission of  Alaska sets  the price  of the                                                                   
service  and  the  service  as  been  sold  at  the  time  of                                                                   
generation, therefore it is difficult  to go back and fix the                                                                   
problem.  He noted  that the  utility cannot  recoup for  the                                                                   
Commission's inability  to rule  on increases. "We  don't get                                                                   
that bite of the apple if we didn't  make our authorized rate                                                                   
of return in the  past, we don't get a second  chance, but we                                                                   
can be order to go back and pay it back to the customers…"                                                                      
                                                                                                                                
Mr. Griffith clarified that they  are not saying, "Throw them                                                                   
out." He  acknowledged  that the Commission  provides  a good                                                                   
public forum and that they are  needed to adjudicate boundary                                                                   
issues.  He  maintained  that  a "good,  hard  scrub  of  the                                                                   
process  and procedures"  is needed. He  maintained that  one                                                                   
way to fix  the problem is to  "keep the heat on  the process                                                                   
that they  are now, I think,  are feeling fully, that  is the                                                                   
last  year  in  existence."  He   pointed  out  that  similar                                                                   
occasions occurred  in 1994 and 1998. He urged  the Committee                                                                   
to make the operations more efficient and effective.                                                                            
                                                                                                                                
Co-Chair  Mulder  noted  that  Mr. Davison  had  not  offered                                                                   
testimony in other  hearings on the legislation.  Mr. Davison                                                                   
responded  that the  Board  was reluctant  to  take a  public                                                                   
position  on the  issues, "for  what  we felt  are some  very                                                                   
obvious reasons".  He pointed out that they "live  or die" by                                                                   
the  decisions of  the Regulatory  Commission  of Alaska.  He                                                                   
explained  that  the  Board  decided  to  act  after  it  had                                                                   
conducted a fairly  extensive analysis of the  internal costs                                                                   
that  they  and  their  ratepayers  experienced  due  to  the                                                                   
actions of the Regulatory Commission  of Alaska. The decision                                                                   
was  not easy  and was  debated in  many executive  meetings.                                                                   
Their  first public  position  was  in conjunction  with  the                                                                   
ARECA resolution,  which was passed  in February.  He assured                                                                   
the  Chairman  that  they  were   not  contacted  by  outside                                                                   
entities, asking them to come forward.                                                                                          
                                                                                                                                
Co-Chair   Mulder   questioned   if  Chugach   has   specific                                                                   
recommendations  to make,  which the  Committee could  use to                                                                   
address their concerns.                                                                                                         
                                                                                                                                
Mr.  Davidson recommended  that  the oversight  committee  be                                                                   
established   before    a   decision   is    made   regarding                                                                   
[reauthorization  of] the  Regulatory  Commission of  Alaska.                                                                   
After  a six-month  review,  the [advisory]  committee  could                                                                   
offer  a recommendation  to  the legislature.  The  committee                                                                   
could identify conditions for  reauthorization. He added that                                                                   
the  legislation   does  not   provide  a  hammer   over  the                                                                   
Regulatory   Commission  of   Alaska.   He  maintained   that                                                                   
timelines and  reporting requirements are optional  and under                                                                   
the discretion of the Regulatory Commission of Alaska.                                                                          
                                                                                                                                
Co-Chair Mulder  responded that  Mr. Davidson  underestimated                                                                   
the ability and willingness to  of the legislature to respond                                                                   
to  concerns as  expressed by  those that  are regulated.  He                                                                   
noted  that the  House  Finance  Committee has  reflected  in                                                                   
legislation  reasonable   concerns  brought  before   it.  He                                                                   
stressed   that  the   Committee   would   act  on   specific                                                                   
suggestions. He  maintained that  timelines are as  strong as                                                                   
possible and pointed  out that a timeframe has  been included                                                                   
to evaluate  the timelines.  He observed that  it is  fair to                                                                   
bring forth criticism,  but pointed out that it  is also fair                                                                   
to offer  suggestions. He noted  that no other  entities have                                                                   
had  difficulty with  the Regulatory  Commission of  Alaska's                                                                   
ability to make  timely decisions. He questioned  why Chugach                                                                   
is different.                                                                                                                   
                                                                                                                                
Mr.  Griffith   was  not  sure  that  Chugach   Electric  was                                                                   
different.  He  acknowledged  that the  company  has  complex                                                                   
issues and large  wholesale customers that have  a motivation                                                                   
to  delay  rate increases.  They  have  not received  a  rate                                                                   
increase since 1994. He stated  that he could provide records                                                                   
demonstrating  excessively  long  delays  by  the  Regulatory                                                                   
Commission of Alaska and maintained  that delays are a matter                                                                   
of record. He  reiterated that the fact that  they have large                                                                   
wholesale  issues   is  the  likely  reason   the  Regulatory                                                                   
Commission  of Alaska finds  it more  difficult to  deal with                                                                   
their  issues. He  added  that telephone  wars,  if they  are                                                                   
broken down begin to look similar.                                                                                              
                                                                                                                                
TAPE HFC 02 - 2, Side B                                                                                                       
                                                                                                                                
Vice-Chair  Bunde  pointed  out that  if  reauthorization  is                                                                   
delayed  that the Regulatory  Commission  of Alaska would  go                                                                   
into a wind down  mode. He questioned if it  would be counter                                                                   
productive. Mr.  Davidson felt  that further review  would be                                                                   
worth a six-month delay. Vice-Chair  Bunde clarified that the                                                                   
Chugach Electric  Company has reported its monthly  loss [due                                                                   
to a delay in the rate increase] at $200 thousand dollars.                                                                      
                                                                                                                                
Co-Chair  Mulder  pointed  out that  the  advisory  committee                                                                   
would be composed of the same  entities that had testified in                                                                   
support   of   reauthorization.    Mr.   Griffith   expressed                                                                   
confidence that  the advisory committee would  come back with                                                                   
a reasonable  answer. He indicated  that Chugach  Electric is                                                                   
willing  to accept the  decision of  the advisory  committee.                                                                   
Mr.  Davidson stressed  the  importance  of allowing  Chugach                                                                   
Electric to have input to the [advisory] committee.                                                                             
                                                                                                                                
Co-Chair  Williams  observed that  testimony  indicated  that                                                                   
there had  been workshops and  asked if Chugach  Electric had                                                                   
participated.  Mr. Griffith  stated that  they had not  found                                                                   
the workshops productive.                                                                                                       
                                                                                                                                
Co-Chair   Williams  emphasized   that  communications   help                                                                   
resolve issues. Mr.  Griffith stressed that it  is with great                                                                   
trepidation  that anyone  speaks  against  a commission  that                                                                   
controls their regulation. He  noted that they cannot talk to                                                                   
the Commission once a rate case is before them.                                                                                 
                                                                                                                                
Co-Chair Williams  asked how  the heat could  be kept  on the                                                                   
issue if the Commission is shut  down. Mr. Griffith responded                                                                   
that it would  add a measure of  concern to the body  that is                                                                   
being  scrutinized by  virtue  of knowing  that  they have  a                                                                   
finite date by which something  has to happen. He referred to                                                                   
the  reorganization  of 1994  and  concluded  that there  was                                                                   
little disruption. Co-Chair Williams  pointed out that if the                                                                   
Regulatory  Commission  of Alaska  is not  reauthorized  that                                                                   
they would  shut down and not  be talking to anyone  in order                                                                   
to  fix problems.  Mr.  Griffith  stressed  that it  did  not                                                                   
happen that way  in 1994 when the same thing  happened to the                                                                   
APUC.                                                                                                                           
                                                                                                                                
Representative  Hudson  pointed out  that  the Alaska  Public                                                                   
Utilities  Commission   transitioned  immediately   into  the                                                                   
Regulatory  Commission  of  Alaska.  If  that  Commission  is                                                                   
sunsetted,  there  needs  to  be  another  place  to  go.  He                                                                   
reminded them  that there  is no  other regulatory  agency to                                                                   
take over the current cases. He  stated that he was "nervous"                                                                   
about sunsetting the Commission  without consideration of all                                                                   
the pending cases.                                                                                                              
                                                                                                                                
Mr.  Griffith  stated   that  his  point  was   on  the  1994                                                                   
reauthorization of  the APUC, in  which the same  process and                                                                   
same decision  point was  based. He  stressed that  it worked                                                                   
out okay. He  acknowledged that the Regulatory  Commission of                                                                   
Alaska was standing  in the wings in 1998. Many  of the cases                                                                   
[before  the APUC  in  1998] are  still  not adjudicated.  He                                                                   
clarified that they are not saying  sunset them in the strict                                                                   
sense  of the  word:  "chop off  their head  as  we did  with                                                                   
APUC."  He  stated  that  they are  saying:  "let's  fix  the                                                                   
administrative problem we are  having there." He acknowledged                                                                   
that other people might not be  having problems, but asserted                                                                   
that it  has cost the Railbelt  a lot of money  and heartache                                                                   
to resolve the issues.                                                                                                          
                                                                                                                                
