Legislature(2003 - 2004)

05/17/2003 09:15 AM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 111 - EXTEND REGULATORY COMMISSION OF ALASKA                                                                               
[Contains reference to HB 106, Version S.]                                                                                      
Number 2163                                                                                                                     
CHAIR McGUIRE announced that the  next order of business would be                                                               
HOUSE BILL  NO. 111,  "An Act extending  the termination  date of                                                               
the  Regulatory  Commission  of  Alaska;  and  providing  for  an                                                               
effective date."                                                                                                                
CHAIR McGUIRE noted that in  addition to CSHB 111(L&C), which was                                                               
adopted as  the working document  on 5/16/03, the  committee also                                                               
had   before  it   for  consideration   two  proposed   committee                                                               
substitutes:   Version 23-GH1049\N, Craver, 5/17/03;  and Version                                                               
23-GH1049\J, Craver,  5/17/03.   She observed that  although both                                                               
of  the proposed  committee  substitutes are  a  bit rough,  they                                                               
provide the  committee with starting  points.  She  remarked that                                                               
Version J  closely parallels CSHB  111(L&C), and that  Version N,                                                               
in contrast,  asks the Regulatory  Commission of Alaska  (RCA) to                                                               
come  back  to  [the  legislature]  with  answers  pertaining  to                                                               
specific subject areas.                                                                                                         
The committee took an at-ease from 11:24 a.m. to 11:25 a.m.                                                                     
Number 2067                                                                                                                     
LEONARD  A.  STEINBERG,  General Counsel,  Alaska  Communications                                                               
Systems,  Inc. (ACS),  said  he  would describe  Version  J as  a                                                               
streamlined version of  [CSHB 111(L&C)].  Section 1  of Version J                                                               
now deals  with retail tariff exemptions  for competitive service                                                               
areas,  and this  language  is slightly  modified  from what  was                                                               
contained  in  CSHB   111(L&C).    One  of   the  more  important                                                               
modifications,  he remarked,  is  that it  clarifies  that it  is                                                               
applicable to  retail tariffs only.   Thus retail  services would                                                               
be  deregulated in  competitive service  areas.   Section 1  also                                                               
contains proposed  AS 42.05.435, which is  language pertaining to                                                               
the pricing of unbundled network elements.                                                                                      
CHAIR McGUIRE asked Mr. Steinberg  to describe Version J in terms                                                               
of how  its provisions  would change  what currently  happens and                                                               
why such changes should be made.                                                                                                
MR.  STEINBERG, referring  to the  exemption from  retail tariffs                                                               
provision,  said that  currently,  ACS has  been  required to  go                                                               
through what he called a  significant and expensive rate case for                                                               
the purpose of justifying, based  on the company's costs, what it                                                               
could charge consumers.  He said  that ACS's concern is that this                                                               
process was applied only to ACS and not its primary competitors.                                                                
CHAIR McGUIRE  noted, however, that  this process was  applied to                                                               
ACS because it was deemed to be the incumbent dominant carrier.                                                                 
MR. STEINBERG acknowledged  that point, but argued  that the rate                                                               
case to which  he is referring applied to all  of ACS's holdings,                                                               
even in  areas where ACS  wasn't the incumbent  dominant carrier,                                                               
and  was required  as a  result of  ACS's acquisition  of various                                                               
companies in  1999.  He added  that any rate increases  ACS might                                                               
want to make in the future would  have to be justified to the RCA                                                               
based on the company's costs,  which themselves would have had to                                                               
be approved  by the  RCA; in contrast,  competitors of  ACS don't                                                               
have those same obligations.                                                                                                    
CHAIR  McGUIRE asked  whether ACS  has ever  filed a  petition to                                                               
have  its status  as  a dominant  carrier  in particular  markets                                                               
Number 1882                                                                                                                     
MR. STEINBERG  said ACS has not  done so with the  RCA, though it                                                               
has  filed  similar  petitions with  the  Federal  Communications                                                               
Commission (FCC).   He remarked that  the FCC has made  a finding                                                               
that the Anchorage market is competitive.                                                                                       
REPRESENTATIVE GARA asked  why ACS has not filed  a petition with                                                               
the RCA to get a change of status.                                                                                              
MR.  STEINBERG said  that  ACS does  not  believe, under  current                                                               
rules, that  there would be  substantial benefits  justifying the                                                               
cost.  In  response to another question, he  said that currently,                                                               
with  30 days  notice, ACS  can  lower its  rates in  competitive                                                               
areas  without having  to  file cost  justification.   He  added,                                                               
however,  that  the  RCA  has  requested  cost  justification  in                                                               
certain situations.                                                                                                             
REPRESENTATIVE GARA noted  that in Version N,  carriers can lower                                                               
rates, subject to antitrust laws, without RCA approval.                                                                         
MR.  STEINBERG  remarked  that  for  years,  Alaskans  have  been                                                               
enjoying some  of the  lowest rates  in the  country.   He opined                                                               
that  in competitive  service areas,  there  is a  need for  rate                                                               
flexibility  in   order  for  companies   to  adjust   to  market                                                               
conditions.   Currently,  he  said, ACS  is  constrained in  that                                                               
regard.   He  added that  when  the aforementioned  rate case  is                                                               
settled, ACS  will end up  with rates in  2004 that are  based on                                                               
year  2000  circumstances; in  a  competitive  market place  like                                                               
Anchorage, those rates will have no relevance.                                                                                  
REPRESENTATIVE  GARA said  he would  be amenable  to a  provision                                                               
that said  the rules for  raising rates shall be  applied equally                                                               
to  phone companies  in  a  competitive areas.    He offered  his                                                               
belief  that  the  RCA  does   have  a  role  in  reviewing  rate                                                               
MR. STEINBERG said  that there have been times when  ACS has been                                                               
frustrated by  the length of  time it takes  the RCA to  review a                                                               
proposed  tariff.   He mentioned  that at  one point,  the Alaska                                                               
Public  Utilities   Commission  (APUC)  had   ordered  structural                                                               
separations  between  ACS's local  group  and  its long  distance                                                               
group.   Unfortunately  for ACS,  he added,  those are  one-sided                                                               
rules that don't apply to ACS's competitors.                                                                                    
CHAIR  McGUIRE asked  how ACS's  competitors  go about  adjusting                                                               
MR. STEINBERG  said he would  prefer to let  representatives from                                                               
those companies address that question.                                                                                          
Number 1597                                                                                                                     
REPRESENTATIVE GARA asked  whether ACS feels that  the process it                                                               
must go through to reduce rates is cumbersome.                                                                                  
MR.  STEINBERG  said that  according  to  ACS's understanding  of                                                               
current RCA regulations, rate  reductions should require absolute                                                               
minimal review.   However,  ACS has  found that  such is  not the                                                               
case; instead, the RCA has  demanded justification for ACS's rate                                                               
reductions.   He encouraged the  committee to  give consideration                                                               
to where the industry is  going, particularly given the fact that                                                               
there is now substantial competition in  much of Alaska.  He said                                                               
ACS's understanding  is that the federal  government's promise to                                                               
bring  competition   to  the  state   included  the   promise  of                                                               
deregulation.   He likened mixing  competition and  regulation to                                                               
mixing oil and water.                                                                                                           
REPRESENTATIVE GARA noted, however,  that regulation is federally                                                               
MR. STEINBERG suggested that deciding  state policy still remains                                                               
to  be done,  and that  retail  tariffs are  entirely managed  by                                                               
state policy.   He predicted that the state  could follow federal                                                               
regulations  and still  find for  deregulation  in markets  where                                                               
there is competition.                                                                                                           
CHAIR McGUIRE  mentioned that the Telecommunications  Act of 1996                                                               
does  have provisions  addressing  the role  of  state and  local                                                               
government.     She   said  she's   heard  criticisms   that  the                                                               
Telecommunications Act  of 1996 was  designed more for  the Lower                                                               
48  and, thus,  didn't really  address Alaska's  specific issues.                                                               
The question, she  suggested, is now one of how  to fit the Act's                                                               
provisions with Alaska's needs.   The RCA has interpreted aspects                                                               
of  the Telecommunications  Act of  1996 in  a fashion  different                                                               
from other state's regulators.                                                                                                  
MR. STEINBERG opined  that probably all parties  would agree that                                                               
the  issue of  retail prices  has traditionally  been within  the                                                               
states' purview,  and that federal  law wouldn't  affect anything                                                               
regarding retail pricing or conditions of service to consumers.                                                                 
REPRESENTATIVE GARA said  that Section 1 of Version  J causes him                                                               
concern  because  it  allows  the  carrier  itself  to  determine                                                               
whether  it is  servicing  a competitive  market  and thereby  be                                                               
relieved of  any rate-setting requirements.   Another  concern he                                                               
said  he  has  with  Section  1   is  that  it  would  nullify  a                                                               
determination  made  by the  RCA  that  currently keeps  consumer                                                               
rates low.   He  offered his  belief that  adoption of  Section 1                                                               
would result in consumer rates rising.                                                                                          
Number 1262                                                                                                                     
MR.  STEINBERG opined  that the  issue of  determining whether  a                                                               
service  area is  competitive should  not  be controversial,  and                                                               
noted that  the RCA  would still have  the opportunity  to review                                                               
whether  a carrier  actually is  in a  competitive service  area,                                                               
which, he  pointed out, is  defined in Version  J.  He  said that                                                               
ACS believes that if consumers  have a choice of facilities-based                                                               
carriers, then there  is competition and it  would be appropriate                                                               
to deregulate.   He suggested that the question  is whether there                                                               
should  be  a  significant  regulatory  proceeding  to  determine                                                               
something  that is  commonly known  such as  that Anchorage  is a                                                               
competitive service  area.  He acknowledged,  however, that there                                                               
may be  alternative ways  of achieving Section  1's goals.   What                                                               
ACS  sought  to avoid  was  a  long,  drawn out  adjudication  of                                                               
something easily determined.                                                                                                    
CHAIR McGUIRE said that her  concern centers around the fact that                                                               
if a carrier is deregulated in  one portion of a service area, it                                                               
is deregulated  in all of  that area regardless of  whether there                                                               
is competition  in the other  portions, for example, as  would be                                                               
the   case   with  Kodiak.      She   noted  that   proposed   AS                                                               
42.05.433(d)(1)  defines a  competitive  service area  as one  in                                                               
which 50  percent of its  customers have a choice  of facilities-                                                               
based service providers.                                                                                                        
MR.  STEINBERG replied  that for  the  most part,  it is  already                                                               
known  that  Anchorage,  Fairbanks, and  Juneau  are  competitive                                                               
service areas.   Thus the  rules proposed by Section  1 regarding                                                               
deregulation  in competitive  service  areas would  not apply  to                                                               
Kodiak.   He  opined  that the  language in  Section  1 is  broad                                                               
enough to  allow the RCA  to address such  an issue in  Kodiak if                                                               
and when it occurs.                                                                                                             
REPRESENTATIVE  GARA  said he  doesn't  believe  the language  in                                                               
Section 1  is broad  enough to  do so.   Instead, he  argued, the                                                               
language will mandate  that a service area  be called competitive                                                               
even  in  communities  without  competition.    Adoption  of  the                                                               
definition  in  Section  1  will   institute  a  rule  that  says                                                               
monopolies shall be unregulated  in those communities, he opined.                                                               
Therefore, although it  might be more efficient for  a company to                                                               
come forward  and certify  that it is  [in a  competitive service                                                               
area], allowing  such will  exempt that  carrier from  all tariff                                                               
rules until  the RCA  proves by a  preponderance of  the evidence                                                               
that the carrier  was wrong.  He suggested that  the public would                                                               
not be  served by a  provision that lets  a company make  its own                                                               
determination regarding  whether it  is in a  competitive service                                                               
area.   Instead,  such a  determination  should be  made by  [the                                                               
REPRESENTATIVE OGG pointed out that  according to the language in                                                               
Section 1 of  Version J, a carrier's certification that  it is in                                                               
a competitive  market becomes effective immediately  upon filing,                                                               
and it  is then up  to the RCA  to find,  in writing, based  on a                                                               
preponderance  of the  evidence,  that  the "competitive  service                                                               
area" standard has  not been met.  And  because the certification                                                               
goes into effect right away,  the carrier is immediately exempted                                                               
from  AS 42.05.361,  42.05.371, 42.05.381,  42.05.391, 42.05.411,                                                               
42.05.421, and  42.05.431 until the  RCA goes through  its denial                                                               
process.  This  means that the carrier is exempted  from filing a                                                               
tariff, it  doesn't have to  make its rates just  and reasonable,                                                               
it   no  longer   has  to   comply   with  45-day/30-day   notice                                                               
requirements,  it  is exempted  from  having  the RCA  conduct  a                                                               
hearing based upon  a complaint, and it is exempted  from the RCA                                                               
fixing the rates.                                                                                                               
Number 0778                                                                                                                     
DANA  TINDALL,  Senior  Vice President;  Legal,  Regulatory,  and                                                               
Governmental Affairs, General  Communications Incorporated (GCI),                                                               
in response  to the  question of what  GCI's burden  is regarding                                                               
tariff  filing,  said that  GCI,  as  a competitive  non-dominant                                                               
carrier, is  subject to all  of the  same provisions of  law that                                                               
ACS, as the dominant carrier, is  seeking to be exempted from via                                                               
Section  1:    AS  42.05.361,  42.05.371,  42.05.381,  42.05.391,                                                               
42.05.411,  42.05.421, and  42.05.431.   The  only difference  is                                                               
that GCI is  not required to have  a rate case in  order to raise                                                               
rates.  She pointed out  that the "exemption from retail tariffs"                                                               
portion  of Section  1 is  not the  provision that  addresses the                                                               
differences between regulating a  dominant carrier and regulating                                                               
a non-dominant carrier.  The  only difference, she reiterated, is                                                               
that GCI,  as the  non-dominant carrier, does  have the  power to                                                               
raise rates without a rate case.                                                                                                
MS. TINDALL noted  that under current RCA  regulations, ACS could                                                               
come before the RCA and get  that same ability simply by applying                                                               
for  a  change   in  dominant-carrier  status.     She  said  the                                                               
difference between what  ACS could get by having the  RCA grant a                                                               
change in  status versus what  it could achieve via  the language                                                               
in Section  1 is that  the RCA would  only deregulate ACS  as the                                                               
non-dominant  carrier  in  the specific  market  where  there  is                                                               
competition,  such  as  Anchorage,   whereas  by  seeking  to  be                                                               
deregulated  via  Section 1,  Representatives  Gara  and Ogg  are                                                               
correct  in that  the entire  company would  be deregulated  and,                                                               
thus,  all of  its  service areas  would  deregulated even  where                                                               
there  is no  competition.   She remarked  that ACS  serves many,                                                               
many,  communities that  are outside  of Anchorage's  competitive                                                               
service area.                                                                                                                   
MS. TINDALL then  surmised that Mr. Steinberg's  comment that the                                                               
benefits  of seeking  a change  in status  from the  RCA are  not                                                               
justified by the cost is simply  a reference to the fact that ACS                                                               
would not be able to increase its rates in noncompetitive areas.                                                                
REPRESENTATIVE  GARA asked  whether,  for  the Anchorage  service                                                               
area, ACS is considered the competitive dominant carrier.                                                                       
MS. TINDALL indicated that it  is, and again reiterating that the                                                               
only  difference between  a competitive  dominant  carrier and  a                                                               
competitive   non-dominant  carrier   is  that   the  competitive                                                               
dominant carrier cannot raise rates without a rate case.                                                                        
REPRESENTATIVE GARA  asked whether ACS  and GCI could  agree that                                                               
all  carriers should  be subject  to the  same rules  for raising                                                               
rates in competitive service areas like Anchorage.                                                                              
Number 0502                                                                                                                     
MS. TINDALL replied:                                                                                                            
     For  retail-rate purposes,  GCI  would  not [oppose]  a                                                                    
     finding of ACS  as non-dominant in Anchorage  and, as a                                                                    
     matter  of  fact,  we  have  proposed  it  in  ...  the                                                                    
     proceeding  the [RCA]  is having  on local  competition                                                                    
     deregulation.   To  address  another  comment that  Mr.                                                                    
     Steinberg made:   Mr. Steinberg  points out  that where                                                                    
     they  raise rates  in competitive  areas,  there is  no                                                                    
     danger because  there's competition and  then consumers                                                                    
     will  have a  choice.   There's two  issues with  that.                                                                    
     Again, this gives  them the power to  raise rates where                                                                    
     there  is no  competition.   And ...  the next  section                                                                    
     enables ACS  to raise GCI's  costs, so it  enables them                                                                    
     to hedge  their bets a  bit in competitive  areas where                                                                    
     they're  not  raising  their rates  into  the  face  of                                                                    
     competition; they're forcing  their competitor to raise                                                                    
