Legislature(2003 - 2004)
05/12/2003 03:18 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 111
An Act extending the termination date of the Regulatory
Commission of Alaska; and providing for an effective
date.
Co-Chair Williams MOVED to bring up the original version of
the bill before the Committee rather than the House Labor
and Commerce version. There being NO OBJECTION, the
original version was before the Committee.
DAVE HARBOUR, (TESTIFIED VIA TELECONFERENCE), CHAIR,
REGULATORY COMMISSION OF ALASKA (RCA), ANCHORAGE, supported
approval of the Governor's version of the bill. He noted
that at this time "nothing is broken" and nothing needs
fixing. Extending the RCA for another four years, members
should know that:
· Their predecessors and members in 1990, provided
action to change the way that business was done for
the RCA but changing the Alaska Public Utilities
Commission (APUC) into the RCA with new rules. That
action was successful. He noted that when action
was taken in 1999, the APUC was overwhelmed by the
500 cases before them. Now, the normal number of
cases per year is between 160-200. The number of
cases processed should equal the number of cases
that come in.
· The Legislative Budget and Audit Committee (LBA) has
noted the improvement of the Commission.
LEONARD STEINBERG, (TESTIFIED VIA TELECONFERENCE), VICE
PRESIDENT OF GENERAL COUNSEL, ALASKA COMMUNICATION SYSTEMS
(ACS), ANCHORAGE, testified that ACS would support the House
Labor and Commerce version of the legislation. ACS would
not support authorizing RCA without further policy guidance.
It is important to note that many things are being powered
with shortsighted regulatory policies. Policies today are
broken and are in need of repair and that the State
Legislature should remedy these concerns. Alaska is being
harmed because the one sided policies keep new investment
discouraged in the telecommunication infrastructure. ACS
cannot make any money under the current rules. Competitors
have no incentive to invest. Today, State regulatory policy
obligates ACS to lease its facilities at rates below sale
costs, providing a subsidy to the competitors. Mr.
Steinberg stressed that Alaskans prefer regulations that are
fair, providing a level playing field. He reiterated that
ACS supports the House Labor and Commerce version of the
legislation and offered to answer questions of the
Committee.
JOE GRIFFITH, (TESTIFIED VIA TELECONFERENCE), CEO, CHUGACH
ELECTRIC, ANCHORAGE, echoed comments made by the previous
speaker, Mr. Steinberg. He disagreed that "nothing was
broken". The Commission results are broken and have placed
many major entities in the Rail belt in financial
difficulties. Inappropriate work from RCA has cost Chugiak
Electric a lot of money and continues to impact them. No
group should have the authority to place another entity into
financial difficulty from mistakes that they make. The
issue results from the fact that RCA is not capable of doing
the work that the State expects of them, representing the
current market place. The new rules have not worked and the
quality of the product is exceptionally bad. The proper
criterion is how well is the Commission serving the market
place and doing the work expected of them. The costs
encountered from the Rail belt will be with them for years,
creating consternation among rating agencies. The most
recent case cost over $5 million dollars. RCA does not have
the right to make mistakes and to continue producing the
product it has.
JIM ROWE, (TESTIFIED VIA TELECONFERENCE), DIRECTOR, ALASKA
TELEPHONE ASSOCIATION (ATA), ANCHORAGE, echoed comments made
by the previous speaker, Mr. Griffith. He reiterated that
the rural companies are very concerned that things are
"wrong" and have been wrong with the current system. He
spoke against the new Chair of the Commission. There had
been full discussion given to those considerations in the
House Labor and Commerce Committee. Amendments are needed
and they have been submitted by many entities before the
State Legislature. He pointed out that telecommunication
concerns have been before the Legislature for many years.
He predicted that within four years, there will be
devastation within the industry.