Representative  Croft  summarized that  the  best result  for                                                                   
Chugach  Electric  would  be   for  the  legislature  not  to                                                                   
regulate their  rate structure and  instead rely on  the coop                                                                   
structure  to  regulate  the rate.  Members  would  determine                                                                   
whether  their operations  were efficient  and whether  rates                                                                   
were  too  high. Mr.  Davison  agreed.  Representative  Croft                                                                   
noted that  Chugach Electric proposes  that they  be excluded                                                                   
from  the  jurisdiction  of  the   Regulatory  Commission  of                                                                   
Alaska.  Mr. Davison  agreed and  pointed out  that 21  other                                                                   
states have done so.                                                                                                            
                                                                                                                                
Co-Chair Mulder  note that it  would be a significant  policy                                                                   
change.  He  believed  it  was   worthy  of  exploration  and                                                                   
consideration,  but noted  that  it could  not be  done in  a                                                                   
three-day period.                                                                                                               
                                                                                                                                
Representative Lancaster  commented that they  need someplace                                                                   
to  go next.  He  agreed  nothing  would be  accomplished  by                                                                   
sunsetting the Regulatory Commission  of Alaska. Mr. Griffith                                                                   
agreed it would  be difficult to get the issues  all together                                                                   
in  a short  time  period but  emphasized  that  it would  be                                                                   
possible to  put together a review  group that would  be able                                                                   
to  address  the  issue  before   January  2003  to  look  at                                                                   
complaints and successes.  He did not think  that there would                                                                   
be a six-month hiatus. He emphasized  that the starting point                                                                   
would  be an  assumption  of  reauthorization,  but that  the                                                                   
administrative process would look  at goals and objectives in                                                                   
terms of timelines.                                                                                                             
                                                                                                                                
Representative  Lancaster  observed that  they  had not  made                                                                   
these  proposals  during  hearings of  the  Senate  Judiciary                                                                   
Committee  and  thought  that  it should  have  been  brought                                                                   
forward  earlier. He  referred  to the  $300 thousand  dollar                                                                   
study. Co-Chair Mulder clarified  that the study was approved                                                                   
in FY 02 and the RFP has been issued.                                                                                           
                                                                                                                                
Representative John  Davies thought that as a  coop, they had                                                                   
the ability to  seek exemption from economic  regulation by a                                                                   
vote of  the membership. Mr.  Griffith replied that  they had                                                                   
not  sought   authorization  [for  exemption   from  economic                                                                   
regulation].  He  did  not  think   that  the  situation  was                                                                   
sufficiently broken  to warrant a vote. He  acknowledged that                                                                   
it would be a  "tough sell" to convince members.  It is still                                                                   
an option.                                                                                                                      
                                                                                                                                
Representative  Whitaker summarized  that section  7 was  not                                                                   
acceptable  to  the Chugach  Electric  Company  and that  all                                                                   
decisions should  be held in abeyance. Mr.  Davison clarified                                                                   
that section 7  would be in conjunction with  the Commission.                                                                   
He did  not mean  to suggest  that all  decisions be  held in                                                                   
abeyance.  The concept  of section  was acceptable,  however,                                                                   
they would  like several changes.  Section 7 would  allow the                                                                   
chair of the  Regulatory Committee to appoint  the [advisory]                                                                   
committee. He  would prefer that  the committee  be appointed                                                                   
by a combination  of the legislative and  executive branches,                                                                   
which would be more neutral in  his view. He pointed out that                                                                   
electric  utilities would  only  have one  voice  out of  the                                                                   
seven positions.  The Commission would still have  two of the                                                                   
seven  positions.  He  would   prefer  two  electric  utility                                                                   
members and  no members of the  Commission.  He could  see no                                                                   
reason to have two Commission  members on a committee that is                                                                   
trying  to  decide  what  changes   should  be  made  to  the                                                                   
Commission. He added  that the deadline under  section (d) is                                                                   
October  31, 2003,  which  is  18 months.  He  felt that  the                                                                   
advisory  committee could  perform  a satisfactory  job in  a                                                                   
shorter period of time.                                                                                                         
                                                                                                                                
Representative   Whitaker  asked   if  they  understood   the                                                                   
difficultly  of   the  legislature's  ability   to  determine                                                                   
changes  needed  to regulate  the  operations.  Mr.  Griffith                                                                   
stressed that there  is no one better to assess  how they are                                                                   
being   regulated    than   those    that   are    regulated.                                                                   
Representative Whitaker stressed  that the consumer has to be                                                                   
protected.  He reiterated  his question  regarding section  7                                                                   
and  asked  if  Chugach  had   a  problem  with  keeping  the                                                                   
Commission  in  effect while  solutions  are  worked out.  He                                                                   
thought that it would be a dynamic  process, working toward a                                                                   
more positive  result. Mr. Griffith  stated that  the problem                                                                   
with section 7 is that the chair  is appointing the committee                                                                   
to investigate themselves. He  acknowledged that otherwise it                                                                   
could work and business could continue as usual.                                                                                
                                                                                                                                
Representative Foster  referred to the cost  of discovery and                                                                   
losses from rate cases. He asked  if these expenses are being                                                                   
passed on  to the  consumers. Mr.  Griffith replied  that the                                                                   
total  regulatory bill  runs 1.5%  of  their total  revenues.                                                                   
Thirty-one  states  do  not  have  regulations  and  are  not                                                                   
excluded.  Representative  Foster   questioned  what  besides                                                                   
supply  and  demand would  protect  consumers.  Mr.  Griffith                                                                   
noted  that  cooperatives  have elected  boards,  which  must                                                                   
answer to their electorate.                                                                                                     
                                                                                                                                
Representative  Whitaker   referenced  economic   issues  not                                                                   
subject  to regulations.  He questioned  if Chugach  Electric                                                                   
would  recommend that  the  wholesale sale  of  power not  be                                                                   
subject to regulation.  Mr. Griffith affirmed  and maintained                                                                   
that their board is capable of  setting their rates. He noted                                                                   
that consumers  could purchase power from other  entities. He                                                                   
discussed entities,  which buy  power from Chugach  Electric.                                                                   
He stated that they would run  the typical rate case and hold                                                                   
similar  hearings themselves.  The  Superior  Court would  be                                                                   
available for adjudication.                                                                                                     
                                                                                                                                
In response  to a  question by  Representative Whitaker,  Mr.                                                                   
Griffith did not think it was  realistically possible to keep                                                                   
members at a lower rate schedule than wholesale customers.                                                                      
                                                                                                                                
Representative  Croft  observed that  cooperatives  currently                                                                   
have  the  ability  to  opt in  or  out  of  regulation.  Mr.                                                                   
Griffith  explained that  Title  10 requires  an  affirmative                                                                   
vote to withdraw from regulation  under the state entity. The                                                                   
option to return would remain by vote.                                                                                          
                                                                                                                                
Co-Chair Mulder  noted that the Legislative Budget  and Audit                                                                   
Committee produced  a report on  the Commission's  ability to                                                                   
meet their mission. He pointed  out that Chugach Electric had                                                                   
the ability  to make comments  to the Legislative  Budget and                                                                   
Audit  Committee. Mr.  Griffith  stated  that they  expressed                                                                   
their concern to the auditor.                                                                                                   
                                                                                                                                
WES  CARSON,   ALASKA  COMMUNICATION  SYSTEM,   testified  in                                                                   
opposition   to  the   reauthorization   of  the   Regulatory                                                                   
Commission  of  Alaska.  He maintained  that  the  regulatory                                                                   
status  quo   is  unacceptable.  He  emphasized   that  their                                                                   
concerns  and  concerns  expressed by  many  other  utilities                                                                   
throughout Alaska  must be addressed by the  Legislature in a                                                                   
thorough  and  comprehensive manner  before  the  RCA is  re-                                                                   
authorized.                                                                                                                   
                                                                                                                                
Mr. Carson  noted that his  testimony would relate  primarily                                                                   
on  the four  ACS local  telephone companies  that build  and                                                                   
maintain the  Public Switched  Telephone Network,  serving 75                                                                   
percent of the  State's population. These ACS  companies are:                                                                   
ACS of Anchorage  (formerly ATU); ACS of  Fairbanks (formerly                                                                   
FMUS);  ACS  of  Alaska  (serving Juneau);  and  ACS  of  the                                                                   
Northland (serving  the highest cost  and most remote  of our                                                                   
service areas).                                                                                                                 
                                                                                                                                
Mr. Carson discussed  their concerns relative  to substantive                                                                   
telecom   policy  and   law.  He   discussed  the   Anchorage                                                                   
Interconnection  Agreement.  The   Interconnection  Agreement                                                                   
between General  Communications,  Inc. ("GCI") and  Anchorage                                                                   
Telephone Utility  ("ATU) was  approved by the  Alaska Public                                                                   
Utility Commission ("APUC") in January 1997 [in Order U-96-                                                                     
89  (9)].  It  established  the  terms  for  local  telephone                                                                   
competition in  Anchorage, including  the rate that  would be                                                                   
charged for the ("UNE") loops.  The UNE loop is the telephone                                                                   
circuit  or  line  connecting  a  customer  with  the  Public                                                                   
Switched Telephone Network.                                                                                                     
                                                                                                                                