     their rates  as well.   And  so it  makes it  much less                                                                    
     risky  to raise  your rates  in competitive  situations                                                                    
     ... if  you can also  force your competitor's  rates to                                                                    
     go up.                                                                                                                     
CHAIR  McGUIRE asked  Mr. Steinberg  whether he  sees any  way to                                                               
narrow the  language in Section 1  so that it only  does what all                                                               
could agree is fair, which is  that in truly competitive areas, a                                                               
dominant  carrier wouldn't  have to  go  through a  rate case  to                                                               
raise rates.   She said  that a  concern is whether,  in defining                                                               
"competitive service area",  is ACS reaching out  more broadly in                                                               
order  to allow  itself to  act as  a dominant  carrier in  areas                                                               
without competition and yet not be subject to regulation.                                                                       
MR. STEINBERG said that ACS has  no intention of raising rates in                                                               
noncompetitive areas, and doesn't  have that understanding of the                                                               
language  in Section  1.   He acknowledged,  however, that  there                                                               
probably are ways to alter the  language in order to clarify that                                                               
these  provisions of  Section 1  are  intended to  only apply  in                                                               
those service areas where competition exists.                                                                                   
CHAIR McGUIRE  opined that  in service areas  where ACS  is still                                                               
the  dominant carrier,  ACS ought  to  be regulated  in order  to                                                               
protect  consumers.    But  in  truly  competitive  areas,  among                                                               
carriers that are equal in certain  markets, it would be fair for                                                               
both carriers  to be treated the  same.  She said  she would feel                                                               
more comfortable if  the language in Section 1  was more narrowly                                                               
MR. STEINBERG said  he believes that a few  wording changes could                                                               
accomplish the chair's goal.                                                                                                    
REPRESENTATIVE GARA pondered whether the  RCA should still have a                                                               
role in  setting rates in  areas where  there are only  two phone                                                               
companies.    When  there  is  only  a  little  competition,  for                                                               
example,  when there  are only  two  companies competing  against                                                               
each  other,  that is  essentially  an  oligopoly, which  perhaps                                                               
might still need to be regulated to prevent price fixing.                                                                       
MR.  STEINBERG   suggested  that   a  policy  question   for  the                                                               
legislature  to address  is, "Do  we  believe that  in the  drive                                                               
towards  market forces  and competition,  we  should continue  to                                                               
have  regulation,  or do  we  believe  that  ... we  should  head                                                               
towards  deregulation?"    And  in  addressing  that  issue,  the                                                               
question  of whether  consumers are  adequately protected  should                                                               
also  be considered.    He  noted that  in  Anchorage, there  are                                                               
currently several  local exchange  companies, three of  which are                                                               
major providers.                                                                                                                
TAPE 03-67, SIDE A                                                                                                            
Number 0001                                                                                                                     
MR.  STEINBERG remarked  that  since 1997,  there  has been  zero                                                               
evidence of  oligopolistic behavior; instead, Anchorage  has what                                                               
he  calls cutthroat  competition.   He opined  that it  is highly                                                               
unlikely that two  phone companies are going to  collude in price                                                               
MS. TINDALL  opined that the  RCA should  have the full  power of                                                               
regulation until  there is more  competition in the market.   She                                                               
added that GCI would accept having  its rates capped such that it                                                               
couldn't raise rates.                                                                                                           
REPRESENTATIVE GARA said  he would be much  more comfortable with                                                               
a  provision  which  said  that if  there  is  competition,  both                                                               
companies  shall be  treated equally.    In other  words, if  one                                                               
company  has to  ask permission  to  raise rates,  so should  the                                                               
other company.  He added that  he would not be comfortable with a                                                               
provision  which  simply  said  that the  RCA  couldn't  regulate                                                               
either company.                                                                                                                 
REPRESENTATIVE SAMUELS  opined that once competition  starts, "we                                                               
need to  start taking  the shackles off  and let  the marketplace                                                               
work."  He  asked whether the [majority of the]  money is made in                                                               
business lines or in residential lines.                                                                                         
MR.   STEINBERG  indicated   that  in   the  time   of  regulated                                                               
monopolies, business  rates, in part, subsidized  low residential                                                               
rates.   In  addition, urban  dwellers, by  and large,  paid more                                                               
than did  those living in rural  areas.  This system  worked fine                                                               
in the  context of a  regulated monopoly because the  company was                                                               
guaranteed that on  the whole, it would be made  whole.  However,                                                               
in going  to a competitive  model, that  system falls apart.   He                                                               
admitted that although  business rates are higher,  in most cases                                                               
the cost  of serving a business  customer is no greater  than the                                                               
cost of  serving a residential customer.   In the Lower  48, most                                                               
competition is  oriented only towards business  customers because                                                               
they  are  the  "high  margin" customers,  and  this  results  in                                                               
competitors getting to "cherry pick."                                                                                           
MR. STEINBERG mentioned that one  piece of the Telecommunications                                                               
Act of  1996 could relate to  retail rates in that  it called for                                                               
making all implicit subsidies explicit  subsidies.  He added that                                                               
"that" hasn't  really occurred  yet.   Businesses still  pay more                                                               
than their  fair share  in order to  keep residential  rates low,                                                               
and urban  dwellers pay more  than their  fair share in  order to                                                               
keep rural rates low.                                                                                                           
Number 0536                                                                                                                     
MS. TINDALL, on  the issue of competitors in the  lower 48 coming                                                               
in and cherry  picking just business customers,  agreed that this                                                               
has not  happened in Alaska; GCI  has equal market share  in both                                                               
business and residential  markets.  She surmised  that in talking                                                               
about relief from implicit subsidies  in rural areas, since there                                                               
isn't  competition  in rural  areas,  Mr.  Steinberg is  actually                                                               
talking  about  lowering rates  where  there  is competition  and                                                               
raising them  where there is  none.  So while  business customers                                                               
probably do subsidize  residential customers, deregulating retail                                                               
rates  in  Anchorage would  deregulate  both  business rates  and                                                               
[residential] rates and, thus, if  ACS so chooses, it could raise                                                               
rates  to [residential]  customers  and lower  rates to  business                                                               
MS. TINDALL  said she is  confused as  to why Mr.  Steinberg says                                                               
that  the  Telecommunications  Act  of  1996  had  no  impact  on                                                               
consumers'  rates,   because  if  that  were   really  the  case,                                                               
Anchorage ratepayers  would be paying  24 percent more  than they                                                               
are now.   When ACS  raised its rates,  GCI did not  follow suit,                                                               
and so consumers  "voted with their feet"  by switching carriers.                                                               
She  urged  the  committee  to be  careful,  when  talking  about                                                               
"biz/res",  to  draw a  broad  circle  around  the area  that  is                                                               
specifically  competitive,  and  deregulate  [only]  within  that                                                               
broad  circle, not  companywide.   She  posited that  if such  is                                                               
done, then consumers  will be protected and  businesses will reap                                                               
[Chair McGuire turned the gavel over to Vice Chair Anderson.]                                                                   
REPRESENTATIVE HOLM  asked whether,  if carriers  are deregulated                                                               
in the Anchorage market, it  would mean that "subsidies" would be                                                               
transferred to  rural areas  or to the  other districts  that the                                                               
carriers serve.                                                                                                                 
MR. STEINBERG said  no.  He added that he  takes great issue with                                                               
the  suggestion  that ACS  would  raise  rates in  noncompetitive                                                               
areas  in order  to subsidize  rates  in competitive  areas.   To                                                               
illustrate his point,  he said that ACS would not  raise rates on                                                               
Farm Loop  Road, for example,  after lowering rates  in Fairbanks                                                               
REPRESENTATIVE HOLM  asked whether costs would  be transferred to                                                               
one service area  for the privilege of  keeping rates competitive                                                               
in another area.                                                                                                                
Number 0840                                                                                                                     
MR. STEINBERG  said no; the  RCA won't  allow ACS the  freedom to                                                               
shift costs it  incurs in a competitive area  to a noncompetitive                                                               
[Vice Chair Anderson returned the gavel to Chair McGuire.]                                                                      
MS.  TINDALL  said   that  Mr.  Steinberg  is   correct  in  that                                                               
currently,  ACS  cannot  lower rates  in  competitive  areas  and                                                               
transfer subsequent  costs to noncompetitive areas.   She opined,                                                               
however, that  the language in Version  J would enable ACS  to do                                                               
that,  regardless of  whether ACS  intends it.   She  pointed out                                                               
that in  Mr. Steinberg's example  of the Fairbanks  service area,                                                               
the  reason rates  could  not  be raised  on  Farm  Loop Road  is                                                               
because it  is considered the  same market as Fairbanks  and thus                                                               
competitive.  "That's a good example  of why ... you cannot adopt                                                               
this  legislation:   there needs  to be  a boundary  drawn firmly                                                               
around a  competitive area  so that you  have your  high-cost and                                                               
low-cost areas  within that area,  that are all  competitive, and                                                               
so  that  you can't  transfer  costs,"  she stated,  adding  that                                                               
Version  J  would enable  ACS  to  raise  costs in  Bethel  while                                                               
lowering them in Anchorage.                                                                                                     
CHAIR  McGUIRE relayed  what the  committee  would be  discussing                                                               
upon return from a recess.                                                                                                      
Number 1014                                                                                                                     
The meeting was recessed at 12:32 p.m. to a call of the chair.                                                                  
TAPE 03-68, SIDE A                                                                                                            
[Please note, a new tape was inserted at this point.]                                                                           
[Not on  tape, but reconstructed  from the  committee secretary's                                                               
log notes, was:                                                                                                                 
CHAIR  McGUIRE called  the meeting  back  to order  at 4:00  p.m.                                                               
Present at the  call back to order  were Representatives McGuire,                                                               
Anderson,  Holm,   Ogg,  Samuels,   and  Gara.     Representative                                                               
Gruenberg arrived as the meeting was in progress.                                                                               
REPRESENTATIVE  SAMUELS moved  to  adopt  the proposed  committee                                                               
substitute (CS) of HB 111,  Version 23-GH1049\N, Craver, 5/17/03,                                                               
as the  working document.   There being  no objection,  Version N                                                               
was before the committee.]                                                                                                      
Number 0088                                                                                                                     
CHAIR McGUIRE indicated  that the committee is  in agreement that                                                               
the RCA's sunset ought to be  extended for another two years, and                                                               
noted that the  sunset provision is located in  Section 1, though                                                               
currently  the  language calls  for  only  a one-year  extension.                                                               
Section  2  contains language  requiring  the  RCA to  thoroughly                                                               
review  its rules  and  regulations governing  telecommunications                                                               
rates,  charges between  competing telecommunications  companies,                                                               
and competition  in telecommunications.   As part of  the review,                                                               
the  RCA shall  hold  public hearings  and  shall issue  proposed                                                               
regulations  no  later  than  October 15,  2003.    In  addition,                                                               
Section 2  provides the RCA  with some guidelines it  must follow                                                               
during that  review process.   In creating these  guidelines, the                                                               
committee considered what  would be fair to the  consumer and the                                                               
telecommunications  industry, without  bias towards  a particular                                                               
carrier.   Version N asks  the RCA  to clarify certain  issues in                                                               
the law, and does so without mandating specific language.                                                                       
CHAIR McGUIRE relayed that the  principles outlined in subsection                                                               
(b) of  Section 2 say  that the  public shall be  protected; that                                                               
the  rates  charged  to  the  public  shall  be  fair;  that  the                                                               
incumbent  carrier may  not be  placed at  an unfair  competitive                                                               
disadvantage;  that  businesses  which  provide  local  and  long                                                               
distance telecommunications  services shall be treated  as fairly                                                               
as possible; that  competition among telecommunications companies                                                               
shall   be  encouraged;   that  the   development  of   a  modern                                                               
telecommunications   infrastructure  in   the   state  shall   be                                                               
encouraged; and that  it is desirable to  promote competition and                                                               
to take  steps, if fair to  the public, to encourage  more rather                                                               
than   fewer   businesses   to    enter   and   remain   in   the                                                               
telecommunications business in the state.                                                                                       
CHAIR McGUIRE  relayed that  subsection (c)  of Section  2 states                                                               
that the  legislature does not  take a position on  the propriety                                                               
of existing  commission rulings  or regulations.   She  said that                                                               
this is an  important provision because the  legislature wants to                                                               
encourage  the RCA  to take  a fresh  look at  exiting rules  and                                                               
regulations using the aforementioned principles.                                                                                
Number 0315                                                                                                                     
CHAIR McGUIRE  relayed that  subsection (d)  of Section  2 states                                                               
that  the proposed  regulations required  by subsection  (a) must                                                               
include  regulations  that   implement  the  following  policies:                                                               
there shall be fair payment by  a user carrier for use of another                                                               
carrier's equipment and facilities,  including existing and newly                                                               
constructed equipment  and facilities;  in determining  whether a                                                               
carrier  is the  dominant  carrier for  the  purposes of  setting                                                               
consumer  rates,  it  is  not  relevant that  the  carrier  in  a                                                               
competitive    market    is    the   incumbent    carrier;    all                                                               
telecommunications  carriers  may  unilaterally  reduce  consumer                                                               
rates,  subject  to  state  and federal  antitrust  laws;  and  a                                                               
definition  of  "competitive  service   areas"  shall  take  into                                                               
account whether actual competition exists in an area                                                                            
CHAIR  McGUIRE opined  that if  the aforementioned  policies were                                                               
actually put  into regulation, it  would provide carriers  with a                                                               
more certain  playing field; such regulations  could be commented                                                               
upon by the public and changed from  time to time as the RCA sees                                                               
fit.   This would provide the  RCA with an alternative  to simply                                                               
waiting for  a situation to erupt  and then reacting to  it.  She                                                               
also relayed that  Section 3 provides for  an immediate effective                                                               
CHAIR McGUIRE offered that Version N  resulted from a lot of hard                                                               
work by  the committee, and  while it may not  include everything                                                               
the committee wished the RCA to  look at, it is a starting point.                                                               
She  said that  the  committee  wants to  see  the  RCA give  new                                                               
thought and  reflection on these  issues in order to  ensure that                                                               
consumers and carriers are getting  the best regulations possible                                                               
and  that the  telecommunication infrastructure  is developed  to                                                               
its  fullest.   She  then  thanked  all  who contributed  to  the                                                               
Number 0601                                                                                                                     
REPRESENTATIVE GARA  made a  motion to  adopt Amendment  1, which                                                               
read [original punctuation provided]:                                                                                           
     Page 2, line 16, after "regulations.":                                                                                     
          Insert:   "New regulations under (a) of this                                                                          
            subsection may be issued without regard                                                                             
            to whether they differ or conflict with                                                                             
                    prior commission rulings or                                                                                 
     Page 2, line 28, insert new numbered subsections:                                                                          
                    "(5) Depreciation.  The commission                                                                          
                    shall determine a fair method of                                                                            
                    depreciation that takes into account                                                                        
                    the true life of depreciated equipment                                                                      
                    and facilities.                                                                                             
                    (6) Rate Increase Applications.  In an                                                                      
                    area where there is significant                                                                             
                    competition between carriers,                                                                               
                    competitors shall be allowed to                                                                             
                    increase rates under equal rules.  The                                                                      
                    commission shall retain its existing                                                                        
                    authority to deny rate increases to                                                                         
                    protect the public."                                                                                        
Number 0615                                                                                                                     
REPRESENTATIVE SAMUELS objected for the purpose of discussion.                                                                  
REPRESENTATIVE  GARA   indicated  that   the  first   portion  of                                                               
Amendment  1  clarifies  the legislature's  intentions  regarding                                                               
subsection   (c)  of   Section   2,  that   in  considering   new                                                               
regulations, the RCA is to  proceed without regard to differences                                                               
or  conflicts with  prior  rulings or  regulations.   The  second                                                               
portion of Amendment  1 adds two topics -  depreciation and rate-                                                               
increase  applications   -  to  the   list  of  policies   to  be                                                               
implemented by regulation.                                                                                                      
Number 0766                                                                                                                     
