Legislature(2003 - 2004)

04/20/2004 01:49 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 515                                                                                                            
     An Act relating to the regulation of municipal water                                                                       
     and sewer utilities not in competition with other water                                                                    
     and sewer utilities.                                                                                                       
JOSH  APPLEBEE, STAFF,  REPRESENTATIVE  TOM ANDERSON,  stated                                                                   
that  HB  515 would  exempt  Anchorage  Waste  Water  Utility                                                                   
(AWWU)  from  regulation  by  the  Regulatory  Commission  of                                                                   
Alaska  (RCA).   Except for  the  City of  Pelican, no  other                                                                   
municipal owned water/wastewater  utility is regulated by the                                                                   
The Municipality  of Anchorage believes that  the current RCA                                                                   
regulation  process is cumbersome,  slow, and  non-responsive                                                                   
to  local needs.   Ratepayers  are  required to  pay for  the                                                                   
expensive  RCA regulatory  process  as a  surcharge on  every                                                                   
bill, whether or  not their utility has a case  pending.  For                                                                   
example,  from  1993  until  2003,  AWWU  never  had  a  rate                                                                   
increase  from   the  RCA  or   the  Alaska  Public   Utility                                                                   
Commission (APUC), yet ratepayers  are projected to pay about                                                                   
$500  thousand dollars  to  the  RCA to  cover  the costs  of                                                                   
regulation.    The  greatest  costs appear  in  the  form  of                                                                   
regulatory  delays   in  obtaining  approval   for  requested                                                                   
Mr. Applebee  continued, the Municipality of  Anchorage (MOA)                                                                   
is  directly   accountable  to   ratepayers  served   by  the                                                                   
utilities.    They are  the  voters.   The  Municipality  has                                                                   
experienced  successfully regulating  enterprise  activities:                                                                   
The  Port of  Anchorage, Solid  Waster  Services and  Merrill                                                                   
Field  are all  financially  sound  and provide  first  class                                                                   
customer service  and the public  is involved in  the hearing                                                                   
process.    HB  515  would  change  existing  law  by  adding                                                                   
language  to Page  2,  Lines 5-8,  clarifying  that water  or                                                                   
sewer  utility  owned  by  a  political  subdivision  is  not                                                                   
directly competing  with another  water or sewer  utility and                                                                   
exempt from the RCA regulations.                                                                                                
MARK PREMO, (TESTIFIED VIA TELECONFERANCE),  GENERAL MANAGER,                                                                   
ANCHORAGE  WASTE WATER UTILITY  (AWWU), ANCHORAGE,  testified                                                                   
in support  of HR 515,  a bill which  would exempt  AWWU from                                                                   
economic regulation  by the  Regulatory Commission  of Alaska                                                                   
(RCA),  and  place it  in  the  same  status as  every  other                                                                   
municipally owned water/wastewater  utility in Alaska, except                                                                   
Mr.  Premo provided  background  history on  the  issue.   He                                                                   
noted that  AWWU is two  separate utilities, both  subject to                                                                   
economic and service area regulations  by the RCA.  The Water                                                                   
Utility, a former  City of Anchorage utility,  has been under                                                                   
RCA  regulation   since  inception   of  the  Alaska   Public                                                                   
Utilities  Commission (APUC)  in 1970.   The Anchorage  Sewer                                                                   
Utility, which  was formerly owned  by the Greater  Anchorage                                                                   
Area  Borough,  was voluntarily  submitted  to  the APUC  for                                                                   
regulation in 1971.  An umbrella  organization, the AWWU, was                                                                   
formed in 1975, following unification  of the Municipality of                                                                   
Anchorage  (MOA).   In 1991,  the  Municipa1ity of  Anchorage                                                                   
petitioned  the then  APUC to  exempt AWWU  and its  electric                                                                   
utility from regulation.  The  Commission was evenly split by                                                                   
a 2-2 vote, whether to exempt  the electric utility and AWWU.                                                                   
Mr. Premo  pointed out  that the  commissioner's opinion  who                                                                   
opposed   self-regulation,    cited   competition    by   the                                                                   
Municipality's  electric, telephone  and  other utilities  as                                                                   
their  primary  reason.    No   commissioner  suggested  that                                                                   
competition  between the  water and  wastewater was  present.                                                                   
There is no competition amongst them at this time.                                                                              
He  commented   why  the  Municipality  of   Anchorage  wants                                                                   
exemption from RCA:                                                                                                             
   ·    Current RCA regulation processes and procedures are                                                                     
        slow and expensive.                                                                                                   
From 1993 to 2003, AWWU never  requested a rate increase, yet                                                                   
AWWU  ratepayers  have  paid approximately  $2.8  million  in                                                                   
regulatory assessments to the  RCA during that period and are                                                                   
projected to pay  $485 thousand dollars in 2004  to cover the                                                                 
cost of regulation.  The figures  differ from the RCA because                                                                   
they  are  actual  projected  payments  in  2004  versus  the                                                                   
billings for  the State  fiscal year  as estimated.   History                                                                   