In the 1997 order, the APUC established  a temporary UNE loop                                                                 
rate  of $13.85  per month.  In the  Commission's own  words,                                                                   
"all prices  in the arbitrated interconnection  agreement are                                                                   
temporary in nature and will require  a full study based upon                                                                   
a cost methodology  to be determined by this  Commission at a                                                                   
later date."                                                                                                                    
                                                                                                                                
Mr.  Carson  noted  that  ACS  of  Anchorage,  Inc.,  as  the                                                                   
successor to ATU, sought, but  failed to obtain, an agreement                                                                   
with GCI for new cost-based rates.  ACS then asked the RCA to                                                                   
set new rates in January 2000, arguing that the then three-                                                                     
year  old  rate  of  $13.85 was  so  low  as  to  effectively                                                                   
subsidize  competition  in Anchorage.  This  non-compensatory                                                                   
rate, gives GCI a cost of goods advantage over ACS.                                                                             
                                                                                                                              
The RCA, on March 6, 2000, opened  a docket to set new rates,                                                                   
and expressly  recognized that  the existing rates  were both                                                                   
temporary  and "not  based upon  an accepted  forward-looking                                                                   
cost methodology."  Nevertheless, the  RCA took no  action on                                                                   
the open docket. Finally, a year  and a half after requesting                                                                   
new  forward-looking rates,  ACS  asked for  at  least a  new                                                                   
"temporary" rate.                                                                                                               
                                                                                                                                
The RCA  held a  hearing during  the latter  part of  2001 in                                                                   
which ACS submitted extensive  evidence supporting a UNE loop                                                                   
rate  of $24.00  per  month.  Mr.  Carson observed  that  ACS                                                                   
requested an  "interim and  refundable" increase.  This means                                                                   
that in  the event a finally  adjudicated rate was  less than                                                                   
the interim rate,  ACS would refund to GCI  any overpayment -                                                                   
thereby protecting  GCI from economic  harm. At  the hearing,                                                                   
GCI's counsel  made an oral  representation -  unsupported by                                                                   
any cost studies  submitted in connection with  the hearing -                                                                   
that  their models  could  not justify  a  rate greater  than                                                                   
$14.92. The RCA  agreed with GCI, despite the  absence of any                                                                   
supporting evidence, and issued  an order granting an interim                                                                   
refundable rate of$ 14.92.                                                                                                      
                                                                                                                                
Mr. Carson stressed that after  five and a half years ACS has                                                                   
never had  a rate  in compliance with  federal law.  In fact,                                                                   
ACS has been  unable to obtain even a schedule  for resolving                                                                   
this matter. And,  as their submitted cost  studies indicate,                                                                   
ACS  is still  not receiving  adequate  compensation for  UNE                                                                   
loops.                                                                                                                          
                                                                                                                                
Mr.   Carson  discussed   the   termination   of  ACS   rural                                                                   
exemptions.  Telephone companies  are  classified as  "rural"                                                                   
under the  Telecommunications Act  when their costs  are very                                                                   
high.  With  a  rural exemption  companies  do  not  have  to                                                                   
interconnect and  lease their  loops and other  facilities to                                                                   
competitors.   State  Commissions   may  terminate   a  rural                                                                   
exemption, but  only, if the  state Commission finds  that it                                                                   
is   technically  feasible,   is   not  unduly   economically                                                                   
burdensome, and  would be  consistent with universal  service                                                                   
to do so.                                                                                                                       
                                                                                                                                
Mr. Carson observed that GCI requested  in 1997 that the APUC                                                                   
terminate rural  exemptions. The  APUC placed the  "burden of                                                                   
proof'   on   GCI   and   found   that   the   economics   of                                                                   
interconnection  competition would  be  unduly burdensome  on                                                                   
the companies.  The APUC therefore  ruled that  the exemption                                                                   
should be preserved.                                                                                                            
                                                                                                                                
Mr.  Carson explained  that GCI  appealed the  order and  the                                                                   
Alaska  Superior Court  remanded the  case back  to the  APUC                                                                   
with the  instruction to  place the burden  of proof  on ACS.                                                                   
The APUC did so, then terminated  the rural exemptions of the                                                                   
ACS companies  and ordered interconnection  with GCI  on June                                                                   
30, 1999.  He noted ACS appealed  the APUC's decision  to the                                                                   
new Regulatory  Commission of  Alaska and without  a hearing;                                                                   
the RCA sustained the termination of the rural exemption.                                                                       
                                                                                                                                
In  July  2000,  the  8th Circuit  Court  of  Appeals,  in  a                                                                   
decision that  was binding on  all other circuits,  held that                                                                   
the burden of proof must be on  the competitor, not the rural                                                                   
telephone company, and that the  economic burden on the rural                                                                   
telephone company  associated with  competitive entry  had to                                                                   
be considered.                                                                                                                  
                                                                                                                                
Mr. Carson  observed that  GCI appealed  the decision  to the                                                                   
U.S. Supreme Court to review on  the specific issue of burden                                                                   
of  proof. The  U.S. Supreme  Court denied  the GCI  request,                                                                   
leaving the  8th Circuit's decision  on these matters  as the                                                                   
law of the land. Yet the RCA refused  to comply with the law,                                                                   
stating: "The 8th  Circuit's ruling on the assignment  of the                                                                   
burden  of proof  in a  rural exemption  proceeding does  not                                                                   
persuade us to  revisit that issue here." He  maintained that                                                                   
this was a clear case of the RCA  ignoring a federal decision                                                                   
that  did   not  comport  with   its  own  policy   to  force                                                                   
competition in  rural areas. He  noted that ACS  has appealed                                                                   
the  matter to  the Alaska  Supreme  Court, where  it is  now                                                                   
pending review.                                                                                                                 
                                                                                                                                
Mr. Carson  noted that  the Regulatory  Commission of  Alaska                                                                   
also terminated  the exemption  for ACS' most  rural company,                                                                   
ACS of  the Northland,  despite GCI's  testimony in  1997 and                                                                   
again in  1999 that  it was seeking  interconnection  only in                                                                   
North Pole and not anywhere else  in the ACS of the Northland                                                                   
service territory. He emphasized  that there has not been any                                                                   
specific evidence  introduced on  the impacts of  competition                                                                   
relative    to   the   economic    burden   resulting    from                                                                   
interconnection  or  regarding  universal  service  in  small                                                                   
communities such  as Seldovia, Ninilchik, Delta  Junction and                                                                   
Nenana.                                                                                                                         
                                                                                                                                
Mr.  Carson  discussed  the  Interconnection   Agreements  in                                                                   
Fairbanks and Juneau.  As a result of the termination  of the                                                                   
rural  exemption, ACS  was been  compelled to  permit GCI  to                                                                   
interconnect  and  lease  UNE.   In  sharp  contrast  to  its                                                                   
dilatory  handling of  the  ACS request  for  legal UNE  loop                                                                   
rates  in Anchorage,  the  RCA very  promptly  set rates  for                                                                   
Fairbanks and  Juneau in  response to a  request by  GCI. The                                                                   
actual ACS  cost for  an average loop  in Fairbanks  is about                                                                   
$33.50. The RCA, however, set  a UNE loop price for Fairbanks                                                                   
of $19.19 -  giving GCI a cost  of goods that is just  57% of                                                                   
the ACS cost.                                                                                                                   
                                                                                                                                
At  the  time   it  terminated  the  rural   exemptions,  the                                                                   
Regulatory  Commission of  Alaska  stated that  "negotiations                                                                   
regarding appropriate  UNE pricing can achieve  an acceptable                                                                   
level of economic  impact" and promised that it  would play a                                                                   
continuing  supervisory  role to  ensure  that the  "economic                                                                   
burdens  borne by  the incumbent  carrier in  a market  where                                                                   
local competition  is  newly introduced  are not too  great."                                                                   
The  Company  testified  in  the  Fairbanks  rural  exemption                                                                   
proceeding that  economic harm would  result from a  UNE loop                                                                   
rate as low as $27.30. The RCA  flatly rejected the Company's                                                                   
economic  harm  argument,  declaring:   "That  UNE  price  is                                                                   
unrealistically  low."  He  maintained   that  the  RCA  then                                                                 
promptly arbitrated a rate of $19.19.                                                                                           
                                                                                                                                
                                                                                                                                
Mr.  Carson discussed  rate case  proceedings. He  maintained                                                                   
that many  utilities have expressed  concern about  the level                                                                   
of effort  and resources  required to  adjudicate rate  cases                                                                   
before the Regulatory Commission  of Alaska. He observed that                                                                   
ACS  shares this  concern. The  current ACS  rate cases  were                                                                   
mandated to commenced on July  1, 2001. He anticipated that a                                                                   
rate sometime in 2003, based on  data that will then be three                                                                   
years  old. This  matter has  already cost  ACS roughly  $1.8                                                                   
millions  to adjudicate  the case  and they  expect the  full                                                                   
proceeding to cost approximately $3.0 million.                                                                                  
                                                                                                                                