CHAIR  McGUIRE  asked  whether there  was  [still]  objection  to                                                               
Amendment 1.  There being none, Amendment 1 was adopted.                                                                        
Number 0785                                                                                                                     
REPRESENTATIVE SAMUELS  made a  motion to  adopt Amendment  2, on                                                               
page 1, line 6, delete "2004"  and insert "2005".  There being no                                                       
objection, Amendment 2 was adopted.                                                                                             
REPRESENTATIVE  GARA  asked  for  input from  the  RCA  regarding                                                               
whether Version N, as amended, appears to be free of errors.                                                                    
Number 0850                                                                                                                     
DAVE  HARBOUR,  Commissioner,  Regulatory  Commission  of  Alaska                                                               
(RCA), indicated that he did not  yet have that document in hand.                                                               
He  assured  the committee,  however,  that  the RCA's  decision-                                                               
making process  is based on fairness  and justice.  He  said that                                                               
the RCA supports the governor's  request for an extension without                                                               
amendments.   He reminded members that  he is unable to  speak to                                                               
many of the  issues that have been raised by  HB 111 because they                                                               
are similar to issues being  addressed in the RCA's open dockets.                                                               
He promised  the committee that  the RCA would abide  by whatever                                                               
legislation  is  adopted   and  signed  by  the   governor.    He                                                               
suggested, however, that  the October 15 deadline  be extended to                                                               
at least  December 15 because the  RCA already has a  huge amount                                                               
of  work  to accomplish,  work  that  is of  extreme  importance,                                                               
particularly  that  which  pertains  to  rural  carriers  and  to                                                               
"universal service fund" calculation.                                                                                           
CHAIR  McGUIRE pointed  out, however,  that at  the bill's  prior                                                               
hearing, Mr. Harbour had indicated  that a deadline of October 15                                                               
was doable.                                                                                                                     
MR. HARBOUR replied that he'd  intended to qualify that remark by                                                               
saying that meeting  an October 15 deadline was  dependant on the                                                               
number of issues involved.                                                                                                      
CHAIR McGUIRE said she is going to  trust the RCA to do the right                                                               
thing.  She went on to say:                                                                                                     
     We cannot come in and  overturn your rulings, we cannot                                                                    
     come in  and remove people  on your commission;  all we                                                                    
     have is the extension of a  sunset to send a message to                                                                    
     you  that we  are  concerned.   We  are  not sending  a                                                                    
     message  to one  carrier over  the other.   We  are not                                                                    
     sending a  message that you've  been doing a  poor job.                                                                    
     We  are sending  you  a message  that  we believe  that                                                                    
     market conditions have changed and  that we want you to                                                                    
     reexamine this  - again, as Representative  Gara said -                                                                    
     without  pride or  bashfulness toward  earlier rulings.                                                                    
     I will  be deeply concerned  if that's  a part of  it -                                                                    
     the  need  to  protect  the status  quo,  the  need  to                                                                    
     protect  what's already  been done,  and so  on.   I am                                                                    
     asking you  to use your  life experience; you  have new                                                                    
     commissioners  and yourself  to  dig in,  roll up  your                                                                    
     sleeves, and work on an  issue that is of ... immediate                                                                    
     importance.    And I'm  hoping  that  you will  do  so,                                                                    
     respectfully from this legislature.                                                                                        
Number 1190                                                                                                                     
REPRESENTATIVE GARA posited that since  it is not the public that                                                               
is  in  such a  great  hurry  for  regulations,  as long  as  the                                                               
carriers are not  averse, the RCA ought to be  given more than an                                                               
October 15 deadline.                                                                                                            
CHAIR  McGUIRE suggested  that a  compromise might  be to  have a                                                               
deadline of November  15, 2003.  She asked whether  the RCA would                                                               
be amenable to such a change.                                                                                                   
MR.  HARBOUR  said that  the  RCA  will  do  its best  to  follow                                                               
whatever legislation is signed into law.                                                                                        
CHAIR McGUIRE  said she  would trust  the RCA to  do the  best it                                                               
MR. HARBOUR  asked whether what's  before the  committee contains                                                               
language that recognizes  that the RCA's work may  be delayed due                                                               
to motions from interested parties.                                                                                             
CHAIR McGUIRE  explained that  Version N simply  asks the  RCA to                                                               
make  a good-faith  start in  the direction  of issuing  proposed                                                               
regulations; she  then read some  of Version N's language  to Mr.                                                               
Harbour.  She said  that her hope is that the  RCA will devote as                                                               
much time as possible to this endeavor.                                                                                         
Number 1360                                                                                                                     
REPRESENTATIVE SAMUELS made  a motion to adopt  Amendment 3, Page                                                               
1, line 14, replace "October  15, 2003" with "November 15, 2003".                                                               
There being no objection, Amendment 3 was adopted.                                                                              
Number 1388                                                                                                                     
REPRESENTATIVE  OGG made  a motion  to adopt  [Amendment 4],  "to                                                               
delete Section 2."                                                                                                              
Number 1394                                                                                                                     
REPRESENTATIVE ANDERSON objected.                                                                                               
REPRESENTATIVE  OGG  suggested  that   deleting  Section  2  from                                                               
Version N  of HB 111  will result in  the same language  that the                                                               
committee will be proposing later when it takes up HB 106.                                                                      
CHAIR McGUIRE said that synopsis is incorrect.                                                                                  
The committee took an at-ease from 4:50 p.m. to 5:20 p.m.                                                                       
Number 1432                                                                                                                     
CHAIR  McGUIRE   remarked  that   a  couple  of   other  proposed                                                               
amendments might be  forthcoming.  She explained that  one of the                                                               
proposed amendments  [which was  later referred to  as Conceptual                                                               
Amendment 5]  would clarify that  the regulatory  review required                                                               
by  subsection  (a)  does  not apply  to  "current  open  dockets                                                               
pending review."                                                                                                                
The committee took an at-ease from 5:21 p.m. to 5:22 p.m.                                                                       
CHAIR McGUIRE  suggested that [Conceptual  Amendment 5]  could be                                                               
inserted on  page 2, line  16, after  the language added  via the                                                               
first portion of Amendment 1.                                                                                                   
Number 1491                                                                                                                     
CHAIR McGUIRE  made a motion  to adopt [Conceptual  Amendment 5],                                                               
which  would  clarify  that the  regulatory  review  required  by                                                               
subsection (a)  does not apply  to "current open  dockets pending                                                               
Number 1496                                                                                                                     
REPRESENTATIVE  OGG  pointed  out   that  his  motion  [to  adopt                                                               
Amendment 4], which would delete Section 2, was still pending.                                                                  
Number 1508                                                                                                                     
CHAIR  McGUIRE indicated  that  she would  set  aside her  motion                                                               
regarding [Conceptual  Amendment 5] until [Amendment  4] is dealt                                                               
REPRESENTATIVE OGG  indicated that it  would be alright  with him                                                               
if  the  representatives  from   ACS  and  GCI  provided  further                                                               
testimony first.                                                                                                                
MS. TINDALL  thanked the committee  for all  of its work  and in-                                                               
depth  discussion  of  the  changes   proposed  by  certain  bill                                                               
versions.   She opined that  Version N  is far superior  to other                                                               
versions that  have been  before the committee.   She  added that                                                               
although she would  prefer "a clean bill," she is  not opposed to                                                               
the language contained  in Version N.   She recommended, however,                                                               
that the committee consider giving  the RCA a four-year extension                                                               
rather than a two-year extension.                                                                                               
REPRESENTATIVE  HOLM asked  why  the committee  should provide  a                                                               
four-year extension.                                                                                                            
MS. TINDALL replied:                                                                                                            
     I am sure ..., [whether  it's a two-year extension or a                                                                    
     four-year  extension], you  will find  that phone  wars                                                                    
     don't change much.   But I do believe that  the RCA has                                                                    
     done a  fairly good job  - I think they've  been upheld                                                                    
     on appeal -  I know that there is  disagreement from my                                                                    
     competitors on  that subject, but  I think  in contrast                                                                    
     to  last year's  debate,  this year's  debate ...  [is]                                                                    
     much more about the  ability to get deregulated, rather                                                                    
     than  any  bias  or  any  problems  on  the  commission                                                                    
     itself.     The  governor   has  appointed   three  new                                                                    
     commissioners, out  of five, this year,  and so there's                                                                    
     been a 60 percent turnover.                                                                                                
     I  do   believe  that  these  phone   wars,  where  the                                                                    
     commission  essentially has  an  axe  hanging over  its                                                                    
     head, is  chilling on  their ability  to do  their work                                                                    
     and  regulate.   I think  it has  an adverse  effect on                                                                    
     staff,  and  ... I'm  impressed  that  there are  still                                                                    
     people  who want  to serve  on the  commission.   And I                                                                    
     also think  that ... the  legislature has  the ability,                                                                    
     at any time, to come  in with legislation or directives                                                                    
     and ask for  reports, ... [or] change  the statute; ...                                                                    
     you are there to oversee the commission.                                                                                   
     The problem with the sunset  legislation is, because it                                                                    
     has to pass, it turns  into this Christmas tree, and it                                                                    
     becomes phone  wars. ... It's  the nature of  the beast                                                                    
     that if you have a bill  that has to pass, then you get                                                                    
     amendments, that  otherwise may not pass  on their own,                                                                    
     hung on  it.  And  that is  really kind of  what spawns                                                                    
     this problem.   So ...  beyond the fact that  ... we're                                                                    
     all tired of phone wars,  I think there are good public                                                                    
     policy reasons  for extending  the commission  for four                                                                    
     years rather than two.                                                                                                     
Number 1745                                                                                                                     
REPRESENTATIVE  HOLM said  he is  concerned about  being able  to                                                               
exert legislative control over the  RCA; thus, for the purpose of                                                               
determining whether the legislature is  satisfied that the RCA is                                                               
fulfilling its  responsibilities, a  two-year extension  seems to                                                               
be  better  than  either  a one-year  extension  or  a  four-year                                                               
MS.  TINDALL  said she  believes  that  the legislature  has  the                                                               
ability, before the  sunset issue comes before it  again, to pass                                                               
legislation asking the  RCA for a report, or  to pass legislation                                                               
pertaining to  intent language.   And if the legislature  does so                                                               
without it  being a sunset  year, the legislature might  find the                                                               
parties in general  to be a whole lot more  reasonable and easier                                                               
to deal  with, she  predicted.  In  addition, without  the sunset                                                               
axe hanging  over the  RCA's head, the  RCA's processes  might be                                                               
better public processes.                                                                                                        
REPRESENTATIVE GARA  suggested that a three-year  sunset might be                                                               
a good compromise.                                                                                                              
REPRESENTATIVE  GRUENBERG said  he would  support such  a change,                                                               
particularly  if  it included  a  provision  asking for  a  Joint                                                               
Committee on Legislative Budget  and Audit report halfway through                                                               
the extension.                                                                                                                  
REPRESENTATIVE  SAMUELS mentioned  that a  similar report  was to                                                               
have been  presented to the  legislature this year but  has still                                                               
not been provided.                                                                                                              
MS. TINDALL  noted that last year,  too, GCI was in  support of a                                                               
clean,  four-year  extension.    She suggested  that  these  same                                                               
problems  are again  before the  legislature because  last year's                                                               
legislation became a one-year extension.                                                                                        
Number 1991                                                                                                                     
REPRESENTATIVE ANDERSON  said he disagreed, and  remarked that as                                                               
chair  of the  House Labor  and Commerce  Standing Committee,  he                                                               
would not have  given the interested parties as  much latitude as                                                               
Chair  McGuire has.   He  suggested that  a three-year  extension                                                               
plus report might not be  the best solution, adding that although                                                               
he might support  a two-year extension, he would  oppose a three-                                                               
year extension.  He said he wanted to next hear ACS's comments.                                                                 
MR. STEINBERG  said that Version N  does not contain much  of the                                                               
"policy  guidance"   that  ACS   sought  from   the  legislature.                                                               
Consequently,  he  added, ACS  doesn't  have  much to  say  about                                                               
Version N.  He opined that Version  N does not solve any of ACS's                                                               
problems.  He elaborated:                                                                                                       
     Today, in  Anchorage, we believe  we have  to subsidize                                                                    
     GCI  to the  tune of  about  $500,000 a  month plus  by                                                                    
     having to provide them facilities  at lease rates which                                                                    
     are considerably  below what we think  the proper rates                                                                    
     ought to  be.  This  doesn't solve that problem.   This                                                                    
     version does  not provide any  kind of guidance  to the                                                                    
     RCA  ...  that  would  tell  them  that  it  should  be                                                                    
     analyzed; it  says to be fair.   Well, what I  can tell                                                                    
     is, based  on all  of the decisions  we've seen  out of                                                                    
     the commission so far, they  think they are being fair.                                                                    
     Well, if  they're being fair,  then we're not  going to                                                                    
     get any relief.                                                                                                            
     So,  consequently, we  don't  believe  this solves  the                                                                    
     problem.  We  don't believe this solves  the problem of                                                                    
     Fairbanks where we have [a]  loop that on average costs                                                                    
     us about $32  per line per month that we  have to lease                                                                    
     to GCI for  about $19 per month.  Is  that fair?  Well,                                                                    
     I can  tell you  that the RCA  has told us  it is.   It                                                                    
     doesn't seem  fair to  me; I would  be surprised  if it                                                                    
     seemed very  fair to many of  you.  This bill  does not                                                                    
     solve  that problem.    The problem  that  exists is  a                                                                    
     problem  of  short-sided  and one-sided  policies  that                                                                    
     have  been adopted  over  the period  of  years by  the                                                                    
     commission, [and they've] been  adopted by a variety of                                                                    
     different     commissioners;     changes     in     the                                                                    
     commission/commissioners   has    not   changed   their                                                                    
     positions  on  these  issues.   There've  been  studies                                                                    
     before - there's been lots of studies.                                                                                     
Number 2221                                                                                                                     
     Last  year,  the state  conducted  its  own study,  and                                                                    
     there was a  report that was generated as  a result and                                                                    
     it pointed out some of  these kinds of problems.  There                                                                    
     was the  legislative group -  it's true, the  House did                                                                    
     not participate,  but the Senate  did - and  the Senate                                                                    
     produced  a  report.  ...   The  commission  had  these                                                                    
     studies  available to  it.   Did  it  do anything  with                                                                    
     them?   Did the commission  change any of  its policies                                                                    
     as  a   result?    Did   the  commission   propose  new                                                                    
     regulations?   Well, in some  cases it has, sure.   The                                                                    
     commission  has initiated  some  rulemakings that  have                                                                    
     been  going on  and rulemakings  that can  go on  for a                                                                    
     lengthy  period  of  time.    I  understand  that  this                                                                    
     proposal  has an  October 15  deadline,  but that's  an                                                                    
     extremely accelerated  basis; I  would be  surprised if                                                                    
     much of substance can happen in that point of time.                                                                        
CHAIR McGUIRE clarified that the deadline is now November 15,                                                                   
MR. STEINBERG remarked:                                                                                                         
     That's  fine   -  another  $500,000  loss   by  ACS  in                                                                    
     Anchorage.  This just doesn't  solve the problem.  This                                                                    
     basically is  legislation which calls for  more studies                                                                    
     and more  investigations and more reports  back.  Well,                                                                    
     there's been  a lot of  time for that.   These problems                                                                    
     that  we're talking  about are  not new;  ... they  may                                                                    
     seem new to  some of you, but these  problems have been                                                                    
     before the  legislature ... for years  and they've also                                                                    
     been  before   the  commission  for  years.     If  the                                                                    
     commission  thought  that   there  was  something  that                                                                    
     needed change,  it had  lots of  opportunity to  do so.                                                                    
     [It] hasn't done so.                                                                                                       
     Now, with all due respect to  the fact that we have new                                                                    
     commissioners,  there is  a need  for some  guidance on                                                                    