shows that  local regulation is  faster, less  structured and                                                                   
more economical.                                                                                                                
   ·    Current RCA regulations and procedures are non-                                                                         
        responsive to local needs.                                                                                              
 The RCA process  was designed for  private utilities  and is                                                                   
 not appropriate  for municipal utilities.   The  RCA process                                                                   
 is very structured and  the Municipality is  more responsive                                                                   
 to  local  needs   and  is   directly  accountable   to  the                                                                   
 Mr. Premo urged the Committee's support for HB 515.                                                                            
MARK   JOHNSON,  (TESTIFIED   VIA   TELECONFERANCE),   CHAIR,                                                                   
REGULATORY COMMISSION  OF ALASKA (RCA), ANCHORAGE,  commented                                                                   
that HB  515 would be a  fundamental policy call on  the part                                                                   
of the Legislature  to decide if there is a role  for the RCA                                                                   
to play in continued regulation  for the AWWU.  He voiced his                                                                   
appreciation for  the work of  the AWWU, which is  a well-run                                                                   
utility.  The question is regarding  the ultimate benefits to                                                                   
the consumers.   In 1991, there  was a decision by  the APUC,                                                                   
which  determined not  to  relinquish jurisdiction  over  the                                                                   
AWWU.  He  advised that the benefits consumers  have received                                                                   
having  RCA in the  lead role  are significant.   There  have                                                                   
been few  rate increases that  the ratepayers  have benefited                                                                   
Mr.  Johnson  reiterated  the   benefits  to  the  consumers,                                                                   
pointing  out that  HB  552 would  alter  that framework  and                                                                   
would  remove RCA's  jurisdiction.   The benefits  of such  a                                                                   
change  are not  clear.    Most significantly,  rate  changes                                                                   
could  be  accomplished  with  the adoption  of  a  Municipal                                                                   
Ordinance.    There  is  no  requirement   to  create  a  new                                                                   
independent  commission to  supervise the  work in the  bill.                                                                   
The situation  would not remain  the same with  the Anchorage                                                                   
Municipal Assembly  and they would be able  to determine what                                                                   
rates ought to be.                                                                                                              
Mr.  Johnson  thought  that  changes  could  be  accomplished                                                                   
swiftly.  He stated that the RCA  is best equipped to provide                                                                   
the needed  oversight for the  water and sewer  utilities and                                                                   
the AWWU.  The  Municipality is not well suited  to deal with                                                                   
some   of  the   inherent   problems  associated   with   the                                                                   
legislation.   That pertains  to the  reasonableness  for tax                                                                   
payment.  Inherently,  the municipal government  would have a                                                                   
conflict  of interest,  allocating  expenses  to the  utility                                                                   
while having  an interest in receiving  revenue distributions                                                                   
from that same utility.                                                                                                         
Mr. Johnson  concluded that  the RCA  regulation of  the AWWU                                                                   
has been generally  beneficial, adding, it would  be a policy                                                                   
call  for   the  Legislature   to  decide  about   the  RCA's                                                                   
involvement.     He   offered  to   answer  the   Committee's                                                                   
Vice Chair Meyer commented that  the RCA must have been doing                                                                   
a good  job, as they have  successfully upset  many different                                                                   
businesses, which  is a good  thing for a regulatory  agency.                                                                   
He  inquired  why   the  AWWU  was  still  under   the  RCA's                                                                   
jurisdiction.   Mr. Johnson responded  that in  the Fairbanks                                                                   
municipality,  they   use  to  own  their  water   and  sewer                                                                   
utilities.  The  experience in municipal management  of those                                                                   
two  utilities was  not  successful.   In  Fairbanks, it  was                                                                   
determined  that  the  best  course of  action  would  be  to                                                                   
operate by private  ownership, now regulated by the  RCA.  He                                                                   
noted  that the  RCA has  a good  tract  record in  providing                                                                   
useful  guidelines for  the utilities,  insuring that  things                                                                   
are  appropriately run.    In response  to  comments by  Vice                                                                   
Chair Meyer, Mr.  Johnson indicated that he  did not consider                                                                   
himself  to  be  an adversary  for  any  specific  group  but                                                                   
instead looks to protect the consumer's interest.                                                                               
Vice  Chair Meyer  asked  if there  could  be  a conflict  of                                                                   
interest with the Municipality  of Anchorage passing off some                                                                   
of their city expenses onto the price of water.                                                                                 
Mr. Johnson said the response  to that could become a "heated                                                                   
discussion pretty quickly".  To  remove the RCA jurisdiction,                                                                   
water  and  sewer   rates  would  rest  with   the  Anchorage                                                                   
Assembly.   He noted  that the  Assembly over  the years  has                                                                   
shown   an  appetite   for   trying  to   obtain   additional                                                                   