STEVE HAMLEN, (TESTIFIED VIA TELECONFERENCE), UNITED
UTILITIES, ANCHORAGE, spoke in support of comments made by
Mr. Rowe. He noted that United Utilities was a member of
the Alaska Telephone Association (ATA).
TAPE HFC 03 - 89, Side A
Mr. Hamlen warned that decisions made by RCA in the past
couple years have created great concerns for other business
statewide. He warned that small local business and coops
would be regulated out of existence. He urged that HB 111
be passed as amended in the House Labor and Commerce
Committee.
ERIC YOULD, (TESTIFIED VIA TELECONFERENCE), EXECUTIVE
DIRECTOR, ALASKA RURAL ELECTRIC COOPERATIVE ASSOCIATION
(ARECA), ANCHORAGE, noted that his utilities generate
approximately 90% of the State's electricity. Last year,
the Legislature indicated that they would put together a
task force to press changes to the RCA. ARECA took that
recommendation seriously and had a number of meetings,
providing amendments that would streamline the agency.
Mr. Yould echoed agreement with Mr. Griffith that RCA needs
reform. The amendments were provided to both the House
Labor and Commerce Committee and the House Finance Committee
members. ARECA strongly believes that there are changes
which need to be made to RCA. The amendments have been on
the table for months and the Legislature has not chosen to
address them.
Mr. Yould emphasized that they do not support the version of
the legislation before the Committee and do not support a
four-year extension to RCA. The industry only supports a
one-year extension of the Commission without incorporating
the proposed amendments. He pointed out that the LBA
Committee recommended that RCA be extended for only two
years.
STEVE CONN, (TESTIFIED VIA TELECONFERENCE), ATTORNEY, FORMER
EXECUTIVE DIRECTOR, ALASKA PUBLIC INTEREST RESEARCH GROUP
(AKPIRG), ANCHORAGE, explained that the one "hope" that
consumers, both rural and urban, have in Alaska, is both a
strong and vital regulatory commission. The work they do
should keep virtual monopolization and exploitation from
occurring to the consumers. He noted that the utilities
continue to be exempt from laws governing monopoly. That
exemption should be dropped. Mr. Conn agreed with the
Governor that the Commission should be extended for another
four years. The focus should be that the consumers voice is
heard within the RCA and stressed that would be difficult
and detailed work. He noted that he did support the
original bill.
PAT LUBY, ALASKA ASSOCIATION OF RETIRED PERSONS (AARP),
JUNEAU, stated that AARP is in support the reauthorization
of the RCA. The RCA is the only place that a consumer can
go with a utility problem. Mr. Luby recommended that the
bill pass as proposed by the Governor, a clean bill with no
amendments.
KRISTY CAITLIN, DIRECTOR, GOVERNMENTAL AFFAIRS, AT&T
ALASCOM, ALASKA, testified that Alascom has a long history
of providing telecommunications services to the State of
Alaska. It has the longest history of any inter-exchange
carrier in the State.
Ms. Caitlin stated that both telecom service providers and
policy-makers have a twofold obligation to the constituents
of the State.
· To ensure that basic telecom services remain
affordable to everyone in the State; and
· To provide a regulatory environment that fosters
continued investment in the telecom infrastructure,
ensuring that advanced services reach all parts of
the State.
In the early days, Alascom was the only long distance
carrier in Alaska, and as such, the regulated monopoly. In
1991, when intrastate long distance competition was
initiated, additional regulations were developed to ensure
that Alascom did not misuse its monopoly power to subvert
competition. The new regulations, granted new long-distance
competitors broad and significant freedoms. Competition
grew and flourished. In 1995, AT&T bought Alascom.
Many of the regulations that restrict AT&T Alascom today are
vestiges of the old monopolistic environment. However, in
this highly competitive marketplace, they do not serve as an
incentive for investment and only serve to add cost and
provide a disincentive for investment. It was deregulation
of the industry and the management of competition that
spurred investment. In 1995, when AT&T fell below 60%
market share in the lower 48, the Federal Communications
Commission (FCC) ceased regulating AT&T as the "dominant
carrier" and deemed the market for long distance as
competitive.