     important state policies.  We  believe that just as the                                                                    
     FCC  has   indicated  that   in  areas   where  there's                                                                    
     competition, depreciation  rates should  be accelerated                                                                    
     - and  the Illinois legislature found  that that should                                                                    
     be the  case -  we think  that this  legislature should                                                                    
     announce that as one of  its state's policies.  Let the                                                                    
     regulators  figure out  how  to  implement it;  there's                                                                    
     plenty of room for implementation.                                                                                         
Number 2324                                                                                                                     
MR. STEINBERG indicated that the  remainder of his comments apply                                                               
to HB 106.                                                                                                                      
REPRESENTATIVE GARA said he understands  ACS's position, which he                                                               
surmised as  being that ACS  would prefer a different  version of                                                               
HB 111 and doesn't support Version  N.  He asked Mr. Steinberg to                                                               
comment on whether Version N  will treat any carriers differently                                                               
or unfairly, or harm the consumer.                                                                                              
MR.  STEINBERG offered  that by  keeping  the exiting  regulatory                                                               
policies in  place, particularly  the one regarding  lease rates,                                                               
both ACS and consumers are harmed.                                                                                              
REPRESENTATIVE GARA  said he  wanted to speak  in defense  of the                                                               
committee's   hard   work  on   this   issue.     Just   a   flat                                                               
reauthorization didn't  provide the  committee with  any comfort,                                                               
and neither  did the proposals  brought forth by  ACS; therefore,                                                               
if  ACS has  problems,  he  said, he  believes  that the  company                                                               
should not  have gone overboard  and asked for more  than perhaps                                                               
it  should have.   He  remarked  that there  were proposals  that                                                               
would allow monopolists  to not be regulated - he  said he cannot                                                               
tolerate such proposals;  proposals that would not  allow the RCA                                                               
to require a utility to  upgrade phone lines and Internet service                                                               
for people in the bush - he said  he believes that such a duty is                                                               
integral to the RCA's job  of protecting the public and providing                                                               
it with modern communications  infrastructure; and proposals that                                                               
would allow  a phone company,  on its  own, to declare  itself as                                                               
being in  a competitive market even  if it might not  be, and the                                                               
public would be subject to  the effects of that declaration until                                                               
the RCA has a chance to go through a denial process.                                                                            
TAPE 03-68, SIDE B                                                                                                            
Number 2390                                                                                                                     
REPRESENTATIVE  GARA opined  that those  proposals were  not well                                                               
written, and that  the committee, in creating Version  N, did the                                                               
best it  could when it  saw proposals it  could not support.   He                                                               
remarked  that  a  lot  of business  interests  come  before  the                                                               
legislature and ask  for things that go too far,  which is why he                                                               
did not  support the other  version of HB 111.   He said  he felt                                                               
frustration because the committee was  stuck between a rock and a                                                               
hard place and given the choice  of picking only from things that                                                               
wouldn't work.                                                                                                                  
CHAIR McGUIRE  noted that the  committee has before it  Version N                                                               
and the question of whether to adopt [Amendment 4].                                                                             
REPRESENTATIVE  OGG indicated  that he  does not  comprehend what                                                               
the impact of  some of the language  in Section 2 will  be or the                                                               
direction it will  take.  He said he feels  that the RCA policies                                                               
currently in statute  are sufficient to cover most  of the points                                                               
in Section 2;  thus Section 2 is merely clarification.   He asked                                                               
members to support  the removal of Section 2 and  thereby send on                                                               
a "clean" bill.                                                                                                                 
REPRESENTATIVE  ANDERSON said  he thinks  there is  merit in  the                                                               
review infrastructure set  forth in subsection (a)  of Section 2,                                                               
but agrees with  Mr. Steinberg that the changes  suggested by ACS                                                               
are not  encompassed in Version  N.   He indicated that  he would                                                               
vote to keep the review process  in the bill, but would prefer to                                                               
see statutory changes to the RCA's process.                                                                                     
CHAIR McGUIRE said that the  committee recognizes that there is a                                                               
problem  and a  need for  changes to  the current  situation, and                                                               
that she trusts the RCA to  implement those changes in the manner                                                               
set forth  in Version  N, which she  characterized as  the middle                                                               
Number 2200                                                                                                                     
A roll  call vote was taken.   Representative Ogg voted  in favor                                                               
of Amendment  4.  Representatives Anderson,  Holm, Samuels, Gara,                                                               
Gruenberg, and McGuire voted against  it.  Therefore, Amendment 4                                                               
failed by a vote of 1-6.                                                                                                        
Number 2192                                                                                                                     
CHAIR  McGUIRE  again  made  the   motion  to  adopt  [Conceptual                                                               
Amendment 5], to page 2, line  16, following the first portion of                                                               
Amendment 1,  clarifying that the  regulatory review  required by                                                               
subsection (a)  does not apply  to "current open  dockets pending                                                               
Number 2166                                                                                                                     
REPRESENTATIVE GARA  suggested that  the language  of [Conceptual                                                               
Amendment 5] instead say:   "regulations under this section shall                                                               
not apply to dockets open for  review prior to the effective date                                                               
of  this  Act".    He   remarked,  however,  that  perhaps  Chair                                                               
McGuire's language is better.                                                                                                   
CHAIR  McGUIRE   explained,  though,  that  in   requesting  this                                                               
clarification, the goal  of the RCA was to not  have to duplicate                                                               
its efforts;  with the open dockets  that the RCA will  be ruling                                                               
on, the RCA does not want  to duplicate the review process, which                                                               
it would be required to do under subsection (a).                                                                                
REPRESENTATIVE  GARA  said that  Chair  McGuire's  point is  well                                                               
taken,  and indicated  that he  has no  objection to  [Conceptual                                                               
Amendment 5 as stated by Chair McGuire].                                                                                        
Number 2062                                                                                                                     
CHAIR  McGUIRE asked  whether there  were  further objections  to                                                               
[Conceptual  Amendment   5].     There  being   none,  Conceptual                                                               
Amendment 5 was adopted.                                                                                                        
CHAIR McGUIRE turned attention to  [Conceptual] Amendment 6.  She                                                               
relayed   that   via   [Conceptual]    Amendment   6,   she   and                                                               
Representatives  Gara  and  Samuels  are  proposing  that  a  new                                                               
[paragraph] regarding  regulations pertaining to "fill  rates" be                                                               
added to page 2, line 28,  after the new [paragraph] in Amendment                                                               
1 that pertains to depreciation,  and that the remaining language                                                               
be renumbered accordingly.   She elaborated:  "The  title will be                                                               
'Fill Rates'  ... and  the question  will be,  of which  we would                                                               
like a regulation  issued on, how fill factors  should be applied                                                               
in setting unbundled network element rates".                                                                                    
Number 2008                                                                                                                     
CHAIR McGUIRE  [made a motion  to adopt] Conceptual  Amendment 6,                                                               
and asked whether there were any objections.                                                                                    
REPRESENTATIVE OGG asked  for an explanation from ACS  and GCI on                                                               
this issue.                                                                                                                     
Number 1984                                                                                                                     
TINA  M. PIDGEON,  Vice  President,  Federal Regulatory  Affairs,                                                               
General  Communications Incorporated  (GCI),  explained that  the                                                               
term "fill  factors" is one  that applies to network  design, and                                                               
is the  amount of  the network  necessary to  serve some  sort of                                                               
defined  customer   base.    The   fill  factor  itself   is  not                                                               
necessarily a  static number; one  would always want to  have, in                                                               
designing a network, what could  be called additional network but                                                               
is also  necessary network that could  go into use if  a piece of                                                               
copper line,  for example, is no  longer working and needs  to be                                                               
replaced.  Fill  factors themselves are used when  two carriers -                                                               
for example, ACS  and GCI - are first negotiating  and then often                                                               
arbitrating the  rates that ACS  will charge  GCI for use  of the                                                               
network components  needed for GCI  to serve its customers.   The                                                               
fill factor,  in the  context of  unbundled network  elements, is                                                               
actually  an  input  into  a  larger  data  set  that,  together,                                                               
produces  the  output,  which  would  be  the  unbundled  network                                                               
element rates.   The unbundled network  element rates themselves,                                                               
and  how they  are applied,  constitute  an issue  that has  been                                                               
reviewed and litigated ever  since the federal Telecommunications                                                               
Act of 1996 was first passed.                                                                                                   
MS.   PIDGEON   said  that   Sections   251   and  252   of   the                                                               
Telecommunications Act  of 1996 tasked the  FCC with establishing                                                               
regulations that would  be applied by state  commissions when two                                                               
carriers  are first  negotiating and  then often  arbitrating the                                                               
rates  that will  apply when  one carrier  has use  of the  other                                                               
carrier's   network  and   actually   leases  unbundled   network                                                               
elements.  What  the RCA has done in the  past, she relayed, when                                                               
the  two carriers  have been  in arbitrations,  which are  fairly                                                               
long  and detailed  proceedings,  is apply  the regulations  that                                                               
have been established  by the FCC and upheld by  the U.S. Supreme                                                               
Court, and among those regulations  are guidance and requirements                                                               
that would apply to the setting  of fill factors.  In response to                                                               
a  question,  she  said  that  according  to  her  understanding,                                                               
Conceptual Amendment 6 asks for a  report or a statement from the                                                               
RCA about  how it has  established fill  factors and how  it will                                                               
establish  fill factors  in  the future  when  two companies  are                                                               
arbitrating rates between one another,  and so to the extent that                                                               
Conceptual Amendment 6 asks for  feedback and report from the RCA                                                               
to  clarify the  fill factors  that are  being used,  GCI has  no                                                               
objection to the amendment.                                                                                                     
MR.  STEINBERG,  after  reiterating  that ACS  does  not  support                                                               
[Version N],  concurred that  there are  many components  that go                                                               
into calculating  the rates  at which ACS  is obligated  to lease                                                               
its facilities.   There are  many opportunities  for artificially                                                               
depressing those  rates, he  opined, by  assuming "this  or that,                                                               
which is  not consistent with reality."   He said that  ACS feels                                                               
it would  be appropriate  for the  legislature to  stipulate that                                                               
fill factors  should reflect reality,  and is concerned  that the                                                               
RCA will require ACS to "underbill"  the network.  He opined that                                                               
nothing in  the proposed language  will change the  RCA's current                                                               
approach to the fill factor issue.                                                                                              
Number 1777                                                                                                                     
CHAIR McGUIRE noted  that there were no  objections to Conceptual                                                               
Amendment 6.  Therefore, Conceptual Amendment 6 was adopted.                                                                    
Number 1762                                                                                                                     
REPRESENTATIVE ANDERSON  moved to report  the proposed CS  for HB
111,  Version 23-GH1049\N,  Craver, 5/17/03,  as amended,  out of                                                               
committee  with individual  recommendations and  the accompanying                                                               
fiscal note.                                                                                                                    
REPRESENTATIVE OGG asked about the sunset date.                                                                                 
CHAIR  McGUIRE explained  that Amendment  2  extended the  sunset                                                               
date to June 30, 2005.                                                                                                          
REPRESENTATIVE OGG  noted there  had been later  discussion about                                                               
perhaps extending it further.                                                                                                   
CHAIR McGUIRE  invited Representative  Ogg to offer  an amendment                                                               
to that effect                                                                                                                  
Number 1601                                                                                                                     
REPRESENTATIVE ANDERSON  offered to  withdraw his motion  for the                                                               
purpose of considering another amendment.                                                                                       
REPRESENTATIVE OGG  indicated that  having a short  sunset period                                                               
might make  it difficult  for the  RCA to do  its work,  and that                                                               
having a  longer sunset period or  no sunset period, as  with the                                                               
Board  of Fisheries,  might be  more beneficial.   He  offered an                                                               
analogy of what might happen  were the Board of Fisheries subject                                                               
to a  sunset provision.   He  opined that  even without  a sunset                                                               
date,  the  legislature  still  has the  power  to  fix  whatever                                                               
problems might arise with the RCA.                                                                                              
CHAIR McGUIRE again  invited Representative Ogg to  make a motion                                                               
to that effect.                                                                                                                 
Number 1601                                                                                                                     
REPRESENTATIVE ANDERSON,  for the purpose of  considering another                                                               
amendment,  withdrew   his  motion   to  report  the   bill  from                                                               
Number 1593                                                                                                                     
REPRESENTATIVE  OGG [made  a  motion to  adopt  Amendment 7,]  to                                                               
remove the sunset clause altogether.                                                                                            
Number 1587                                                                                                                     
REPRESENTATIVE ANDERSON objected.                                                                                               
Number 1581                                                                                                                     
REPRESENTATIVE OGG withdrew his motion to adopt Amendment 7.                                                                    
Number 1575                                                                                                                     
REPRESENTATIVE ANDERSON  moved to report  the proposed CS  for HB
111,  Version 23-GH1049\N,  Craver, 5/17/03,  as amended,  out of                                                               
committee  with individual  recommendations and  the accompanying                                                               
fiscal  note.    There  being no  objection,  CSHB  111(JUD)  was                                                               
reported from the House Judiciary Standing Committee.                                                                           
HB 106 - DEFINITION OF LOBBYING                                                                                               
[Contains  discussion of  some of  the issues  raised during  the                                                               
hearings on HB  111, and mention that language from  Version J of                                                               
HB 111 has been incorporated into Version S of HB 106.]                                                                         
Number 1541                                                                                                                     
CHAIR McGUIRE  announced that the  final order of  business would                                                               
be  HOUSE  BILL NO.  106,  "An  Act  amending the  definition  of                                                               
'lobbyist' in the  Regulation of Lobbying Act, and  as it applies                                                               
in  the act  setting  standards of  conduct  for legislators  and                                                               
legislative employees,  to define 'regular' and  'substantial' as                                                               
those  terms  describe activities  for  which  a person  receives                                                               
consideration  for  the  purpose of  influencing  legislative  or                                                               
administrative action."                                                                                                         
Number 1535                                                                                                                     
REPRESENTATIVE  ANDERSON moved  to adopt  the proposed  committee                                                               
substitute  (CS)   for  HB  106,  Version   23-LS0405\S,  Craver,                                                               
5/17/03, as the work draft.   There being no objection, Version S                                                               
was before the committee.                                                                                                       
Number 1484                                                                                                                     
CHAIR  McGUIRE noted  that Version  S of  HB 106  is now  "An Act                                                               
relating  to retail  tariffing standards  in a  competitive local                                                               
exchange  service  area; and  to  exemptions  from retail  tariff                                                               
filing requirements  and certain other provisions  in competitive                                                               
telecommunications markets; setting  a policy regarding unbundled                                                               
network elements  in the  telecommunications market;  relating to                                                               
depreciation   expense  rates   for  certain   telecommunications                                                               
utilities;  requiring  the  Regulatory Commission  of  Alaska  to                                                               
conduct an investigation, take  certain actions, withhold certain                                                               
actions,  and issue  a  report; and  providing  for an  effective                                                               
CHAIR McGUIRE  relayed that Version S  of HB 106 contains  all of                                                               
the elements of  HB 111, Version J.  She  asked to hear testimony                                                               
regarding proposed AS 42.05.435 - which  begins on page 3, line 2                                                               
- the  provision pertaining to  the pricing of  unbundled network                                                               
Number 1383                                                                                                                     
LEONARD  A.  STEINBERG,  General Counsel,  Alaska  Communications                                                               
Systems,  Inc. (ACS),  said that  that provision  deals with  the                                                               
prices at which ACS sets its  lease rates.  He then asserted that                                                               
comments  made  by  Christopher J.  Wright,  former  FCC  General                                                               
Counsel, at yesterday's hearing on  HB 111 were erroneous in that                                                               
state regulators  do still  have a  role in  setting prices.   He                                                               
acknowledged   that  the   decisions  made   by  the   Regulatory                                                               
Commission of  Alaska (RCA) regarding prices  can be contentious;                                                               
for example,  ACS has been  arguing over Anchorage's  lease rates                                                               
for more than three  years.  He said that it is  in the areas for                                                               
which the state  still has discretion that ACS  is seeking policy                                                               
guidance for the RCA.                                                                                                           
MR.  STEINBERG opined  that nothing  in Version  S of  HB 106  is                                                               
inconsistent with  federal law;  in fact, he  offered, ACS  has a                                                               
letter from  its FCC counsel  attesting to  that.  He  noted that                                                               