Mr.  Carson  pointed   out  that  earlier  this   month,  the                                                                   
Regulatory  Commission   of  Alaska  issued   a  depreciation                                                                   
decision  in  the  rate  case  proceedings  that  appears  to                                                                   
conflict with the  U.S. Supreme Court's decision  this May in                                                                   
Verizon v.  FCC. The U.S.  Supreme Court criticized  attempts                                                                 
to minimize  depreciation  and slow  depreciation rates,  yet                                                                   
that is precisely what the RCA  has ordered. The depreciation                                                                   
rates established by the RCA for  ACS are not only much lower                                                                   
than the rates  employed by its competitors,  but these rates                                                                   
appear  to be significantly  lower than  any other  telephone                                                                   
utility in Alaska. In fact, they  appear to be lower than any                                                                   
known depreciation  rate  for any telephone  utility,  big or                                                                   
small, anywhere in the country.                                                                                                 
                                                                                                                                
Mr.  Carson maintained  that  this  is exactly  the  opposite                                                                   
result from  what one  would expect  in the most  competitive                                                                   
marketplace in the nation where  there is heightened pressure                                                                   
to modernize equipment or lose  customers. The effect of this                                                                   
decision will be  to leave ACS burdened with  capital tied up                                                                   
in  stranded,  obsolete  facilities   while  the  competitors                                                                   
invest in newer  technologies. Many utilities  have expressed                                                                   
fears that  testimony against the four-year  re-authorization                                                                   
of  the  RCA  could result  in  retaliatory  rulings  by  the                                                                   
Commission in the  future. He questioned if ACS  has been the                                                                   
first victim.                                                                                                                   
                                                                                                                                
Mr.  Carson  stressed  that  the   "quid  pro  quo"  for  the                                                                   
regulation  imposed  on  the   ACS  companies  should  be  an                                                                   
opportunity  to earn a  return on  their investment.  The RCA                                                                   
can compel ACS  to build and serve - but they  have no way to                                                                   
assure a  return on  their investment.  He stressed  that the                                                                   
Commission claimed  "sovereign immunity"  when ACS  sought to                                                                   
have a matter under the Telecommunications  Act reviewed by a                                                                   
federal district court. He asked:  "Where is justice when the                                                                   
Commission  refuses   to  be   held  accountable   for  their                                                                   
decisions?  And why wouldn't  state Commissioners  absolutely                                                                   
want to  have the fullest review  of their decisions  to make                                                                   
sure  that what  they are  doing  is in  compliance with  the                                                                   
Telecom Act and appropriate policy and public interest?"                                                                        
                                                                                                                                
Mr. Carson observed  that ACS has continued to  invest in the                                                                   
network in the hope that the Regulatory  Commission of Alaska                                                                   
would,  through their  current rate case  proceeding  and the                                                                   
Anchorage UNE  proceeding, permit  them to earn  a reasonable                                                                   
return on  their investment. He  observed that they  had been                                                                   
disappointed thus far.                                                                                                          
                                                                                                                                
Mr. Carson explained that ACS  was seeking depreciation rates                                                                   
of  9.30  percent,  which  is  comparable  to  their  primary                                                                   
competitor's  depreciation  rate.  He pointed  out  that  GCI                                                                   
argued  against  their  depreciation  rate -  not  the  RCA's                                                                   
Public  Advocacy  Staff.  Staff  relied entirely  on  GCI  to                                                                   
formulate a position and the RCA  reduced ACS's rate from the                                                                   
existing 7.80  percent to 4.78 percent, which  was remarkably                                                                   
close to the GCI recommendation of 4.49 percent.                                                                                
                                                                                                                                
Mr. Carson expressed concern with  the frequency in which the                                                                   
RCA seems to side with GCI. He  stated that they had reviewed                                                                   
Commission decisions  on disputed issues before  the RCA from                                                                   
July  1999  to  the  present.  In  those  matters  where  GCI                                                                   
advocated  a position,  the  RCA ruled  in  GCI's favor  81.3                                                                   
percent of the time.                                                                                                            
                                                                                                                                
Mr. Carson stated that legislators  must carefully review the                                                                   
current regulatory regime before  reauthorizing the RCA. "The                                                                   
Legislature must  assure that  state regulation  of utilities                                                                   
promotes  the   public  interest,  and  that   every  utility                                                                   
receives  fair and  open,  unbiased, and  rational  treatment                                                                   
that    encourages   continued    investment   in    Alaska's                                                                   
infrastructure."                                                                                                                
                                                                                                                                
Mr.   Carson    noted   that   ACS   makes    the   following                                                                   
recommendations to  the Legislature relative to  the proposed                                                                   
reauthorization of the RCA:                                                                                                     
                                                                                                                                
     1.   Immediately   establish  a  Legislative   Oversight                                                                   
     Committee to monitor the  RCA   's   actions    and   to                                                                   
     formulate recommendations  for consideration in the 2003                                                                   
     legislative  session.  The  charter of  the  Legislative                                                                 
     Oversight Committee should  be to assure that regulatory                                                                   
     policy is  aligned with long-term public  interest, that                                                                   
     regulatory processes are  completed in a timely fashion,                                                                   
     that  due   process  is   afforded  to  all,   and  that                                                                   
     substantive law is being applied appropriately.                                                                            
                                                                                                                                
     2.     Use  the  findings  and  recommendations  of  the                                                                   
     Legislative.  Oversight Committee, along  with testimony                                                                   
     provided  in  these and  related  legislative  committee                                                                   
     hearings, to guide the 2003  Legislature's deliberations                                                                   
     of  the  proposed  re-authorization   of  the  RCA.  The                                                                 
     Legislature    should    also    utilize    the    State                                                                   
     Telecommunications    Study   as   it    considers   the                                                                   
     appropriate statutory, regulatory  and policy directions                                                                   
     necessary to guide the regulators in telecommunications                                                                    
     matters (see attachments).                                                                                                 
                                                                                                                                
     3.     Require that the chair of the RCA be rotated, so                                                                    
     as to spread the responsibilities and prevent a single                                                                     
     Commissioner from exercising undue influence.                                                                            
                                                                                                                              
Mr. Carson stated that they were  concerned about a perceived                                                                   
bias against ACS  and the possibility of  retribution against                                                                   
ACS by the RCA  in current and future regulatory  orders as a                                                                   
result  of their testimony.  "Consequently,  and in light  of                                                                   
the significant  power currently  vested in the  RCA's chair,                                                                   
we think it would be appropriate  for another commissioner to                                                                   
be  appointed  to the  position  of  chair  and to  ask  that                                                                   
Commissioner   Thompson  disqualify   herself  from   matters                                                                   
relating to ACS."  [Mr. Carson's entire written  testimony is                                                                   
on file.]                                                                                                                       
                                                                                                                                
Co-Chair  Mulder  questioned  why  ACS did  not  offer  their                                                                   
comments earlier in the process.  Mr. Carson stated that they                                                                   
were  reluctant to  offer  criticisms and  acknowledged  that                                                                   
they  had lost  an opportunity  to make  comments. They  were                                                                   
contacted  and  interviewed,   late  in  the  session,  by  a                                                                   
reporter  of the  Anchorage Daily  News.  He maintained  that                                                                   
after they expressed their concerns  publicly other utilities                                                                   
stepped forward.                                                                                                                
                                                                                                                                
Co-Chair Mulder  noted that he  had heard that [ACS]  did not                                                                   
have to worry about  the House side because they  had a block                                                                   
on  the Senate  side and  that  they would  not consider  any                                                                   
testimony  on the House  side. Mr.  Carson responded  that he                                                                   
had meet  with and  briefed several  House members  including                                                                   
Representative Murkowski and Representative Berkowitz.                                                                          
                                                                                                                                
Co-Chair Mulder noted  that ACS is the first  entity that had                                                                   
debated or  argued against decisions  as opposed  to process.                                                                   
He  pointed out  that  the legislature  is  not the  decision                                                                   
makers "in  this game;  just like  we may  be angry  at times                                                                   
with the  Board of  Fish because  we don't always  appreciate                                                                   
and support  their decisions.  None the less,  as a  Body, we                                                                   
have delegated  that authority  to them."  The authority  for                                                                   
regulatory  oversight has  been delegated  to the  Regulatory                                                                   
Commission  of Alaska.  He questioned  how  he could  address                                                                   
concerns reflected based on decisions.                                                                                          
                                                                                                                                
Mr. Carson  responded that  it would  be appropriate  for the                                                                   
Legislature   to  offer   policy  direction   to  guide   the                                                                   
Regulatory Commission of Alaska,  so that they are not in the                                                                   
position of establishing policy,  but rather implementing it.                                                                   
He observed  that the  Telecommunication  Act at the  federal                                                                   
level was  a sweeping  change in  philosophy and pointed  out                                                                   
that has been no corresponding  change at the state level. He                                                                   
maintained that  it would be appropriate for  the Legislature                                                                   
to consider  both statutory  change and  policy direction  to                                                                   
guide the Regulatory Commission of Alaska.                                                                                      
                                                                                                                                