Ms. Caitlin noted that AT&T Alascom currently has 42% of the
long distance business and that their largest competitor,
General Communications Incorporated (GCI) has 46-48% of the
long distance business. Regulations add substantially to
cost structures for tracking, journalizing and reporting.
It also adds regulatory process that the competitors do not
have. The situation really is one of "dominance" and with
increased costs and inability to compete because of outdated
regulations; ability to attract capital and invest in the
network is hamstrung.
She pointed out that Alascom's proposed amendment language
would establish a definition of "dominance." The amendment
was intended to level the playing field so that all carriers
could play by the same rules. The amendment is specifically
intended to benefit Alaska consumers by:
· Ensuring a healthy competitive environment through
equalizing regulatory requirements for all players;
· Reducing regulatory cost; and
· Increasing competitive flexibility.
Eliminating the additional costs and filing requirements,
the amendment would directly increase AT&T Alascom's ability
to more effectively compete and that the consumers would
ultimately benefit from the increased competition.
Over the next 12 to 18 months, Alaska must wrestle with some
difficult issues regarding telecom regulation. At stake is
the survival of an infrastructure, which is struggling to
keep up with the rest of the country. In a true free
market, there is less regulation, not more; and competition,
not regulation, becomes the force to shape the market.
DANA TINDALL, SENIOR VICE PRESIDENT OF LEGAL AFFAIRS, GCI,
spoke in support of the RCA, requesting that it be extended
for an additional four years. She pointed out that the
"stated" purposes of the amendments proposed were supposedly
to accelerate the development of competition and promote
investment and the improvement of existing facilities used
to provide telecommunications services. However, in
reality, the effect of the amendments would eliminate
competition and allow ACS and other telephone companies to
implement rate increases to consumers, while eliminating
regulatory requirements to upgrade existing facilities.
· The amendments would allow all local telephone
companies to implement rate increases to Alaska's
consumers.
Depreciation expense is one large components of the costs
that regulated utilities are allowed to collect from
ratepayers. Regulated depreciation rates are based on the
actual, useful service life of the equipment used to provide
service. However, ACS is dissatisfied with the service
lives set by the RCA after a recent proceeding in which it
was seeking to raise rates. Section 4 of the previous
version would reverse RCA's decision and authorize all
telephone utilities to base depreciation on the service
lives permitted by the Internal Revenue Service (IRS) for
income tax purposes. Use of that would allow ACS and all
other telephone companies, to implement rate increases to
all ratepayers.
Ms. Tindall noted that Section 2 of the House Labor and
Commerce version would allow local telephone companies to
implement rate increases without any oversight from RCA.
· The amendments would allow local and long distance
carriers to discriminate between customers and areas
within the State.
Ms. Tindall pointed out that Section 5 of the previous
version would declare the entire State "competitive" for
long distance service and completely exempts all long
distance carriers from rate regulation by the RCA. The
exemptions would be available to long distance companies
immediately and to any local phone company as soon as any
competitor was able to provide service, but before actual
development of competition.
· The amendments would allow ACS to eliminate
competition and that the amendments are contrary to
federal law and would create tremendous market
uncertainty.
Ms. Tindall continued, Section 8 of the House Labor and
Commerce version allows ACS, without any negotiation to
unilaterally increase the rates it charges to GCI pursuant
to the existing Interconnection Agreement that was
arbitrated under federal law and approved by the RCA. The
pricing standard set in Sections 4 and 8 are contrary to the
pricing requirements set by federal law and upheld by the
United States Supreme Court.
· In direct contradiction of the stated purpose, the
amendments eliminate requirements to upgrade
existing networks.