language in proposed AS 42.05.435  does refer to "forward-looking                                                               
incremental  costs"  and  a "reasonable  profit",  and  that  the                                                               
Telecommunications Act of 1996 allows  for reasonable profit; ACS                                                               
believes it should  have, as part of its  lease rate calculation,                                                               
the ability to  obtain a reasonable profit, and  for this reason,                                                               
the word "shall"  is included in the  provision under discussion.                                                               
He also noted that the language  in this provision will result in                                                               
the RCA  approaching this  issue differently than  it has  in the                                                               
past, which included using national  average default costs rather                                                               
than future  projections of current  costs.  He opined  that this                                                               
provision is appropriate and allowed under federal law.                                                                         
MR.  STEINBERG noted  that  the  issue of  fill  factors is  also                                                               
addressed in this provision.                                                                                                    
REPRESENTATIVE GRUENBERG asked whether  the term "labor", as used                                                               
on page  3, line 11,  includes recognition of any  existing labor                                                               
Number 1167                                                                                                                     
MR.  STEINBERG  remarked that  existing  labor  contracts are  an                                                               
important factor in  calculating what labor costs will  be in the                                                               
future.  The  RCA, however, has rejected current  labor costs, as                                                               
well as other current costs,  in its calculations of lease rates.                                                               
He suggested  that this  is due to  the RCA  interpreting current                                                               
law differently  than ACS feels  it should,  and that the  RCA is                                                               
doing so in error.  He went on to say:                                                                                          
     The FCC  rules ... [have] adopted  something called the                                                                    
     "hypothetical  network"  rule.   We  don't  necessarily                                                                    
     believe this is the right  way to price our facilities,                                                                    
     but it  is the federal  law and  we do not  dispute it.                                                                    
     ...  The  hypothetical  network  rule,  however,  talks                                                                    
     about  the   design  of  a  network;   it  talks  about                                                                    
     designing  a network  ... that  ... is  a hypothetical,                                                                    
     most-efficient network. ... It  says that ... if thirty                                                                    
     years ago you  would have put copper in,  but today you                                                                    
     would  put  [in]  fiber-optic cable,  then  you  should                                                                    
     design that  network with fiber-optic  cable.   It says                                                                    
     that  if thirty  years  ago you  would  have used  some                                                                    
     little cross-connect  box to  connect customers  in the                                                                    
     network, but  today you use an  integrated digital loop                                                                    
     carrier,  that  you  should   use  those  digital  loop                                                                    
     carriers  throughout your  network.    That's what  the                                                                    
     hypothetical network  rule says,  we believe;  it talks                                                                    
     about the design.                                                                                                          
REPRESENTATIVE   GRUENBERG   suggested  adding   "including   the                                                               
existence of  any labor management agreements"  after "labor", on                                                               
page 3, line 11.                                                                                                                
MR. STEINBERG said that change would add to the legislation.                                                                    
Number 1000                                                                                                                     
REPRESENTATIVE GRUENBERG  [made a  motion to adopt  Amendment 1],                                                               
to add  after "labor" on page  3, line 11, the  words "(including                                                               
any labor management agreements)".                                                                                              
Number 0983                                                                                                                     
REPRESENTATIVE  GARA  objected.    He  opined  that  labor  costs                                                               
already include labor contract costs.                                                                                           
REPRESENTATIVE  GRUENBERG  said  he  wanted the  language  to  be                                                               
crystal clear on that point.                                                                                                    
REPRESENTATIVE GARA acquiesced.                                                                                                 
Number 0960                                                                                                                     
CHAIR  McGUIRE,  after  agreeing with  Representative  Gruenberg,                                                               
asked whether there  were any other objections  to [Amendment 1].                                                               
There being none, Amendment 1 was adopted.                                                                                      
REPRESENTATIVE  GARA offered  his understanding  that one  of the                                                               
federal mandates is that lease  rates cannot exceed what it would                                                               
cost a competitor  to come in and build a  network using the most                                                               
efficient technology  available.  He suggested  that the language                                                               
on lines 14  and 15 of page 3 conflicts  with the federal mandate                                                               
because the language in the bill  reads:  "(3) the most efficient                                                               
technology  the telephone  utility has  actually deployed,  which                                                               
shall   be  presumed   to  be   the  most   efficient  technology                                                               
MR.  STEINBERG opined  that that  language doesn't  conflict with                                                               
federal law;  instead, there  is simply  an ambiguity  in federal                                                               
law that allows  what's being proposed.  He  recommended that the                                                               
committee looks specifically at  paragraphs 683-685 of the "FCC's                                                               
First  Report and  Order," which  he characterized  as a  lengthy                                                               
description of  what the FCC  is trying  to accomplish.   He said                                                               
that those  paragraphs of that  document refer to using  the most                                                               
efficient  technology   actually  employed.     He  acknowledged,                                                               
however, that  other portions  of that  document simply  refer to                                                               
the  most  efficient  technology  available.    Because  of  this                                                               
discrepancy, he  predicted, different  carriers will  continue to                                                               
argue  over whether  the language  in the  bill is  allowed under                                                               
federal law.                                                                                                                    
MR. STEINBERG went on to say:                                                                                                   
     Let me tell you what the  consequences of this are.  In                                                                    
     Fairbanks,  we  provide  a  lot   of  services  to  our                                                                    
     competitor;   we  lease   facilities  and   we  provide                                                                    
     services.  Today, we have  to provide "provisioning and                                                                    
     ordering" services;  those services cost ACS  about $12                                                                    
     to $14 every time somebody  places an order. ... That's                                                                    
     what  our cost  is,  of taking  that  order, doing  the                                                                    
     paperwork, doing the data input,  [and so on].  What do                                                                    
     we  get to  charge  for that?   We  get  to charge  our                                                                    
     competitor $1 ... for something that costs us $12.                                                                         
Number 0773                                                                                                                     
     Well  why  is that?    Well,  the  reason that  is,  is                                                                    
     because the RCA assumed that  we had a fully integrated                                                                    
     electronic operations support system  that would do all                                                                    
     this in  a fully  integrated way -  electronically, ...                                                                    
     very efficiently.   And if  we had that, it  would only                                                                    
     cost us  $1.   Well in  fact, we don't  have that.   In                                                                    
     fact, there are  no carriers the size of  ACS that have                                                                    
     any  such thing.   But  it was  assumed because  it was                                                                    
     something  that somebody  had  [somewhere]  and it  was                                                                    
     more  efficient than  what  we have  today.   We  don't                                                                    
     think that's  the right way  to set the prices  for our                                                                    
     facilities  and services,  and we  don't think  the FCC                                                                    
     requires it.                                                                                                               
MR. STEINBERG noted that fill  factors have been addressed by the                                                               
Illinois [legislature], and  opined that it did so  properly.  He                                                               
suggested  that  similar  language  would be  a  good  thing  for                                                               
Alaskan policy  as well.   He  then referred  to the  language on                                                               
page 3,  lines 16 and  17, which read,  "(4) the cost  of capital                                                               
that reflects the risks associated  with competitive market"; and                                                               
to the  language in  Section 3,  which pertains  to depreciation.                                                               
He said,  "Both of these  issues ...  have been addressed  by the                                                               
FCC in the press release  for their long-awaited triennial review                                                               
order.  The press release was issued in February ..."                                                                           
REPRESENTATIVE GRUENBERG  interjected to  turn attention  back to                                                               
the  language  on lines  14  and  15.   He  said:   "You  have  a                                                               
presumption in here.   That means it's  a rebuttable presumption,                                                               
and it  can be rebutted.   Now, I'm a  sharp lawyer on  the other                                                               
side; I find some technology  somewhere that's available - you're                                                               
back where you started."                                                                                                        
MR.  STEINBERG said  that in  theory, he  does not  disagree with                                                               
Representative  Gruenberg,   although,  in  that   scenario,  the                                                               
competitor would have the burden  of showing that that technology                                                               
would be appropriate and more efficient.                                                                                        
REPRESENTATIVE GRUENBERG  agreed, but  reiterated that  ACS would                                                               
still be back where it started.                                                                                                 
MR. STEINBERG  indicated that he  would be agreeable to  a change                                                               
in language.                                                                                                                    
Number 0591                                                                                                                     
REPRESENTATIVES GRUENBERG  and HOLM, and CHAIR  McGUIRE discussed                                                               
the  fact that  what is  meant by  the word  "available" is  ever                                                               
changing,  both temporally  and  geographically; and  that it  is                                                               
used  in  statutes pertaining  to  natural  resources, and  often                                                               
engenders debate.                                                                                                               
REPRESENTATIVE GRUENBERG noted that  just because a technology is                                                               
said  to be  "available" does  not  mean that  it is  "reasonably                                                               
available" or "commercially reasonably available."                                                                              
MR. STEINBERG said  those points are well taken,  adding that ACS                                                               
feels that  "this whole  issue" is  the one  that is  most easily                                                               
abused.   In fact,  he surmised,  it is the  reason "we  have $19                                                               
prices for  loops in  Fairbanks" even though  ACS's cost  is $32.                                                               
It is because somebody saw that  somewhere, a carrier was able to                                                               
do "that"  for that price, and  didn't take into account  what it                                                               
actually costs "to  do it" in Fairbanks.  He  opined that such an                                                               
approach is  not required by  federal law  and is incorrect.   He                                                               
offered that the language,  "most efficient technology available"                                                               
is "almost verbatim from the federal rules."                                                                                    
REPRESENTATIVE GRUENBERG asked how the "feds" interpret it.                                                                     
MR. STEINBERG replied:                                                                                                          
     The feds largely have not  interpreted it.  Again, this                                                                    
     is a  "Rube Goldberg"  system of  regulation.   The FCC                                                                    
     has adopted  -- and if  you want  to look, it's  at "47                                                                    
     CFR 51.505," but  what happens is, is  that these rules                                                                    
     are promulgated  to provide guidance  to the  states as                                                                    
     to  how  the states  should  set  rates.   The  federal                                                                    
     government doesn't  set rates.  So  the FCC established                                                                    
     these rules,  and then  told the states  to go  out and                                                                    
     set rates. ... And [so]  it's each state making its own                                                                    
     interpretation of what these rules have to say.                                                                            
REPRESENTATIVE GRUENBERG asked how the states interpret it.                                                                     
Number 0394                                                                                                                     
TINA M. PIDGEON, Vice President, Federal Regulatory Affairs,                                                                    
General Communications Incorporated (GCI), replied:                                                                             
     Well, let  me say first  of all that what  we're really                                                                    
     talking  about, in  this section,  are  not the  actual                                                                    
     prices, not the actual  dollar [amount] that comes out,                                                                    
     but  the  methodology  that's used  to  determine  what                                                                    
     those rates are.  And it  should be of no surprise that                                                                    
     I  do  disagree  with  Mr.   Steinberg  that  there  is                                                                    
     confusion about that  methodology.  If I  might read to                                                                    
     you from the FCC's  "First Report and Order," paragraph                                                                    
     679, what the FCC describes  was a rejection of exactly                                                                    
     what Mr. Steinberg  has supported here, and  that is to                                                                    
     base  the cost  ... [upon  which it  bases] the  prices                                                                    
     that  it charges  its  competitor for  the  use of  its                                                                    
     network, the  only network  in the  ground, based  on -                                                                    
     you might  hear it  called - "actual  costs," "historic                                                                    
     costs," [or] "imbedded costs."                                                                                             
     These  were  all  costs   that  were  recorded,  maybe,                                                                    
     somewhere, sometimes maybe they  weren't, and they were                                                                    
     all  incurred   at  a  time   when  "rate   of  return"                                                                    
     regulation [was used]  - in [a] sense, ...  [a] type of                                                                    
     inefficient  investment because,  under rate  of return                                                                    
     regulation, the more  money you put in  the ground, the                                                                    
     more costs  you have, the  greater your return  is, the                                                                    
     greater  amount that  you receive  in return  from your                                                                    
     rate payors.   And  by direction  of Congress,  the FCC                                                                    
     looked  at this  issue,  and what  they determined  is,                                                                    
     they  had   to  develop  a  pricing   methodology  that                                                                    
     addressed those issues.                                                                                                    
     And what  the FCC  found was that  Congress recognized,                                                                    
     in the  [Telecommunications Act  of 1996],  that access                                                                    
     to  the "incumbent  LEX"  bottleneck  facilities -  the                                                                    
     only  facilities  available  - is  critical  to  making                                                                    
     meaningful competition  possible.   As a result  of the                                                                    
     availability  to  competitors   of  the  incumbent  LEX                                                                    
     unbundled  elements at  their economic  cost, consumers                                                                    
     will be able to reap  the benefits of the incumbent LEX                                                                    
     economies of scale  and scope, as well  as the benefits                                                                    
     of competition, because a  pricing methodology based on                                                                    
     forward-looking  costs stimulates  the conditions  in a                                                                    
     competitive  marketplace.    It allows  the  requesting                                                                    
     carrier   to  produce   efficiently   and  to   compete                                                                    
     effectively, which should drive  retail prices to their                                                                    
     competitive levels.                                                                                                        
Number 0207                                                                                                                     
MS. PIDGEON also said:                                                                                                          
     Now, I'm sure  that my description of  fill factors was                                                                    
     tremendously scintillating to  everybody, but these are                                                                    
     the kind of  detailed issues that go  into applying the                                                                    
     methodology that  the FCC has established  and that the                                                                    
     [U.S.]  Supreme Court  has upheld.   And  in fact,  the                                                                    
     [U.S.]   Supreme  Court   has  squarely   rejected  the                                                                    
     description  of costs  that Mr.  Steinberg has  offered                                                                    
     here today.                                                                                                                
     What  the   [U.S.]  Supreme   Court  said   in  Verizon                                                                  
     Communications  Inc.  v.  FCC  was ...:    "As  for  an                                                                  
     embedded-cost  methodology, the  problem with  a method                                                                    
     that relies  in any part  on historical cost,  the cost                                                                    
     the  incumbents  say  they actually  incur  in  leasing                                                                    
     network elements,  is that it  will pass on  to lessees                                                                    
     the   difference  between   most  efficient   cost  and                                                                    
     embedded  cost.  ... Any  such  cost  difference is  an                                                                    
     inefficiency,   whether  caused   by  poor   management                                                                    
     resulting in higher operating  costs or poor investment                                                                    
     strategies    that    have   inflated    capital    and                                                                    
     depreciation.     If   leased   elements  were   priced                                                                    
     according to  embedded costs"  - which  is what  ACS is                                                                    
     essentially seeking - "the  incumbents could pass these                                                                    
     inefficiencies   to  competitors   in  need   of  their                                                                    
     wholesale  elements,  and  to that  extent  defeat  the                                                                    
     competitive  purpose of  forcing  efficient choices  on                                                                    
     all  carriers  whether  incumbents or  entrants.    The                                                                    
     upshot would  be higher  retail prices  consumers would                                                                    
     have to pay."                                                                                                              
     This is  an issue that  the FCC has  squarely addressed                                                                    
     and that  the [U.S.]  Supreme Court  has upheld,  and I                                                                    
     know  that   GCI  and  ACS   have  had   very  detailed                                                                    
     negotiations   and   arbitrations  [with]   the   state                                                                    
     commission  to  determine  the  ...  unbundled  network                                                                    
     element   rates  that   would  be   produced  by   that                                                                    
     methodology.   And to the  extent that ... ACS,  in the                                                                    
     past, [has] had disagreements  with the way perhaps the                                                                    
     inputs to  that methodology  were developed, or  to the                                                                    
     rates that were produced  thereafter, there's an entire                                                                    
     process  set out  for  them  to appeal:    they go  ...                                                                    
     straight   to  federal   district  court,   [and]  it's                                                                    
     provided in Section 252 of the federal Act.                                                                                
     These  are   the  types  of   issues  that   the  state                                                                    
     commission has  the expertise  to determine,  and there                                                                    
     is ample  process available to  ACS when it  feels that                                                                    