Vice-Chair  Bunde summarized  that ACS  and Chugach  Electric                                                                   
have problems [with the Regulatory Commission of Alaska].                                                                       
                                                                                                                                
TAPE HFC 02 - 3, Side A                                                                                                       
                                                                                                                                
Mr. Carson  clarified that  they are  not proposing  that the                                                                   
current people be thrown out.  He acknowledged that there are                                                                   
some  good   and  talented   people  there   that  are   well                                                                   
intentioned and  trying to the  best thing for the  state. He                                                                   
suggested  that if policy  were made  by the legislature  and                                                                   
the statutes were  clear, that then there would  be direction                                                                   
for the regulatory Commission.                                                                                                  
                                                                                                                                
Vice-Chair  Bunde noted  that there  is a  fine line  between                                                                   
providing legislative oversight and micro managing.                                                                             
                                                                                                                                
Co-Chair  Mulder  questioned  how  much  state  communication                                                                   
standards  could deviate from  the federal  Telecommunication                                                                   
Act. Mr.  Carson emphasized  that he  is not suggesting  that                                                                   
anything be  written contrary  to the Telecommunication  Act.                                                                   
There  are  certain discretionary  decisions  the  Regulatory                                                                   
Commission  of Alaska  has made that  might be  appropriately                                                                   
addressed  in  statute,  including many  procedural  and  due                                                                   
process issues.                                                                                                                 
                                                                                                                                
Representative Croft noted that  the original legislation was                                                                   
a  sunset  renewal  of  an  agency.   He  questioned  if  the                                                                   
Legislative Budget and Audit Committee  auditor had contacted                                                                   
ACS during the  audit process. Mr. Carson stated  that he did                                                                   
not  know  of any  contact.  In  response  to a  question  by                                                                   
Representative Croft, Mr. Carson  noted that ACS is still the                                                                   
dominant carrier, but that they  have less than 60 percent of                                                                   
the residential  market. He  spoke to  the issue of  dominant                                                                   
carrier and carrier  of last resort. He noted  that they have                                                                   
wrestled with  these issues. As  carrier of last  resort they                                                                   
are required to  build facilities to new  subdivisions. There                                                                   
is no  reciprocal obligation  on their  competitors.  If they                                                                   
were relieved of  carrier of last resort and  dominant status                                                                   
there might be a bidding process  with contractors to see who                                                                   
would build  out to  a subdivision.  Under current  law, they                                                                   
would be  precluded from  the kind of  access given  to their                                                                   
competitors. Competitors are not  required to allow ACS on to                                                                   
their network.                                                                                                                  
                                                                                                                                
Representative  Croft  concluded that  if  ACS petitioned  to                                                                   
remove the dominant  carrier status that they  would lose the                                                                   
obligation to have others ride  on their wires but they would                                                                   
not gain the right to ride on  their competitor's. Mr. Carson                                                                   
clarified  that  under  the  Telecommunications  Act  as  the                                                                   
incumbent  local  exchange  company   they  are  required  to                                                                   
interconnect in Anchorage. Dominant  status is not the issue.                                                                   
He explained  that if they  were relieved of  dominant status                                                                   
and carrier of  last resort obligation, and  were effectively                                                                   
deregulated for  rates, than they  could compete  more nimbly                                                                   
against  GCI  and   AT&T.  A  process  similar   to  the  FCC                                                                   
requirements  for  interstate  rates  would  be  appropriate.                                                                   
Rates would be  posted on websites and be in  effect 24 hours                                                                   
later.                                                                                                                          
                                                                                                                                
Representative  Croft questioned  the affect  of a change  in                                                                   
their  dominant  status.  Mr.  Carson stated  that  he  would                                                                   
respond in  writing. Representative  Croft questioned  if the                                                                   
legislature,  as  state  policy  makers,  could  establish  a                                                                   
different rate  or depreciation  structure than the  one used                                                                   
by the Regulatory Commission of  Alaska. Mr. Carson explained                                                                   
that federal law does not mandate  the depreciation rate; the                                                                   
state commission establishes it.  The state legislature could                                                                   
establish  principals  by  statute   that  would  govern  the                                                                   
setting of the depreciation rate or structure.                                                                                  
                                                                                                                                
Mr. Carson explained that the  legislature could require that                                                                   
unbundled network  element loop  rates be established  on the                                                                   
carrier's  actual  forward-looking  cost,  which  they  would                                                                   
support. It  would be consistent with the  Telecommunications                                                                   
Act, FCC  regulations,  and recent Supreme  Court rulings  to                                                                   
say that the rates should be based  on a forward looking cost                                                                   
or  efficient  technology.  In  determining  what  the  model                                                                   
yields,  the inputs  relative to  costs have  to reflect  the                                                                   
actual rate  of the carrier and  not be based on  the average                                                                   
lower 48  rate, even  with an  Alaskan cost differential.  He                                                                   
mentioned that the actual cost  of the carrier should be used                                                                   
and be consistent with the Telecommunications Act.                                                                              
                                                                                                                                
Representative   Hudson   thought    they   were   advocating                                                                   
substantive  policy and  legislative changes  to eliminate  a                                                                   
string  of  unfair  decisions  that affect  his  company.  He                                                                   
stated that he had never seen  substantive changes occur in a                                                                   
short period of time. He observed  that the testimony will be                                                                   
a part  of the  public record.  He summarized  that they  are                                                                   
asking  the legislature  not  to reauthorize  the  Regulatory                                                                   
Commission of  Alaska without these substantive  changes.  He                                                                   
reiterated that it is impossible  to make substantive changes                                                                   
in a  3 -  5 day period.  The decision  must be to  determine                                                                   
what should  be done  with the Commission.  He added  that it                                                                   
would not  be good  public policy  to sunset the  Commission.                                                                   
He concluded  that the  problem cannot  be fixed within  this                                                                   
time  frame  and  voiced  support  for  continuation  of  the                                                                   
Commission.                                                                                                                     
                                                                                                                                
Representative Whitaker recalled  previous concerns voiced by                                                                   
PTI, the previous  ACS Company regarding local  access, which                                                                   
did not  cover the charge  of service.  He noted that  it was                                                                   
made clear  during public sessions  that ACS would  be unable                                                                   
to  compete because  the  amount that  could  be charged  for                                                                   
local  access would  not  cover the  cost  of operations  and                                                                   
maintenance. He asked why ACS  wanted to purchase the company                                                                   
given those voiced  concerns. He recalled that  ACS indicated                                                                   
that  they   could  offset  concerns  with   efficiency,  new                                                                   
services and  long distance service. Representative  Whitaker                                                                   
noted that everything that ACS anticipated happened.                                                                            
                                                                                                                                
Mr. Carson  pointed out that the  old PTI companies  in their                                                                   
rural areas  offered up wholesale competition,  where service                                                                   
would  be   discounted  and   allow  it   to  be  resold   by                                                                   
competitors.  This is  a different economic  effect  than the                                                                   
interconnection competition where  they are required to lease                                                                   
the  UNE   loop.  He   maintained  that   the  economics   of                                                                   
telecommunications  are arcane  and strange.  In a  wholesale                                                                   
competition arrangement,  most of those wholesale  structures                                                                   
work. Rural exemptions were terminated.  Instead of wholesale                                                                   
competition  the issue was  interconnection competition.  The                                                                   
form  of interconnection  competition,  specifically the  UNE                                                                   
loop rates  received through  arbitration and the  Commission                                                                   
were 57% of  the actual cost of  the loops. There has  been a                                                                   
negative  financial  implication  for  the  properties  as  a                                                                   
result.                                                                                                                         
                                                                                                                                
Representative Whitaker  reiterated that there  were numerous                                                                   
conversations  regarding the uncertainties  during  the sale.                                                                   
There   were  a   number  of   "negatives"  associated   with                                                                   
maintaining ownership  of the  local exchange. He  remembered                                                                   
that  it  was expected  that  the  "landscape"  would  change                                                                   
significantly.  He   asked  what  the  "surprise"   was  that                                                                   
affected the  dynamic. Mr.  Carson replied  that there  was a                                                                   
benefit  to both  the Telephone  Company  and Alaska  because                                                                   
there was certain support being  provided to those properties                                                                   
in the  lower 48  states. By  consolidating those  properties                                                                   
jobs could be brought to Alaska  and economies of scale would                                                                   
be achieved. These  things have happened, but there  is a $33                                                                   
dollar forward looking cost, which  they believe is about the                                                                   
same, but they  are only receiving $19.19. Plus,  because GCI                                                                   
has  been  granted   a  certain  status  by   the  Regulatory                                                                   
Commission  of Alaska  they also take  the universal  service                                                                   
fund.  This places  ACS at  a  significant disadvantage  that                                                                   
could not  have been envisioned.  There is approximately  $10                                                                   
dollars  in universal  service  funds per  line in  Fairbanks                                                                   
that  is portable.  He  explained that  GCI  pays ACS  $19.19                                                                   
dollars,  but they  receive $10  dollars  from the  universal                                                                   
service  fund  that is  no  available  to  ACS to  build  and                                                                   
maintain   facilities.  Universal   service  funding,   which                                                                   
maintains  construction  of high  cost  loops  in areas  like                                                                   
Fairbanks is diverted to someone  that is not building loops,                                                                   
which is a dramatic affect on ACS.                                                                                              
                                                                                                                                