Ms. Tindall pointed out that Section 1 of the amended
version stipulates that the amendments are intended to
improve the existing facilities used to provide local phone
service; however, Section 3, prohibits the RCA from
requiring phone companies to improve existing facilities.
The amendment was targeted at a regulation adopted by the
RCA in 1997 requiring all phone companies to support a data
transmission rate of 28.8 kilobits per second by 2003.
Furthermore, Section 5 exempts local phone companies from
the statutory requirement (AS 42.05.291) to maintain "safe
services and facilities" that allows RCA to require
correction of unsafe facilities.
· In direct contradiction to the stated purpose, the
amendments discourage investment in
telecommunication facilities in Alaska.
Ms. Tindall indicated that Section 1 states that existing
policies favoring local competition actually discourage
investment in Alaska's telecommunication facilities. She
noted that the argument is false and has been rejected by
the United States Supreme Court.
· The amendments would require GCI to protect ACS from
the effects of competition.
Ms. Tindall reiterated that the GCI leases portions of ACS'
facilities to provide local phone service, and GCI pays RCA-
approved rates for those facilities. The important aspect
of the federal Telecommunications Act enables incumbents
like ACS to continue to receive revenue even for customers
served by a new competitor. Nonetheless, ACS has complained
bitterly about the requirement that it allows GCI to use its
facilities, and because of poor service and high rates of
ACS, GCI is developing its own local exchange facilities.
Representative Stoltze MOVED to place HB 111 into a
subcommittee to address the many different concerns and view
points expressed. Co-Chair Williams OBJECTED.
DANIEL PATRICK O'TIERNY, (TESTIFIED VIA TELECONFERENCE),
ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW, ANCHORAGE,
interrupted the discussion. He encouraged the Committee to
retain the Governor's original "clean bill", which seeks the
extension of the termination date for the RCA. He stated
that the amendments would open up issues from past "phone
wars". Several of the amendments implicate federal law and
the Federal Communications Commission (FCC) directives.
RCA's decisions are currently subject to judicial review.
Several of the amendments involve technical features of
ratemaking that do not lend themselves to making policy.
Finally, he noted that several of the amendments relate to
ongoing RCA proceedings. Given the significant issues
currently before this Legislature and the limited time
before session ends, to other than simply extend the RCA
will guarantee another chapter in Alaska's "phone war".
Co-Chair Harris asked for assurance from the Administration
regarding this issue. He observed that the issue had been
raised for the last five years. There has been reference to
the restructuring of the RCA during past legislatures. A
number of companies have "taken exception" to decisions
and/or operations made by RCA. He asked if the
Administration was willing to work with those companies
during the interim to craft legislation addressing the
concerns. Mr. O'Tierney affirmed that the Administration
would endeavor to create such legislation.
Representative Berkowitz questioned the impact on existing
RCA rulings if the Commission were to sunset. Mr. O'Tierney
was uncertain regarding those impacts.
Co-Chair Williams expressed his faith that the current
Administration would resolve the RCA concerns.
Representative Berkowitz disagreed.
Representative Foster MOVED to report HB 111 out of
Committee with the accompanying fiscal note.
Representative Berkowitz OBJECTED.
Representative Berkowitz maintained that public testimony
was not yet complete, and suggested that more information
was needed. Co-Chair Williams responded that members had
plenty of information provided by the lobbyists as well as
discussion provided in the House Labor and Commerce
Committee. He reiterated his trust in the Governor's
office.
Representative Berkowitz indicated that he had further
questions. Co-Chair Williams interjected that there would
be future opportunities to discuss this bill during the
Legislative process.
A roll call vote was taken on the motion.
IN FAVOR: Whitaker, Chenault, Foster, Hawker, Meyer,
Moses, Stoltze, Harris, Williams
OPPOSED: Berkowitz, Kerttula
The MOTION PASSED (9-2).
HB 111 was reported out of Committee with a "no
recommendation" and with fiscal note #1 by the Department of
Community & Economic Development.
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