     the RCA has  gotten it wrong.  And if  I might add just                                                                    
     one more  thing, that this  is the methodology  that is                                                                    
     being applied by state  commissions across the country,                                                                    
     and the  outcome of  those rates,  when applied  by the                                                                    
     RCA, have been in line  with or higher than the average                                                                    
     of what other states have produced.                                                                                        
TAPE 03-69, SIDE A                                                                                                            
Number 0001                                                                                                                     
MS. PIDGEON continued:                                                                                                          
     [The following  bracketed portion was not  on tape, but                                                                    
     was  taken from  the Gavel  to Gavel  recording on  the                                                                    
     Internet]    And  so  to  say that  the  RCA  has  done                                                                    
     [something that just doesn't seem]  right to ACS is not                                                                    
     consistent with ...  what has been produced  by the RCA                                                                    
     in comparison to  what other states have  done as well.                                                                    
     My last statement ... to  this point is on the Illinois                                                                    
     legislation.   That legislation, which was  just passed                                                                    
     last week, has  already been subject to  a complaint in                                                                    
     federal district court  based on the theory  that it is                                                                    
     preempted by federal legislation.   In my opinion, that                                                                    
     argument is  likely to prevail,  and I  think yesterday                                                                    
     when   we   had  Chris   Wright,   who   was  here   on                                                                    
     [teleconference] with  you as a former  general counsel                                                                    
     of the FCC,  that's exactly the commentary  that he was                                                                    
     giving as well.                                                                                                            
[Chair McGuire turned the gavel over to Vice Chair Anderson.]                                                                   
REPRESENTATIVE GARA  asked whether  GCI would have  any objection                                                               
to  the  provision on  lines  14  and  15  if it  had  additional                                                               
language   which  clarified   that  it   involves  a   rebuttable                                                               
MS. PIDGEON replied:                                                                                                            
     I'm not sure why there  is something that that language                                                                    
     would give  ACS that ACS  doesn't already have.   There                                                                    
     is a  specific process  [set] forth  in Section  252 of                                                                    
     the "federal  communications Act" that provides  for an                                                                    
     extended  period  of  negotiation  and  arbitration  to                                                                    
     enter into  interconnection agreements between  the two                                                                    
     carriers.   So in those negotiations  and arbitrations,                                                                    
     the  companies discuss  practically every  single piece                                                                    
     of  hundreds of  inputs  that go  into  the model  that                                                                    
     reflects  the methodology  that [has]  been adopted  by                                                                    
     the FCC.   And  the process  provides that  the parties                                                                    
     take  their   separate  positions,  the  RCA   makes  a                                                                    
     decision,  and if  either of  the  parties isn't  happy                                                                    
     with   that  decision,   they  take   a  petition   for                                                                    
     reconsideration to the RCA, or an appeal.                                                                                  
[Vice Chair Anderson returned the gavel to Chair McGuire.]                                                                      
Number 0206                                                                                                                     
REPRESENTATIVE  GARA [made  a motion  to adopt  Amendment 2],  to                                                               
clarify  that  the  presumption   that  the  incumbent  carrier's                                                               
equipment  is  the  most  efficient  equipment  is  a  rebuttable                                                               
MS.  PIDGEON opined  that doing  so  would be  outside of  what's                                                               
permitted under federal law and FCC regulation.                                                                                 
MR. STEINBERG  wanted to know what  language, specifically, would                                                               
be added via [Amendment 2].                                                                                                     
REPRESENTATIVE   GARA  passed   out  the   following  handwritten                                                               
amendment as Amendment 2 [original punctuation provided]:                                                                       
     p.3 line 15                                                                                                                
               "which shall be presumed to be the"                                                                              
          and insert:                                                                                                           
          "and there shall be a rebuttable presumption                                                                          
     this technology is"                                                                                                        
Number 0356                                                                                                                     
REPRESENTATIVE GRUENBERG objected for  the purpose of discussion.                                                               
He said:   "I do think  that's a matter of  legal interpretation;                                                               
the use of the term "presumption" always means rebuttable."                                                                     
CHAIR McGUIRE suggested  they could simply adopt  Amendment 2 for                                                               
the sake of clarity.                                                                                                            
MS. PIDGEON mentioned  that regardless of whether  Amendment 2 is                                                               
simply  a  clarifying  amendment,  [GCI]  does  not  support  the                                                               
section it alters.                                                                                                              
Number 0425                                                                                                                     
CHAIR  McGUIRE asked  whether there  were  further objections  to                                                               
Amendment 2.  There being none, Amendment 2 was adopted.                                                                        
MR. STEINBERG said  that ACS does not disagree with  much of what                                                               
Ms. Pidgeon has  said.  There is no dispute  that ACS is required                                                               
to abide  by the federal law  and to price its  unbundled network                                                               
elements based  on forward-looking economic costs.   However, ACS                                                               
does dispute the contention that it  is trying to use historic or                                                               
actual or  imbedded costs.   Instead, ACS  is simply  raising the                                                               
question, "How  do you determine what  something costs tomorrow?"                                                               
That  is a  fiction, he  stated,  adding, "we  believe that  that                                                               
fiction  should  be brought  back  home  to  reality as  best  as                                                               
possible."   He  offered that  the language  in Version  S merely                                                               
suggests, when determining a  forward-looking economic cost, what                                                               
the best way to do so shall be.                                                                                                 
MR. STEINBERG turned attention back to the issues he'd started                                                                  
to address earlier, that of depreciation and the cost of                                                                        
capital.  He said:                                                                                                              
     The FCC has touched on  these issues in a press release                                                                    
     for the  long-awaited triennial  review. ...  The press                                                                    
     release  says  ...,   basically,  that  in  calculating                                                                    
     unbundled  network element  ... prices,  ... the  risks                                                                    
     associated  with  the   competitive  market  should  be                                                                    
     included in  the cost of capital,  and that accelerated                                                                    
     depreciation mechanisms  should also  be included  as a                                                                    
     result of  the competitive  nature and demands  of that                                                                    
     market.   And so that  goes to explain the  issues with                                                                    
     ...  regard to  cost of  capital and  depreciation.   I                                                                    
     would just  like to point out  ... that in Section  3 -                                                                    
     dealing with depreciation  - on line 22,  this draft of                                                                    
     depreciation  language  applies   only  to  competitive                                                                    
     service areas.   So,  what that means  [is], ...  in so                                                                    
     far  as  Kodiak,  for   example,  remains  a  regulated                                                                    
     monopoly area, that  accelerated depreciation would not                                                                    
     be allowed by this Act under these provisions.                                                                             
Number 0629                                                                                                                     
MS. PIDGEON, on the issues of depreciation and capital costs,                                                                   
     On the  issue of depreciation, what  we're hearing from                                                                    
     Mr.  Steinberg  is that  the  FCC  has issued  a  press                                                                    
     release  and on  the  basis of  that  press release  we                                                                    
     should change or adopt a  particular provision of state                                                                    
     law.    Number   one,  the  [fact]  that   the  FCC  is                                                                    
     considering  this issue  - and  although we  don't know                                                                    
     what the  exact rules are,  it seems that by  the press                                                                    
     release  there  is going  to  be  some statement  about                                                                    
     depreciation in  the order when  it ever comes out  - I                                                                    
     think that,  in and of itself,  demonstrates that these                                                                    
     are exactly  the types  of rules  and issues  that have                                                                    
     been delegated to the FCC for application by the RCA.                                                                      
     As for the issue of  the actual depreciation rates that                                                                    
     are cited  in Section 3,  ... I  have to tell  you that                                                                    
     the  [phrase]  "general   depreciation  system  service                                                                    
     lives permitted  by the United States  Internal Revenue                                                                    
     Service" doesn't  mean a  whole lot  to me.   I  mean I                                                                    
     just  don't think  that based  on  this language,  it's                                                                    
     possible to know what the  effect of these depreciation                                                                    
     lives  are.   What  we do  know is,  is  that when  you                                                                    
     shorten  depreciation life,  it increases  the cost  of                                                                    
     depreciation and it allows for increases in rates.                                                                         
     And   the  fact   that  this   section  has   the  term                                                                    
     "competitive service  area" in it, there  is nothing in                                                                    
     the  definition  of  "competitive  service  area"  that                                                                    
     would  sufficiently narrow  [this provision]  to ensure                                                                    
     that ACS  could not use  this provision to  lower rates                                                                    
     in a  competitive area and have  those rates subsidized                                                                    
     in  a noncompetitive  area by  increasing those  rates.                                                                    
     The  issue here  is  that ACS  has  very broad  service                                                                    
     areas.  Their  service area, if you thought of  it as a                                                                    
     Venn diagram,  would be a  big circle;  the competitive                                                                    
     part  of that  service area  would be  a small  part of                                                                    
     that circle. ...                                                                                                           
Number 0767                                                                                                                     
MS. PIDGEON concluded:                                                                                                          
     One  final  ... point  that  I  wanted make  about  the                                                                    
     previous  section.   Mr. Steinberg  has said  that they                                                                    
     are  applying   and  abiding  by   the  forward-looking                                                                    
     standard that has been adopted  by the FCC and affirmed                                                                    
     by the  U.S. Supreme Court.   I submit to you  that the                                                                    
     plain language  of ... [paragraphs] (1),  (2), (3), and                                                                    
     (4)  really   render  the  application  of   that  term                                                                    
     meaningless.    It  talks   about  the  utility's  most                                                                    
     current  cost,   the  actual   total  usage,   ...  the                                                                    
     technology that has actually been  deployed.  Those are                                                                    
     all historic, imbedded, actual  costs, and they're just                                                                    
     simply not  ones that would  comply with  the standards                                                                    
     and the methodology that have been set forth.                                                                              
REPRESENTATIVE GRUENBERG asked what the term "imbedded cost"                                                                    
MS. PIDGEON replied:                                                                                                            
     Imbedded cost is ... sometimes  used as a little bit of                                                                    
     a pejorative  term, but what  it means is ...  the cost                                                                    
     that  reflects  the   imbedded  network,  the  historic                                                                    
     costs, the ones that ...                                                                                                   
REPRESENTATIVE GRUENBERG interjected to ask:  "Is it synonymous                                                                 
with historic?"                                                                                                                 
MS.  PIDGEON  said  yes.    She  then  turned  attention  to  the                                                               
applicability  section of  Version  S.   She  surmised that  this                                                               
section  would  permit  ACS, without  RCA  review,  to  implement                                                               
changes in the rates GCI gets  charged to access the network, and                                                               
is  therefore not  consistent with  the  arbitration process  set                                                               
forth for  when an  incumbent carrier  and a  competitive carrier                                                               
determine the rates  that the competitor gets charged  to use the                                                               
incumbent carrier's facilities.                                                                                                 
MR.  STEINBERG disagreed.   He  offered his  belief that  the RCA                                                               
will   retain   continuing   jurisdiction  and   authority   over                                                               
interconnection   agreements.      He    then   read   from   the                                                               
aforementioned  FCC  press  release:    "The  order  declines  to                                                               
mandate  the  use  of  a   particular  set  of  asset  lives  for                                                               
depreciation,   but  rather   clarifies  that   the  use   of  an                                                               
accelerated depreciation  mechanism may  present a  more accurate                                                               
method  of calculating  economic depreciation."   He  interpreted                                                               
this to mean  that the FCC will be speaking  to what states ought                                                               
to do without  mandating a particular course of action.   He then                                                               
showed  the committee  an excerpt  from Internal  Revenue Service                                                               
(IRS) Publication 946 listing telephone depreciation rates.                                                                     
Number 1011                                                                                                                     
CHAIR McGUIRE closed public testimony.                                                                                          
REPRESENTATIVE GRUENBERG  noted that CSHB 111(JUD)  and Version S                                                               
of HB 106  relate to each other.  He  asked whether the committee                                                               
ought to  tie them together  temporally; in other  words, because                                                               
CSHB 111(JUD)  contains both  a two-year  sunset provision  and a                                                               
six-month reporting requirement, and because  Version S of HB 106                                                               
would  result  in  permanent  changes   to  statute,  should  the                                                               
legislature require a  review of the changes made by  HB 106 - if                                                               
it  is  adopted  -  after  the   RCA  makes  its  report  to  the                                                               
legislature in November.                                                                                                        
CHAIR  McGUIRE  said   she  would  accept  that   as  a  friendly                                                               
REPRESENTATIVE  ANDERSON argued  that  such  a requirement  would                                                               
nullify the work that the committee has done on the two bills.                                                                  
CHAIR McGUIRE acknowledged that point.                                                                                          
REPRESENTATIVE GARA said that there  are parts of HB 106, Version                                                               
S, that are good and there are  parts that worry him.  He offered                                                               
that Section  1 seems  to make  sense; the  portion of  Section 2                                                               
that's on  page 2,  however, worries him.   Turning  attention to                                                               
line 5, he surmised  that in effect it says:  "Even  if you are a                                                               
monopolist, all you  have to do is file a  certification with the                                                               
[RCA]  and  automatically  you're  considered  in  a  competitive                                                               
service area,  and they can't tariff  set any more."   He said he                                                               
doesn't think  that that is the  right approach and is  instead a                                                               
bad  idea  that  will  encourage   abuse  by  carriers  that  are                                                               
REPRESENTATIVE  GARA turned  attention to  language beginning  on                                                               
page  2, line  18, and  said  that this  language, which  defines                                                               
"competitive service  area", takes only  a step in  the direction                                                               
of  ensuring that  monopolies don't  take advantage  of preceding                                                               
language to  avoid regulation.   He indicated that what  he wants                                                               
is for the definition of  "competitive service area" to be worded                                                               
so as to ensure that there  really is competition in all parts of                                                               
the  service area.   He  opined that  the current  language still                                                               
leaves the problem  of a carrier being deregulated  in the entire                                                               
service  area   just  by  virtue   of  being  deregulated   in  a                                                               
competitive portion  of the  service area,  adding that  he can't                                                               
support it as it is currently written.                                                                                          
Number 1231                                                                                                                     
REPRESENTATIVE GARA turned attention to  the portion of Section 2                                                               
that begins on page 3, lines 2.   He said he thought that perhaps                                                               
his concerns  with that portion  of the bill have  been resolved.                                                               
Turning attention  to Section 3,  he said  he has a  problem with                                                               
that  provision because  "we're letting  them pass  off a  higher                                                               
level  of depreciation  than actually  exists."   He offered  his                                                               
understanding   that  HB   111  stipulates   that  the   rate  of                                                               
depreciation shall  be based on  the real life of  the equipment.                                                               
Version  S of  HB 106,  on  the other  hand, is  saying that  the                                                               
deprecation  can be  shorter than  the real  life.   He predicted                                                               
that adoption  of Section 3  will cost consumers more  money "for                                                               
not a valid basis."                                                                                                             
REPRESENTATIVE   GARA  turned   attention  to   Section  4,   the                                                               
applicability section,  and said it causes  him heartache because                                                               
it is open  to gamesmanship.  To illustrate his  point he offered                                                               
the following  scenario:   "Let's say a  monopolist comes  in and                                                               
they want  a rate  adjustment, and  they want  a really  big rate                                                               
adjustment, and there's  no response within 90 days by  the RCA -                                                               
the  consumers get  punished -  the rates  automatically go  up."                                                               
That doesn't seem to  be a good approach, he opined.   He went on                                                               
to point  out that  Section 4  also says that  if not  acted upon                                                               
within  90 days  by the  RCA,  any pending  rate setting,  tariff                                                               
filing,  or   other  retail-rate-related  proceedings   shall  be                                                               
dismissed, thus resulting in no regulation of rates.                                                                            
REPRESENTATIVE GARA  said he likes  Section 5, and  mentioned the                                                               
part of it that requires the  RCA to provide the legislature with                                                               
a status report.   He relayed that he would  be making amendments                                                               
to remove the portions of Version S that still trouble him.                                                                     
REPRESENTATIVE GRUENBERG suggested  that on page 3,  line 15, the                                                               
words "commercially  reasonably" ought to be  inserted before the                                                               