NANETTE  THOMPSON, CHAIR,  REGULATORY  COMMISSION OF  ALASKA,                                                                   
spoke in  support of the  proposal and responded  to previous                                                                   
comments.  She  observed  that   interexchange  carriers  are                                                                   
excluded  [from the  advisory committee],  as are  pipelines,                                                                   
refuge and  steam heat.  In response  to comments that  there                                                                   
are two  representatives of the  Commission [on  the advisory                                                                   
committee], she clarified that  there one is a representative                                                                   
of the  public advocacy  section, which  is independent  from                                                                   
the  Commission in  terms  of decision-making.  She  stressed                                                                   
that  it  is  important  to  include   a  representative  for                                                                   
consumers, which  could be fulfilled  by the public  advocacy                                                                   
section  or another  entity. She  noted that  recommendations                                                                   
were  made  to divide  electric  representation  between  the                                                                   
Railbelt,  rural  area  and  ARECA.   There  are  significant                                                                   
differences   between  the   interests   of  rural   electric                                                                   
utilities  and those  in Railbelt  areas.  She questioned  if                                                                   
other  industry organizations  should  be  included if  ARECA                                                                   
were included.  She reiterated  that there  is a  significant                                                                   
difference  between  local  exchange carriers  in  urban  and                                                                   
rural areas.                                                                                                                    
                                                                                                                                
Ms. Thompson  stated that the  provision for regular  monthly                                                                   
meetings  would be  fine, but  that they  would be  scheduled                                                                   
after  one  of  their  public  hearings.  They  must  balance                                                                   
between the time spent working on cases and process.                                                                            
                                                                                                                                
Ms. Thompson referred to section  5, prior dockets. There are                                                                   
currently  less than 400  open dockets.  She thought  that it                                                                   
would  be   more  productive   to  issue  orders   setting  a                                                                   
procedural schedule on any docket open by January 1, 2003.                                                                      
                                                                                                                                
Ms. Thompson referred to the Commission's  appeal record. She                                                                   
noted that any  utility could challenge a decision  in court.                                                                   
The  Regulatory  Commission  of  Alaska  has had  11  of  its                                                                   
decisions  reviewed  by  judicial bodies.  Decisions  by  the                                                                   
Regulatory Commission of Alaska  have been upheld in 10 of 11                                                                   
cases. The  appeal process is  an important indicator  in how                                                                   
the  Commission  is doing.  The  decision that  was  reversed                                                                   
referred to process and was remanded for further hearings.                                                                      
                                                                                                                                
Ms. Thompson clarified  that the 271 process  (referred to by                                                                   
Mr. Nugent)  never applied  in Alaska.  The Anchorage  market                                                                   
was   opened  immediately   in  1996   based  on   Congress's                                                                   
definition of rural verses non-rural  market. The rest of the                                                                   
State  was  not  open to  competition  until  the  Regulatory                                                                   
Commission of  Alaska was  petitioned. The Commission  issued                                                                   
decisions to  open Juneau, Fairbanks  and other areas  of the                                                                   
state. That decision is pending  appeal to the Alaska Supreme                                                                   
Court.                                                                                                                          
                                                                                                                                
Representative  Croft asked  if  there was  a Superior  Court                                                                   
determination.  Ms. Thompson  explained that  there were  two                                                                   
Superior Court  determinations. One  was issued the  last day                                                                   
that  the  APUC  was  in  operation.   The  request  was  for                                                                   
reconsideration   not   appeal.    All   five   Commissioners                                                                   
participate  in requests  for  reconsideration  and read  the                                                                   
whole  record.  That decision  was  appealed  to the  Supreme                                                                   
Court.                                                                                                                          
                                                                                                                                
Ms.  Thompson referenced  testimony  regarding open  dockets.                                                                   
There  were  960  open  dockets in  the  previous  year.  The                                                                   
Commission  has 61  employees, but  also regulates  pipelines                                                                   
and  refuge. The  Regulatory  Commission  of  Alaska has  not                                                                   
asked  for increased  staff, but  has tried  to increase  the                                                                   
efficiency of the process.                                                                                                      
                                                                                                                                
Ms.  Thompson discussed  two open  regulation dockets  [which                                                                   
could  affect  the workload  of  the Commission].  One  would                                                                   
allow  interexchange  carriers,  which  are below  a  certain                                                                   
level,  a  registration  process  instead  of  certification.                                                                   
These cases are a significant  burden on the Commission.  The                                                                   
second docket is  in regards to uncertified  water and sewage                                                                   
village  systems.   The  Regulatory   Commission  of   Alaska                                                                   
maintains that  many of the village  systems do not  need the                                                                   
same level  of oversight as a  WWU. The RCA Alaska  has asked                                                                   
questions with a goal toward developing  regulations that are                                                                   
more suitable for that scale of system.                                                                                         
                                                                                                                                
Ms. Thompson  referred to comments  by Chugach  Electric. She                                                                   
noted  that  there  is  a  letter  from  the  Homer  Electric                                                                   
Association,  which  explains the  other  side  of the  story                                                                   
(copy on  file.) She was  not comfortable talking  about open                                                                   
dockets.  There was  an interim  rate  increase provided  for                                                                   
that case  in the amount of  2%. She referred to  comments by                                                                   
Mr. Carson. They  have appealed decisions by  the Commission.                                                                   
She did not think that the legislature  was the way to settle                                                                   
open and  pending appeals and  urged that the court  be given                                                                   
time to decide the matter.                                                                                                      
                                                                                                                                
Ms. Thompson emphasized that decisions  are based on the full                                                                   
application of the law. They have  the responsibility to make                                                                   
a  record.  The   Commission  is  not  for   or  against  any                                                                   
particular utility;  their job is to protect  the interest of                                                                   
consumers    and   to    fairly    apply    the   law.    The                                                                   
Telecommunications Act states  that state commissions are not                                                                   
supposed  to be setting  interconnection  prices based  on in                                                                   
bedded costs.  Rates are supposed  to be based on  a forward-                                                                   
looking  cost model. The  Anchorage case  was decided  before                                                                   
ACS   bought   that   exchange    and   shortly   after   the                                                                   
Telecommunication  Act  was  passed.  The  FCC  had  not  yet                                                                   
adopted  the   total  element   long  run  incremental   cost                                                                   
structure.  Years after ACS  acquired ATU  they were  told to                                                                   
change the  pricing structure; this  continues to be  an open                                                                   
docket.                                                                                                                         
                                                                                                                                
In response to  a question by Vice-Chair Bunde,  Ms. Thompson                                                                   
pointed  out  that  the  [advisory]  committee  is  not  just                                                                   
composed of phone companies. It  will be up to the members of                                                                   
the  Committee to  determine if  they  are protective.  Phone                                                                   
wars are  not fought amongst all  the phone companies  in the                                                                   
state. She  maintained that  there is  a balance amongst  the                                                                   
industries.                                                                                                                     
                                                                                                                                
Vice-Chair  Bunde  noted  that  ACS  assumed  the  risk.  Ms.                                                                   
Thompson agreed.  She referred to the  efficiencies argument.                                                                   
At the time of the acquisition,  the Commission was told that                                                                   
operations  would  be  more  efficient.   The  Commission  is                                                                   
supposed  to understand  what beneficial  impacts there  were                                                                   
from consolidation.                                                                                                             
                                                                                                                                
Vice-Chair  Bunde asked  about the  Commission's agenda.  Ms.                                                                   
Thompson replied  that her  directions come from  legislative                                                                   
statute and  federal telecommunication law, without  bias for                                                                   
or against any  company. All decisions are the  product of at                                                                   
least  three  Commissioners.   No  case  is  decided  by  one                                                                   
Commissioner alone.                                                                                                             
                                                                                                                                
Vice-Chair  Bunde pointed  out that there  is discontent.  He                                                                   
asked  for   a  solution.  Ms.   Thompson  stated   that  the                                                                   
Commission  would like  to  hear from  the  utilities on  the                                                                   
process.  Section 6 is a good  idea to formalize the process.                                                                   
She  indicated that  an Advisory  Committee  report would  be                                                                   
helpful  as  long  as  it is  balanced  and  has  a  specific                                                                   
mission.                                                                                                                        
                                                                                                                                