distribution  of  accumulated  surpluses from  the  municipal                                                                   
utilities.  The  Assembly is the entity in the  middle of the                                                                   
considerations  and with  whoever is  the presiding  mayor in                                                                   
office at  that time.   They are  involved in balancing  that                                                                   
area's budget.   The temptation to increase  rates, under the                                                                   
guise  of  taxes  or  other  fees,   would  be  strong.    He                                                                   
reiterated  that  the  temptation   is  there  and  with  the                                                                   
proposed legislation, there would  be no mechanism to control                                                                   
Representative  Hawker asked how  Mr. Premo would  respond to                                                                   
accusations that  the bill would  allow local  government the                                                                   
ability  to raise taxes  on property  owner's utility  rates.                                                                   
Mr.  Premo noted  that outside  of Pelican,  the same  powers                                                                   
exist  in  all  other  publicly  owned  jurisdictions.    The                                                                   
current process  has many steps  involved in rate  increases.                                                                   
The first  is the  economic justification  for the  financial                                                                   
soundness of the  utility.  It would be then  either approved                                                                   
or disapproved  by the  administration and  then would  go to                                                                   
the Assembly for  approval.  Subsequent to that,  it moves to                                                                   
the RCA.  The mechanism currently  used through the RCA would                                                                   
continue  to  be  the  one  used   in  the  future,  industry                                                                   
standards based  upon revenue  requirements and cost  service                                                                   
studies.  The  financial model would continue to  be the same                                                                   
as currently  used.   The difference would  be that  the same                                                                   
individuals that  are ratepayers are  also the voters  in the                                                                   
Municipality  of Anchorage.   If people  were concerned  with                                                                   
what a  local utility  was doing, their  voice would  be more                                                                   
strongly heard  in front  of the  Municipality Assembly.   He                                                                   
thought there would be more control at a local level.                                                                           
In response  to  Representative Hawker's  query, Mr.  Johnson                                                                   
observed  that if  in fact  the authority  for rate  approval                                                                   
rests with the Anchorage Assembly  and that there would be an                                                                   
inherent conflict  in providing for the overall  fiscal needs                                                                   
of  the   municipality.    By   doing  that,  it   removes  a                                                                   
significant check by the RCA.   He acknowledged that no group                                                                   
of individuals have  bad intent; the policy  decision for the                                                                   
Legislature  will be  whether  the public  interest would  be                                                                   
adequately served with the RCA out of the picture.                                                                              
Representative  Hawker   asked  if  there  was   an  inherent                                                                   
conflict  with State  government  regulating without  federal                                                                   
oversight.  Mr. Johnson appreciated the comparison.                                                                             
Vice Chair  Meyer inquired  if the AWWU  not being  under the                                                                   
RCA  umbrella  could  save  ratepayers   money.    Mr.  Premo                                                                   
observed that  it was projected  in 2004 and that  the amount                                                                   
saved  by  the  ratepayers  would  be  around  $485  thousand                                                                   
Vice  Chair Meyer  asked if  he could  tell his  constituents                                                                   
that by voting  for this piece of legislation,  they would be                                                                   
guaranteed  to see  a decrease  in  their water  rates.   Mr.                                                                   
Premo said  yes and  that in a  revenue required  projection,                                                                   
the amount of revenue required  to operate the facility could                                                                   
be more  than the $485 thousand  dollars.  Additionally,  the                                                                   
monthly  surcharge   would  be   eliminated.     There  would                                                                   
absolutely be a  decrease in water rates as long  as they are                                                                   
Vice Chair Meyer echoed Representative  Hawker's concern that                                                                   
once they  fall out from under  the RCA control,  there would                                                                   
be  no other  watchdog outside  of  the voters.   Vice  Chair                                                                   
Meyer noted that he was not comfortable  with that idea.  Mr.                                                                   
Premo interjected  that the question  that needs to  be asked                                                                   
is  what  the  municipality's  intent  is to  regulate.    He                                                                   
pointed  out  that  intent  is  to form  a  strong  board  of                                                                   
governance  that  would  look out  for  financial  soundness,                                                                   
active management and consumer advocacy of the utility.                                                                         
Representative  Stoltze spoke  about the role  of the  RCA in                                                                   
the regulatory process, asking  what would be substituted for                                                                   
consumer   oversight.      Mr.    Johnson   did   not   know.                                                                   
Representative  Stoltze  noted  that  he  was  worried  about                                                                   
hypothetical situations that could  occur.  Mr. Johnson could                                                                   
not respond,  as the question was  too broad.  He  offered to                                                                   
research the issue.                                                                                                             
HB 515 was HELD in Committee for further consideration.                                                                         

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