word "available".  He asked  the representatives from GCI and ACS                                                               
to comment on that suggested change.                                                                                            
MR. STEINBERG opined that such  a change would be feasible, would                                                               
be a positive contribution, and  would be allowable under federal                                                               
law  because federal  law is  unclear  in this  area and  thereby                                                               
leaves room for states to  exercise discretion with regard to the                                                               
meaning  of "available".    He  offered his  belief  that such  a                                                               
change would make for good policy.                                                                                              
Number 1447                                                                                                                     
MS. PIDGEON  said that on  this point,  she has to  disagree with                                                               
the section as a whole.  She elaborated:                                                                                        
     On the  issues of methodology,  I do think there  is an                                                                    
     issue  ... in  terms of  a conflict  with federal  law.                                                                    
     And    in    fact,     [Sec.    252(e)(3)]    of    the                                                                    
     [Telecommunications  Act  of  1996]  specifically  sets                                                                    
     forth a preservation of  authority to state commissions                                                                    
     which says "... nothing  in this section shall prohibit                                                                    
     a  State  commission  from  establishing  or  enforcing                                                                    
     other requirements  of State  law in  its review  of an                                                                    
     agreement,   including    requiring   compliance   with                                                                    
     intrastate    telecommunications     service    quality                                                                    
     standards or  requirements."   I believe  that reflects                                                                    
     an intention for the state  commission to apply federal                                                                    
     standards when  it is applying  the methodology  to set                                                                    
     rates  for access  to unbundled  network elements,  but                                                                    
     certainly   preserves  to   the  state   certain  other                                                                    
     authorities that do not reach the pricing standards.                                                                       
REPRESENTATIVE  GRUENBERG said  he wanted  to know  how she  felt                                                               
about his suggested change from a policy standpoint.                                                                            
MS.  PIDGEON replied  that the  term "most  efficient technology"                                                               
has developed its own meaning  through the course of both federal                                                               
law and the  application of federal law and  regulations by state                                                               
commission.     Therefore,   to   add   the  term   "commercially                                                               
reasonable" will depart from that  terminology and perhaps inject                                                               
uncertainty where it wasn't intended, she opined.                                                                               
REPRESENTATIVE GRUENBERG  asked whether the term  "most efficient                                                               
technology" embodies a concept of commercially reasonable.                                                                      
MS.  PIDGEON  said  she  did  not believe  that  the  term  "most                                                               
efficient  technology" would  include  developments or  equipment                                                               
that would not be available.                                                                                                    
REPRESENTATIVE GRUENBERG  remarked that  Alaska is  isolated, and                                                               
therefore might be a unique case.                                                                                               
MR. STEINBERG noted that  line 7 of page 3 uses  the term "To the                                                               
maximum  extent  possible".   He  offered  his belief  that  such                                                               
language provides the legislature  with the flexibility to pursue                                                               
a course of  action that it believes appropriate.   He reiterated                                                               
his earlier  example regarding ACS's rates  for "provisioning and                                                               
ordering" services in Fairbanks.                                                                                                
Number 1614                                                                                                                     
REPRESENTATIVE  HOLM  asked  why  the  RCA  has  not  taken  into                                                               
consideration  the   points  Mr.   Steinberg  has  made   to  the                                                               
MR. STEINBERG said  that ACS believes that it is  because the RCA                                                               
has taken  the approach  that its job  is to  promote competition                                                               
and maintain low  rates regardless of the impact on  ACS, even to                                                               
the point of putting ACS out of business.                                                                                       
MS. PIDGEON  pointed out that in  making determinations regarding                                                               
"provisioning and ordering" service  rates, which she referred to                                                               
as operation support systems (OSS),  the RCA considers all of the                                                               
evidence brought  before it, and that  if a carrier is  not happy                                                               
with  the end  results,  it has  the right  to  appeal the  RCA's                                                               
decisions  in federal  district court  or even,  at times,  state                                                               
court.   She  opined that  the appeal  process is  the method  of                                                               
redress when  a carrier feels  that standards have not  been well                                                               
REPRESENTATIVE  HOLM commented  that it  just seems  unreasonable                                                               
that the RCA would consider  bankrupting one carrier in an effort                                                               
to support a competing carrier.                                                                                                 
Number 1811                                                                                                                     
REPRESENTATIVE  GARA  made a  motion  to  adopt Amendment  3,  to                                                               
delete  language beginning  on page  2, line  4, through  page 3,                                                               
line 1.                                                                                                                         
Number 1821                                                                                                                     
REPRESENTATIVE ANDERSON objected.                                                                                               
CHAIR  McGUIRE asked  Mr. Steinberg  whether competitive  service                                                               
area could be more narrowly defined  such that it would prevent a                                                               
carrier from overreaching.                                                                                                      
MR. STEINBERG  offered that perhaps saying  a competitive service                                                               
area  means either  the entire  service  area or,  if the  entire                                                               
service  area is  not competitive,  then specifically  identified                                                               
communities within a service area.                                                                                              
CHAIR  McGUIRE  asked Representative  Gara  whether  he would  be                                                               
willing to  set aside  the question of  adopting Amendment  3 for                                                               
the purpose  of first  adopting Mr.  Steinberg's suggestion  as a                                                               
separate amendment.                                                                                                             
REPRESENTATIVE GARA said he would be  willing to do so, but asked                                                               
whether instead  they could simply  delete the language as  he is                                                               
proposing  and  then  add  back  the  language  proposed  by  Mr.                                                               
Steinberg elsewhere in the bill.                                                                                                
MR.  STEINBERG clarified  that his  suggestion would  replace the                                                               
language currently  on page  2, lines  18-23.   He said  that the                                                               
section being  considered for  deletion goes  to the  question of                                                               
whether, as a policy, regulation  over consumer rates ought to be                                                               
continued  or whether  competition -  market forces  - should  be                                                               
allowed to  work to  protect consumers.   He opined  that keeping                                                               
the  language  in  would  say that  the  legislature  favors  the                                                               
concept of allowing market forces to work to protect the public.                                                                
REPRESENTATIVE GARA  said that  because many  other parts  of the                                                               
language he wishes to delete  are problematic, he would prefer to                                                               
see his  amendment adopted, and  then, if the committee  comes up                                                               
with other language,  they could insert it somewhere  else in the                                                               
bill.   The language being deleted  by Amendment 3 would  allow a                                                               
carrier,  at  its own  discretion,  to  get  out of  tariff  rate                                                               
setting, to get out of  the "just and reasonable price" standard,                                                               
and to get out of all  of the consumer protections referred to on                                                               
lines  15 and  16.   He said  he did  not think  that allowing  a                                                               
carrier to do those things at  its own discretion would be a good                                                               
idea.    He  added  that  he  would  not  have  an  objection  to                                                               
redefining  "competitive service  area"  to mean  areas that  are                                                               
really competitive.                                                                                                             
Number 2019                                                                                                                     
A  roll call  vote was  taken.   Representatives  Ogg, Gara,  and                                                               
Gruenberg voted in  favor of Amendment 3.   Representatives Holm,                                                               
Samuels,  Anderson, and  McGuire  voted against  it.   Therefore,                                                               
Amendment 3 failed by a vote of 3-4.                                                                                            
Number 2024                                                                                                                     
CHAIR McGUIRE,  after making a motion  to adopt Amendment 4  - to                                                               
redefine  "competitive   service  area"   as  suggested   by  Mr.                                                               
Steinberg - determined that the  language on page 2, lines 18-23,                                                               
already incorporated his concept, and so withdrew Amendment 4.                                                                  
REPRESENTATIVE SAMUELS commented:  "I  think they're still on the                                                               
hook.  And that's the point that  we all want to get to.  They're                                                               
on  the hook  -  they  can't use  competitive  (indisc. -  others                                                               
talking at the same time) monopolistic market."                                                                                 
REPRESENTATIVE  GARA suggested  that the  word "may"  on line  20                                                               
gives the RCA the discretion to  consider a carrier as being in a                                                               
competitive service area  even if it isn't.  He  offered that the                                                               
word "shall"  should replace the  word "may", and that  the words                                                               
"that are competitive" should be added after "area" on line 23.                                                                 
CHAIR McGUIRE  surmised, then, that  Amendment [5]  would replace                                                               
"may"  with  "shall" on  page  2,  line  20,  and add  "that  are                                                               
competitive" after "area" on page 2, line 23.                                                                                   
Number 2126                                                                                                                     
REPRESENTATIVE GARA made a motion to adopt Amendment [5].                                                                       
REPRESENTATIVE OGG asked for clarification.                                                                                     
CHAIR  McGUIRE explained,  "it's either  going to  be the  entire                                                               
service area or,  if the entire service area  is not competitive,                                                               
you're going carve out that area that is."                                                                                      
Number 2148                                                                                                                     
REPRESENTATIVE GRUENBERG requested that  the question be divided.                                                               
He said  that he liked  what is being  proposed for line  23, but                                                               
opined that  the word  "may" on  line 20 is  the correct  word to                                                               
REPRESENTATIVES   GARA   and   CHAIR   McGUIRE   disagreed   with                                                               
Representative Gruenberg.                                                                                                       
CHAIR McGUIRE said that the word  "shall" will mandate that it is                                                               
either the  entire service area  or only  specifically identified                                                               
communities within the service area that are competitive.                                                                       
REPRESENTATIVE GRUENBERG  argued that the word  "may" is intended                                                               
to do just that.                                                                                                                
CHAIR McGUIRE  indicated that  she now  understood Representative                                                               
Gruenberg's point and thus agreed with it.                                                                                      
Number 2199                                                                                                                     
REPRESENTATIVE  GARA  indicated  that  he still  disagreed.    He                                                               
offered as an alternative replacing "may be" with "is".                                                                         
REPRESENTATIVE GRUENBERG  argued that the wording  currently used                                                               
conforms to the "normal" style of drafting."                                                                                    
CHAIR McGUIRE agreed to divide the question.                                                                                    
MS. PIDGEON  remarked that  there is still  great concern  on two                                                               
fronts:  One, who makes the  determination of what is or isn't in                                                               
a competitive service  area where there is  competition; two, the                                                               
interaction of "this section" with  the section pertaining to the                                                               
pricing of unbundled  network elements.  If Version S  were to go                                                               
into effect  as currently  drafted, she  opined, it  would permit                                                               
ACS  to  raise,  unilaterally, GCI's  unbundled  network  element                                                               
rates.   As a  result, with essentially  no oversight,  ACS could                                                               
lower  its  rates  to  consumers  in  a  competitive  area  while                                                               
simultaneously  raising  it  rates  to GCI  and  thus  nullifying                                                               
competition once deregulation has been granted.                                                                                 
MR.  STEINBERG  disagreed,  and insisted  that  the  language  in                                                               
question will only affect retail rates.                                                                                         
Number 2315                                                                                                                     
CHAIR  McGUIRE  announced  that  Amendment [5]  will  now  be  to                                                               
replace "may" with "shall" on page  2, line 20, and that there is                                                               
Number 2318                                                                                                                     
A roll  call vote was  taken.  Representatives Gara  and Anderson                                                               
voted in  favor of Amendment  5.  Representatives  Holm, Samuels,                                                               
Gruenberg,  Ogg,  and  McGuire  voted  against  it.    Therefore,                                                               
Amendment 5 failed by a vote of 2-5.                                                                                            
Number 2339                                                                                                                     
REPRESENTATIVE GARA  made a motion  to adopt Amendment 6,  to add                                                               
"that are  competitive" after "area" on  page 2, line 23.   There                                                               
being no objection, Amendment 6 was adopted.                                                                                    
Number 2351                                                                                                                     
REPRESENTATIVE GRUENBERG made  a motion to adopt  Amendment 7, to                                                               
page 3, line 15, to  add "commercially reasonably" after the word                                                               
"technology".    There  being   no  objection,  Amendment  7  was                                                               
TAPE 03-69, SIDE B                                                                                                            
[Not on tape, but taken from  the Gavel to Gavel recording on the                                                               
Internet, was:                                                                                                                  
REPRESENTATIVE GARA made  a motion to adopt Amendment  8, to page                                                               
3, line  10, add "reasonable"  after "current".   He said  he was                                                               
sympathetic  to the  idea  that a  carrier ought  to  be able  to                                                               
recover its  most current  reasonable costs,  which ought  not to                                                               
include something like excessive executive compensation.]                                                                       
Number 2384                                                                                                                     
CHAIR  McGUIRE  asked  whether   there  were  any  objections  to                                                               
Amendment 8.  There being none, Amendment 8 was adopted.                                                                        
Number 2380                                                                                                                     
REPRESENTATIVE GARA  [made a  motion adopt]  Conceptual Amendment                                                               
9,  "to rewrite  Section 3  to state  that the  depreciation rate                                                               
shall be  based on the  equipment and facilities'  expected life,                                                               
not based on this IRS life."                                                                                                    
Number 2358                                                                                                                     
REPRESENTATIVE  HOLM objected.   He  said Conceptual  Amendment 9                                                               
takes away the flexibility to  alter depreciation on the basis of                                                               
the carrier's  taxable situation.   He remarked that he  does not                                                               
know how  that relates to the  setting of rates, but  he suspects                                                               
that the  RCA can make  that determination.   He added,  "What we                                                               
don't want to do is ...  allow the depreciation to be accelerated                                                               
so  that the  rates  are  set, then,  for  whoever's leasing  the                                                               
property from  those who  are accelerating,  so they  elevate the                                                               
rates too high."   On the other  hand, he said he  didn't want to                                                               
"stretch them out so far that  they cannot get economies of scale                                                               
or  they cannot  get  a  return [on]  their  investment within  a                                                               
period of life  that should be reasonable."  He  remarked that he                                                               
does not  like the idea  of telling a  carrier what would  be the                                                               
best thing  for it to  do, from a business  standpoint, regarding                                                               
depreciation.   Depreciation is a  very big component  in whether                                                               
or not businesses are profitable.                                                                                               
REPRESENTATIVE GARA  said that from  what he's heard,  Section 3,                                                               
more  than  any  other  provision,  will  affect  consumer  rates                                                               
significantly.  He went on to say:                                                                                              
     And   absolutely,  if   they   are  allowed   expedited                                                                    
     depreciation,  they   will  pass   that  cost   off  to                                                                    
     consumers, and this  is one area where I  think we will                                                                    
     be hit  as legislators for raising  consumer rates. ...                                                                    
     And I  think it  is reasonable  to let  them depreciate                                                                    
     based  on  the  life  expectancy.   We  don't  want  to                                                                    
     interfere with how  they deduct their taxes  - ... that                                                                    
     should be  left alone, and  that would be left  alone -                                                                    
     but how they  can pass those costs off  to consumers, I                                                                    
     think we should do whatever.                                                                                               
MR. STEINBERG said  he does not believe that Section  3 will have                                                               
any impact on consumer rates;  instead, Section 3 applies only in                                                               
competitive  service areas.   If  Version S  passes as  currently                                                               
written, all  retail rates are  exempt from tariff  regulation in                                                               
competitive   service  areas,   and  the   whole  issue   of  how                                                               
depreciation impacts  regulated ratemaking  becomes moot  - there                                                               
is no regulated  ratemaking as to retail rates -  it doesn't have                                                               
any impact  on retail  rates.   In fact,  he remarked,  the whole                                                               
point of the retail tariff exemption  is, retail rates are set by                                                               
the market,  not really  by regulators.   So  this really  has no                                                               
impact  on retail  rates whatsoever,  he  assured the  committee,                                                               
adding,  however, that  it will  have an  impact on  the rates  a                                                               
carrier can  charge for  the use  of facilities,  in a  couple of                                                               
different ways:  on "UNI's" and intrastate access charges.                                                                      
Number 2251                                                                                                                     
MR. STEINBERG  relayed that the  FCC has said it  is appropriate,                                                               
in a  competitive environment, to have  accelerated depreciation.                                                               
But aside from  the FCC's view on this issue,  thought also ought                                                               
to be given  to the fact that in a  competitive market, there are                                                               
increased demands  for innovation, investment, and  new services,                                                               
and so  steps should  be taken  to ensure  that carriers  can act                                                               
competitively.  He stated:                                                                                                      
     If you want  ... [a carrier] to  act competitively, you                                                                    