Representative  John  Davies   thought  that  the  points  of                                                                   
contention is interim versus final  decisions. He asked if it                                                                   
is a fair criticism that the Regulatory  Commission of Alaska                                                                   
too often  comes down with  interim decisions that  cannot be                                                                   
taken  to the  bank. Ms.  Thompson observed  that, under  the                                                                   
statute,  anyone can  ask  for an  interim  rate increase.  A                                                                   
decision is  made that  mostly likely  they will prevail  and                                                                   
recover at least that much. If  they are wrong in the end the                                                                   
consumer would  receive the money  back. A utility  will file                                                                   
for a rate increase knowing that  it cannot be granted during                                                                   
the 45-day period due to a lack  of information. She observed                                                                   
that  ACS received  a  24 percent  interim  rate increase  in                                                                   
local rates and  8 percent on the UNE rate.  Chugach received                                                                   
a little less than 2 percent.                                                                                                   
                                                                                                                                
Representative  John  Davies  asked  if  there is  a  way  to                                                                   
achieve final  decisions quicker.  Ms. Thompson replied  that                                                                   
it  depends on  the other  parties involved.  She noted  that                                                                   
requirements for  the utilities  to file all the  information                                                                   
up front could be more stringent.  It is not uncommon for the                                                                   
RCA to get  schedules without all the information  of amended                                                                   
filings.  The process  could  go faster  if  they received  a                                                                   
complete filing  on day  one. She noted  that in  the Chugach                                                                   
case that there are other big  companies involved that have a                                                                   
right to have a say.                                                                                                            
                                                                                                                                
Representative John Davies referred  to the UNE loop cost. He                                                                   
summarized that they  are being asked to install  copper wire                                                                   
without a rate return. Ms. Thompson  explained that in-bedded                                                                   
costs are what the utility has spent to put the cost in.                                                                        
                                                                                                                                
TAPE HFC 02 - 3, Side B                                                                                                       
                                                                                                                                
Ms. Thompson  discussed in-bedded  costs. Phone companies  in                                                                   
the state  have an in-bedded cost  of what they spent  to put                                                                   
the facility  in.  If the facility  were to  be replaced  the                                                                   
assumption would  be that they  would use the  same equipment                                                                   
and  spend  the same  amount.  The  FCC model  uses  forward-                                                                   
looking  costs.  She  observed   that  technology  costs  are                                                                   
reducing and that technology is  expanding. The intent was to                                                                   
encourage companies  to innovate and to do  things that would                                                                   
lower  cost and  utilize  new  technology. A  competitor  can                                                                   
enter a  market by one  of three ways:  they can  build their                                                                   
own facility, purchase wholesale  prices, or interconnect and                                                                   
rent the  loops. The  intent is  to set the  price so  that a                                                                   
competitor  would have  to make  an economic  choice. If  the                                                                   
price  is  too high  and  they  can build  something  cheaper                                                                   
themselves  then  the  existing  network  is  going  to  lose                                                                   
revenues.  The  intent  was  to  keep  the  telecommunication                                                                   
network moving forward.                                                                                                         
                                                                                                                                
Representative John  Davies asked if there is  anyway to make                                                                   
the playing  field more level.  He suggested that there  is a                                                                   
one  sided "deal".  Ms. Thompson  agreed that  the notion  of                                                                   
dominant   versus  non-dominant   could   be  reviewed   upon                                                                   
petition.  The way  of regulation  has changed  and needs  to                                                                   
continue   to   change   as    markets   transition   through                                                                   
competition.     Consumer    complaints    have     increased                                                                   
dramatically.  The Regulatory  Commission  of Alaska  doesn't                                                                   
spend as  much time  on tariff  filings in competitive  areas                                                                   
because  they assume  that if  there  is a  certain level  of                                                                   
market penetration then the market  will control the cost. It                                                                   
is  important  to  ensure  that   rates  are  fair  and  non-                                                                   
discriminatory. Representative  John Davies observed that the                                                                   
Regulatory  Commission  of  Alaska has  the  authority  under                                                                   
federal law.                                                                                                                    
                                                                                                                                
Representative Foster  observed that the Commission  has been                                                                   
accused  of  retaliatory  actions. Ms.  Thompson  noted  that                                                                   
there are  three commissioners  on each  case and  emphasized                                                                   
that they would not retaliate on any case.                                                                                      
                                                                                                                                
In  response  to  a question  by  Representative  Croft,  Ms.                                                                   
Thompson noted  that the Telecommunications Acts  talks about                                                                   
incumbents and  competitive carriers. There is  an obligation                                                                   
for  incumbents  to  open  up their  network.  The  issue  is                                                                   
unresolved. She  noted that there  has been facilities  based                                                                   
competition  through alternative  technologies.  No one  else                                                                   
has put in wires.                                                                                                               
                                                                                                                                
Representative  Croft noted that  problems occur if  the rate                                                                   
is  set too  high or  too low.  Ms. Thompson  noted that  low                                                                   
prices would  not be  fair to  the incumbent and  competitors                                                                   
would not  have an  incentive to  build their own  facilities                                                                   
and take  advantage of new technology.  No one is  putting in                                                                   
copper wire  accept ACS.  Representative Croft questioned  if                                                                   
the  price in  Anchorage is  too  low. Ms.  Thompson did  not                                                                   
think that the price was the only  issue. She noted that AT&T                                                                   
wireless  had a local  option  for a while.  She pointed  out                                                                   
that  there is  a  test neighborhood  for  use  of the  cable                                                                   
technology in Anchorage. She added  that customers are needed                                                                   
in order to build a new network.  The intent was that the UNE                                                                   
platform  strategy  would  be transitional,  to  protect  the                                                                   
interest  of  incumbents  by   providing  them  with  interim                                                                   
revenue and  allow competitors  to obtain relationships  with                                                                   
customers and establish a base.                                                                                                 
                                                                                                                                
Representative  Croft observed that  federal formulas  can be                                                                   
applied differently,  but questioned how much  discretion the                                                                   
state has to  set different formulas or rate  structures. Ms.                                                                   
Thompson noted that  federal law directs UNE  rates. They are                                                                   
applied  on a  state  level, and  there  is some  flexibility                                                                   
within the  guidelines set  by the FCC  and the U.S.  Supreme                                                                   
court to figure  out what methodology would be  used, but the                                                                   
FCC  determines  what the  prices  are supposed  to  reflect.                                                                   
Different  states have  used different  models  but they  all                                                                   
have to fit the  mold. None have used the model  developed by                                                                   
ACS.  The  Commission  sets  depreciation   rates  for  every                                                                   
utility in the state. The depreciation  rate is how a utility                                                                   
recovers  their  investment.  The  rate  of  which  they  are                                                                   
allowed to recover is based on a number of factors.                                                                             
                                                                                                                                
Representative Croft questioned  if there is more competition                                                                   
in the  local exchange  in Anchorage than  any place  else in                                                                   
the United States.  Ms. Thompson affirmed that  there is more                                                                   
local exchange  competition  in Anchorage  than in any  other                                                                   
area. She  noted that  there were  no Bell companies.  Alaska                                                                   
did not  have to go  through the  271 process. She  estimated                                                                   
that  the national  local exchange  competition  rate was  10                                                                   
percent.                                                                                                                        
                                                                                                                                
Representative Croft  questioned how much deference  is given                                                                   
to the  Commission's determination.  Ms. Thompson  noted that                                                                   
factual decisions  are given deference by the  court based on                                                                   
the  Commission's  area  of expertise.  The  court  looks  at                                                                   
whether  the  Commission's  decisions are  supported  by  the                                                                   
record.  The  Commission  is not  given  deference  on  legal                                                                   
decisions.                                                                                                                      
                                                                                                                                
Ms.  Thompson noted  that  the way  the  Commission sets  UNE                                                                   
prices  for the  Juneau and  Fairbanks markets  is on  appeal                                                                   
before the state of Alaska Supreme Court.                                                                                       
                                                                                                                                
Representative  Croft noted  that  the docket  and number  of                                                                   
persons  to  service the  docket  is  used  as a  measure  of                                                                   
efficiency. He  asked if  docket is a  good measure or  if it                                                                   
rewards delay:  the bigger  the docket  the more people  that                                                                   
can be  justified. Ms.  Thompson clarified  that she  was not                                                                   
only  referring  to  the docket.  Consumer  cases  were  also                                                                   
included; the Commission has over  600 consumer cases a year.                                                                   
She also included suspended tariff  proceedings, applications                                                                   
for new services  and contested cases. She agreed  that staff                                                                   
should not just be based on the  number of cases and observed                                                                   
that efficiency should be reviewed.  She pointed out that the                                                                   
Commission has a  good record on tariff filings  and consumer                                                                   
complaints. Contested cases vary and are harder to "peg".                                                                       
                                                                                                                                
Representative Croft  asked if there is any  consideration of                                                                   
the  failure  of  the  dominant  carrier  in  discussions  on                                                                   
protecting consumers.  Ms. Thompson  responded that  there is                                                                   
nothing in the law to cover bankruptcy.  She noted that there                                                                   
is  a  mandate  to provide  just  and  reasonable  rates  and                                                                   
observed that  a number  of large  utilities in other  states                                                                   
have  faced bankruptcy.  The  AT&T  parent company  has  been                                                                   
reorganizing and has had serious financial trouble.                                                                             
                                                                                                                                
In  response  to  a question  by  Representative  Croft,  Ms.                                                                   
Thompson referred  to claims  that the Regulatory  Commission                                                                   
of  Alaska  was  the  cause  of  ACS's  financial  lost.  She                                                                   
reviewed their  federal regulatory filing and  concluded that                                                                   
their records were not consistent  with the implied financial                                                                   
woes. Their filing reflected increases  in local revenues and                                                                   
a healthy  margin, which was  not consistent with  the notion                                                                   
that they are going out of business.                                                                                            
                                                                                                                                
In response to a question by Co-Chair  Williams, Ms. Thompson                                                                   
emphasized  that, while  discussions on  open dockets  cannot                                                                   
occur,  she is  available to  talk about  process and  policy                                                                   
questions such as why it is taking  so long to review a case.                                                                   
She  noted  that  a  particular  docket may  not  be  a  high                                                                   
priority  of the  Commission unless  there is  communication.                                                                   
She cannot talk about issues of an open case.                                                                                   
                                                                                                                                
Ms.  Thompson  discussed  universal  federal  funding,  which                                                                   
supports telephone  services in  high cost issues.  The issue                                                                   
is portability. The  theory is that rural customers  are high                                                                   
cost to  serve. If a competitor  goes into the area  to serve                                                                   
the high cost customer they are  entitled to support. If they                                                                   
are  renting  their  competitor's   facility  the  amount  of                                                                   
support  they can  receive is  capped  by what  they pay  the                                                                   
competitor, yet the competitor  uses more than just what they                                                                   
are purchasing  to offer service  to customers. They  have to                                                                   
have customer service and a switch.                                                                                             
                                                                                                                                
In response to a question by Co-Chair  Williams, Ms. Thompson                                                                   
explained that the legislature  decided in 1999 to strengthen                                                                   
the chair.  One of the criticisms  of the APUC was  that they                                                                   
were so enmeshed in administrative  issues that they were not                                                                   
doing their  work. The  chair cannot  be reappointed  after 4                                                                   
years.  There is  no  difference between  the  chair and  the                                                                   
other  commissioners   in  decision-making.   The   chair  is                                                                   
responsible for administration.                                                                                                 
                                                                                                                                
In response  to a  question by  Representative Whitaker,  Ms.                                                                   
Thompson  noted   that  federal   policy  applies   just  and                                                                   
reasonable  rates   to  all  utilities.  Federal   law  talks                                                                   
specifically  about   the  methodology  for   interconnection                                                                   
pricing,  which  is  a matter  of  sovereignty.  Federal  law                                                                   
preempts state  just and  reasonable standards. She  observed                                                                   
that states  cannot make their  markets any less  competitive                                                                   
than  the Telecommunication  Act  requires.  States can  make                                                                   
markets more competitive.                                                                                                       
                                                                                                                                
Representative   Whitaker   questioned  if   the   Regulatory                                                                   
Commission of Alaska  has flexibility to deal  with the issue                                                                   
of  specific rate  setting  methodology.  Ms. Thompson  noted                                                                   
that they must meet the standard  of forward-looking pricing,                                                                   
but  the Commission  has some  flexibility  in designing  the                                                                   
formula as long as the result is forward looking.                                                                               
                                                                                                                                
Representative  Lancaster  noted  that there  was  discussion                                                                   
before the  Senate Judiciary  Committee regarding  the public                                                                   
advocacy  portion. Ms.  Thompson  explained  that the  public                                                                   
advocacy  section  was  created  in 1999  in  response  to  a                                                                   
suggestion by  the legislative  auditor. The public  advocacy                                                                   
section has proposed regulations  that should address many of                                                                   
the issues regarding  the role they play. She  noted that the                                                                   
Regulatory  Commission of  Alaska cannot  discuss cases  with                                                                   
the public advocacy section in  any greater detail than other                                                                   
parties.                                                                                                                        
                                                                                                                                
Co-Chair Mulder  noted that he  would not offer  an amendment                                                                   
relating to interexchange carriers.                                                                                             
                                                                                                                                
Representative John Davies MOVED to ADOPT Amendment 1:                                                                          
                                                                                                                                
     Page 1, line 5:                                                                                                            
                                                                                                                                
     Delete "Commission chair to establish" Insert                                                                              
     "establishment or'                                                                                                         
                                                                                                                                
     Page 4, lines 7 - 8:                                                                                                       
     Delete "chair of the Regulatory Commission of Alaska                                                                       
     shall appoint"                                                                                                             
                                                                                                                                
     Insert "president of the senate, speaker of the house                                                                      
     of representatives, and the governor shall jointly                                                                         
     appoint the members of'                                                                                                    
                                                                                                                                
     Page 4, line 12:                                                                                                           
                                                                                                                                
     Delete "chair"                                                                                                             
                                                                                                                                
     Insert "persons jointly making the appointments"                                                                           
                                                                                                                                
Vice-Chair  Bunde  MOVED  to  AMEND  Amendment  1  by  adding                                                                   
"limited  to"  on page  4,  line  9 after  "reform":  reforms                                                                   
limited to the  Commission's regulatory process.  He observed                                                                   
that limiting  discussions to  the regulatory process  rather                                                                   
than any philosophy or decisions would draw a fence.                                                                            
                                                                                                                                
Representative  Croft  stressed  that there  are  significant                                                                   
general public policy questions  that could be addressed by a                                                                   
balanced Commission.                                                                                                            
                                                                                                                                
Co-Chair  Mulder acknowledged  his  remarks  but pointed  out                                                                   
that a  study has  already been  funded to  provide the  same                                                                   
overview.  Representative Croft  thought that  the study  was                                                                   
not directed to consider the kinds  of policy decisions being                                                                   
discussed.                                                                                                                      
                                                                                                                                
Representative Whitaker  clarified that the  Commission would                                                                   
be given  specific policy  review credentials  in regards  to                                                                   
economic  models   and  formulations.  Representative   Croft                                                                   
suggested  that  the  [advisory]  committee  could  tell  the                                                                   
agency  how it could  operate more  efficiently and  indicate                                                                   
the affects that  their decisions are having  on the industry                                                                   
and  the consumer,  which would  be interesting  both to  the                                                                   
legislature  and  the  Commission.   Representative  Whitaker                                                                   
expressed   concern  with  the   specific  policy   oversight                                                                   
function  and felt  that they  would  be second-guessing  the                                                                   
Commission.                                                                                                                     
                                                                                                                                
Representative  John  Davies  questioned  the intent  of  the                                                                   
amendment  [to the amendment].  He questioned  if the  policy                                                                   
embedded in the process would  be considered. Co-Chair Mulder                                                                   
interpreted   the  amendment  to   the  amendment   to  limit                                                                   
discussions to procedures. Representative  John Davies stated                                                                   
that he  would oppose  the amendment to  the amendment  if it                                                                   
would  limit  any  discussions  on  the  overall  policy.  He                                                                   
pointed   out   that   the   committee    would   only   make                                                                   
recommendations,  and felt  that  it would  be  a mistake  to                                                                   
limit  their  review.  He  noted  that  it  is  difficult  to                                                                   
separate the facts  of a separate case. He  observed that the                                                                   
committee could recommend a change of policy.                                                                                   
                                                                                                                                
Vice-Chair Bunde noted that there  is very little policy that                                                                   
the  group could  talk about  without retrying  the case.  He                                                                   
felt that expansion  by the advisory group into  policy would                                                                   
result in a  second utilities commission. He did  not want to                                                                   
end  up with  dueling  regulatory commissions  and  cautioned                                                                   
against  micromanagement. He  pointed  out that  much of  the                                                                   
discussion  before  the  committee  focused  on  process  and                                                                   
emphasized  that there  could be  dueling opinions  regarding                                                                   
policy.                                                                                                                         
                                                                                                                                
In response to a question by Representative  Hudson, Co-Chair                                                                   
Mulder clarified  that the $300 thousand dollar  study funded                                                                   
in  the  budget  would  look at  policy  issues  relating  to                                                                   
telephones. The  Regulatory Commission  of Alaska  would fund                                                                   
the  advisory committee.  The advisory  committee would  also                                                                   
sunset at the time the Regulatory  Commission of Alaska would                                                                   
sunset. It could be continued.                                                                                                  
                                                                                                                                
Representative Davies WITHDREW  his OBJECTION. There being NO                                                                   
OBJECTION, the amendment to the  amendment was adopted. There                                                                   
being NO OBJECTION, Amendment 1 as amended was adopted.                                                                         
                                                                                                                                
Co-Chair Mulder noted that he  would work with the Commission                                                                   
and  Representative  Croft  to   address  open  dockets  that                                                                   
proceeded the new timetables.                                                                                                   
                                                                                                                                
Representative Hudson MOVED to  report CSHB 3001 (FIN) out of                                                                   
Committee with  the accompanying fiscal note.  There being NO                                                                   
OBJECTION, it was so ordered.                                                                                                   
                                                                                                                                
CSHB 3001  was REPORTED  out of  Committee  with a "do  pass"                                                                   
recommendation  and   with  a  fiscal  impact   note  by  the                                                                   
Department of Community and Economic Development.                                                                               

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