     have to provide [it] ...  the opportunity to make those                                                                    
     kinds of investments, and you  also have to accommodate                                                                    
     the risk  that some of  those investments are  going to                                                                    
     be not useful anymore  because the competitor has found                                                                    
     a way that makes them  un-useful.  So there are reasons                                                                    
     why,   in   a  competitive   environment,   accelerated                                                                    
     depreciation  is  appropriate,  but I  do  not  believe                                                                    
     it'll have any impact on consumer rates.                                                                                   
MS. PIDGEON  opined that Mr. Steinberg's  comments underscore why                                                               
Section 3 is so troublesome.  She elaborated:                                                                                   
     [It's] because  what it permits  ACS to do would  be to                                                                    
     accelerate depreciation rates  for those services where                                                                    
     it has monopoly  power, and therefore it  can raise its                                                                    
     rates  to GCI  for unbundled  network elements  and for                                                                    
     access services,  as Mr.  Steinberg mentioned,  and GCI                                                                    
     would ...  be required to  pay them because ACS  is the                                                                    
     monopoly network.   And if that happens,  it's the same                                                                    
     issue  that I  mentioned  previously  about the  retail                                                                    
     deregulation provision.                                                                                                    
     We can't just  look at these sections one by  one as if                                                                    
     they have  no relationship to  one another.   When both                                                                    
     the retail  market is deregulated and  ACS is permitted                                                                    
     to raise its  rates to GCI, it has the  ability to harm                                                                    
     if not  kill competition,  and therefore it'll  be left                                                                    
     having raised its rates to  its competitor, taking away                                                                    
     the   competitive   environment  or   the   competitive                                                                    
     opportunity to  GCI, at  the same  time that  it's been                                                                    
     deregulated from  the rates that it  charged consumers.                                                                    
     So once  GCI is forced out  of the market [and]  ACS is                                                                    
     deregulated, rates can go up  ... again.  Where is that                                                                    
     competitive pressure on the retail rates?                                                                                  
Number 2167                                                                                                                     
REPRESENTATIVE HOLM said:                                                                                                       
     Isn't that  what RCA's all  about?  Isn't that  what we                                                                    
     want  RCA  to do,  is  to  be  the oversight  of  these                                                                    
     relationships between  a monopoly  and the  people that                                                                    
     it's leasing to?  And  so, obviously, if I'm reading it                                                                    
     right,  they   should  be  taking  those   things  into                                                                    
     consideration when  in fact these  rates go  before RCA                                                                    
     to see  if they're  sufficient, or if  they're onerous,                                                                    
     or whatever.   So, I don't quite get  to connect [with]                                                                    
     the complaint that it could  be a problem, [because] we                                                                    
     have RCA  that should  keep that  from being  a problem                                                                    
     for you.                                                                                                                   
MS. PIDGEON replied:                                                                                                            
     The  reason  why it  would  be  a  problem or  has  the                                                                    
     potential  to be  a problem  is because  this provision                                                                    
     mandates  a specific  set  of  depreciation lives  that                                                                    
     depart from the depreciation  expense and the method of                                                                    
     calculating   depreciation   expense  that   has   been                                                                    
     typically applied  in a regulated environment.   And so                                                                    
     it   is  ...   applying  accelerated   depreciation  to                                                                    
     services that  are still monopoly  services, and  it is                                                                    
     telling the RCA to do it in that fashion.                                                                                  
MR. STEINBERG countered:                                                                                                        
     The references to  monopoly and market power  and so on                                                                    
     and so  forth ...  -- essentially,  Representative Holm                                                                    
     is correct, we do have  an RCA which sets these things.                                                                    
     But  more importantly,  it is  precisely because  we do                                                                    
     have  competition  in  these markets  that  accelerated                                                                    
     depreciation  is  appropriate;   it's  where  you  have                                                                    
     competition.   Ms. Pidgeon is absolutely  correct:  the                                                                    
     regulators   do  have   a  way   that  they   have  set                                                                    
     depreciation, historically.  That's  always been in the                                                                    
     monopoly  context.     The  reason  we're   asking  the                                                                    
     legislature to  look at this  issue and say  the policy                                                                    
     should be  different for  competitive areas  is because                                                                    
     it should be  different for competitive areas.   And so                                                                    
     far, our regulators have not recognized that.                                                                              
Number 2071                                                                                                                     
REPRESENTATIVE GARA said he  shares Representative Holm's concern                                                               
except that there is a problem:                                                                                                 
     The way  this bill is  written, once ACS  is considered                                                                    
     to be in  a competitive service area,  they're going to                                                                    
     get themselves  out of  RCA regulation  of prices.   So                                                                    
     when  you asked  ...,"Well, isn't  that where  RCA will                                                                    
     protect  us,"  RCA  won't  have  any  role  in  setting                                                                    
     prices.  And then what's going  to happen is, if ACS is                                                                    
     able   to  charge   extra  cost   to  GCI   because  of                                                                    
     accelerated  depreciation -  they'll  pass those  costs                                                                    
     off  to GCI  - GCI  will increase  its rates;  when GCI                                                                    
     increases it's rates, ACS will  be able to increase its                                                                    
     rates.  And  that's how it will cost  the consumer more                                                                    
     money.   The  pressure for  ACS to  decrease its  rates                                                                    
     will disappear once GCI has  to raise its rates because                                                                    
     its  had these  extra accelerated  costs passed  off to                                                                    
     it.  That's the way I see it.                                                                                              
REPRESENTATIVE HOLM said  he agrees with that  point although, on                                                               
the flip side, is it appropriate  to have the rates depressed and                                                               
have to charge  a lesser fee than would allow  for cost recovery,                                                               
just for the  purpose of depressing retail rates.   "Is it in the                                                               
public's  best  interest  to depress  the  profitability  of  one                                                               
company in that sense?" he asked.                                                                                               
REPRESENTATIVE GARA  opined that basing depreciation  on the true                                                               
life  of the  equipment  would not  do  anything to  artificially                                                               
depress rates.   "We're  actually saying,  'Use the  reality, use                                                               
the real-world fact  that this stuff is depreciating  over a long                                                               
term.'   If we were ...  forcing them to extend  the depreciation                                                               
life  longer  than its  real  life,  then  we would  be  unfairly                                                               
regulating  ACS."    If allowed  to  accelerate  depreciation,  a                                                               
carrier will benefit at the expense of consumers, he concluded.                                                                 
Number 1979                                                                                                                     
REPRESENTATIVE   HOLM  asked   Representative  Gara   whether  he                                                               
dislikes the term "to the maximum  extent allowed by law" and, if                                                               
so, what he would prefer in its place.                                                                                          
REPRESENTATIVE  GARA   replied,  "Based  on  the   equipment  and                                                               
facilities' expected life."                                                                                                     
REPRESENTATIVE HOLM said he did not have a problem with that.                                                                   
MR. STEINBERG  remarked that  the reason why  the IRS  allows for                                                               
accelerated  depreciation  is  because  it  promotes  investment;                                                               
businesses are able  to get their money back a  little bit sooner                                                               
and  are then  able  to make  investments "in  the  future."   He                                                               
opined that Section 3 will accomplish this goal.                                                                                
MS.  PIDGEON,  in  further   response  to  Representative  Holm's                                                               
concerns, said:                                                                                                                 
     By its  language, although it states  that the proposed                                                                    
     depreciation  rates   would  apply  in   a  competitive                                                                    
     service area,  ... it  would permit  for the  change of                                                                    
     those  depreciation   rates  for  all  rates   in  that                                                                    
     competitive service  area.  I  think one of  the things                                                                    
     that  has  to  be  emphasized here  is  that  in  every                                                                    
     instance  that  we're  talking about  a  service  area,                                                                    
     we're really talking  about two major markets.   One is                                                                    
     the retail market  for the customers, and  the other is                                                                    
     the wholesale market as between the carriers.                                                                              
     And so,  if depreciation rates are  accelerated for all                                                                    
     rates, which  includes unbundled network  element rates                                                                    
     and  access rates,  which are  noncompetitive services,                                                                    
     there [are]  ... no competitive  effects to  keep those                                                                    
     rates down  once you've accelerated depreciation.   And                                                                    
     we  do  have  a  tax expert  here,  actually,  who  can                                                                    
     describe  why the  [IRS]  has accelerated  depreciation                                                                    
     for  federal  income  tax computations  as  opposed  to                                                                    
     what's generally used for ratemaking purposes.                                                                             
CHAIR   McGUIRE  asked   Representative  Gara   to  repeat   what                                                               
Conceptual Amendment 9 would do.                                                                                                
REPRESENTATIVE GARA said that Conceptual  Amendment 9 would be to                                                               
rewrite  Section 3  to allow  the depreciation  rate to  be based                                                               
upon the equipment and facilities' life expectancy.                                                                             
Number 1861                                                                                                                     
REPRESENTATIVE ANDERSON said he objects.                                                                                        
CHAIR McGUIRE asked what GCI uses for depreciation rates.                                                                       
MS. PIDGEON asked for what purposes.                                                                                            
CHAIR McGUIRE replied "Life of equipment."                                                                                      
MS. PIDGEON said  she did not have that information.   She added,                                                               
however,  that  GCI  is  the  competitive  carrier,  so  when  it                                                               
establishes  its retail  rates,  it  does so  to  compete in  the                                                               
market.    "And so,  as  Mr.  Steinberg  said,  when there  is  a                                                               
competitive service area or a  competitive provider, the issue of                                                               
depreciation is  a component of  rate setting and  doesn't really                                                               
factor in," she also added.                                                                                                     
REPRESENTATIVE ANDERSON remarked that ACS  and GCI are almost the                                                               
same  size in  terms  of  their customer  base,  and offered  his                                                               
belief that  the two carriers  had different  depreciation rates.                                                               
He asked Ms. Pidgeon whether she would agree on those points.                                                                   
MS. PIDGEON replied:                                                                                                            
     Again, I  have to  emphasize that this  section applies                                                                    
     for  all rates  established  by the  commission in  the                                                                    
     competitive  service area.   It  doesn't only  apply to                                                                    
     retail  rates   where  you  might  find   that  there's                                                                    
     competition between  the two  carriers.  It  would also                                                                    
     apply to rates  for those services that  continue to be                                                                    
     monopoly services.                                                                                                         
CHAIR  McGUIRE  asked  about  the  possibility  of  changing  the                                                               
language in Section  3 to clarify that it applies  only to retail                                                               
rates, where, she surmised, ACS  believes it is at a disadvantage                                                               
in the "retail rate setting area."                                                                                              
Number 1791                                                                                                                     
MR. STEINBERG responded:                                                                                                        
     We believe that it  is essential that this depreciation                                                                    
     issue  apply,   in  fact,   to  the   establishment  of                                                                    
     unbundled network  element lease  rates.  Why  is that?                                                                    
     Well, these  lease rates are  supposed to be  the rates                                                                    
     that are set  on a forward-looking basis,  on the basis                                                                    
     of  what a  new company  would be  spending if  it were                                                                    
     coming in to  make this investment.  Well,  what do you                                                                    
     think a new company would be  spending if it came in to                                                                    
     make  this  investment?    Well,   it  would  be  using                                                                    
     accelerated depreciation rates.   That's exactly what a                                                                    
     new  company would  be doing  if it  were coming  in to                                                                    
     make this  investment.  And  quite frankly,  we believe                                                                    
     it is  perfectly appropriate in  that context;  that is                                                                    
     what a  forward-looking economic cost  for depreciation                                                                    
     would be.                                                                                                                  
REPRESENTATIVE  HOLM   said  that   in  his  business,   he  uses                                                               
accelerated  depreciation  for  the   purpose  of  improving  his                                                               
MR. STEINBERG said that Representative  Holm is correct.  He went                                                               
on to say:                                                                                                                      
     It  really is  an important  issue, a  policy for  this                                                                    
     state, about  whether it wants to  encourage investment                                                                    
     in  telecommunications  going  forward, or  whether  it                                                                    
     doesn't.  And accelerated  depreciation certainly is an                                                                    
     incentive   for   investment   in  new   and   improved                                                                    
     facilities.  ... In  Anchorage,  where we  have a  rate                                                                    
     case going  on concerning  retail rates  - and  this is                                                                    
     different than  a "UNI" setting,  I understand,  but we                                                                    
     are  obviously in  a  very  competitive environment  in                                                                    
     Anchorage  - the  RCA has  established very  long asset                                                                    
     lives for some of our assets,  such as 30 years for the                                                                    
     basic copper  wire in  the ground.   We asked  GCI what                                                                    
     service lives  they use for  the very same  assets, and                                                                    
     the answer  we got from  GCI was  12 years.   So again,                                                                    
     GCI has an incentive  to make those investments because                                                                    
     they  depreciate  their  materials  quite  a  bit  more                                                                    
     quickly than we're allowed to.                                                                                             
Number 1683                                                                                                                     
REPRESENTATIVE ANDERSON called the question.                                                                                    
Number 1670                                                                                                                     
A roll call  vote was taken.  Representative Gara  voted in favor                                                               
of Conceptual  Amendment 9.   Representatives  Samuels, Anderson,                                                               
Ogg, Holm, and  McGuire voted against it.   Therefore, Conceptual                                                               
Amendment 9 failed by a vote of 1-5.                                                                                            
Number 1652                                                                                                                     
REPRESENTATIVE GARA  [made a  motion to  adopt] Amendment  10, to                                                               
delete the  applicability section located  on page 4,  lines 1-8.                                                               
He opined  that this section,  if the  RCA doesn't act  within 90                                                               
days, gives  one party the  ability to  get out of  rate setting,                                                               
adding that he believes that rate setting protects the public.                                                                  
CHAIR McGUIRE  remarked that perhaps  that 90-day  deadline would                                                               
encourage efficiency on the part of the RCA.                                                                                    
Number 1612                                                                                                                     
REPRESENTATIVE ANDERSON  and CHAIR McGUIRE objected  to Amendment                                                               
REPRESENTATIVE  GRUENBERG noted  that Amendment  10 would  delete                                                               
Section 4.                                                                                                                      
Number 1565                                                                                                                     
A roll  call vote  was taken.   Representatives  Gara, Gruenberg,                                                               
and  Ogg  voted  in  favor  of  Amendment  10.    Representatives                                                               
Anderson,   Holm,  Samuels,   and  McGuire   voted  against   it.                                                               
Therefore, Amendment 10 failed by a vote of 3-4.                                                                                
REPRESENTATIVE GRUENBERG, noting  that he'd been out  of the room                                                               
during  the vote  on Conceptual  Amendment 9,  said he  wished to                                                               
speak to the issue of Section 3.  He said:                                                                                      
     Section  3,  the  issue  of  depreciation,  is  a  very                                                                    
     technical issue in this part of  the law - I know that.                                                                    
     And I was  concerned about us getting into  this at all                                                                    
     because it is  so technical.  And I  was just wondering                                                                    
     what the feeling would be just to delete Section 3?                                                                        
[After some  discussion among members,  it was decided  that that                                                               
suggestion  would  not be  considered  as  an amendment  at  this                                                               
Number 1490                                                                                                                     
REPRESENTATIVE ANDERSON  moved to report  the proposed CS  for HB
106,  Version 23-LS0405\S,  Craver, 5/17/03,  as amended,  out of                                                               
committee  with individual  recommendations  and any  forthcoming                                                               
fiscal notes.                                                                                                                   
Number 1460                                                                                                                     
REPRESENTATIVE GARA objected.                                                                                                   
Number 1450                                                                                                                     
A  roll   call  vote  was  taken.     Representatives  Gruenberg,                                                               
Anderson, Ogg,  Holm, Samuels, Gara,  and McGuire voted  in favor                                                               
of reporting Version S, as amended, out of committee.                                                                           
Therefore, CSHB 106(JUD) was reported out of the House Judiciary                                                                
Standing Committee by a vote of 7-0.                                                                                            

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