Legislature(1999 - 2000)
04/14/2000 03:33 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 169 - ELEC.COOPS:EXPANSION & POLITICAL ACTIVITY TAPE 00-50, SIDE A CHAIRMAN ROKEBERG announced that the next order of business is HOUSE BILL NO. 169, "An Act relating to including the costs of expansion activities and political activities in rates of electric cooperatives." JEFF LOGAN, Legislative Aide for Representative Joe Green, Alaska State Legislature, stated that HB 169 addresses electrical cooperatives. Electric cooperatives are authorized under federal and state law to allow average people to come together and form an organization to produce and transmit electricity. The federal act speaks to a dual goal of providing reliable low-cost power. HB 169 addresses two kinds of activities undertaken by an electric cooperative; political activities and expansion activities. HB 169 says that before a cooperative can use rate money collected from a member they must first get the permission of that member to do so for certain types of activities. MR. LOGAN further stated that on page 1, line 12, of HB 169, it begins a list that sets out what the cooperative management must do to gain the approval of its members before it can embark on political activities or expansion activities. The check list goes like this: they must first advise the members that a portion of their rate money would be used for expansion or political activities; they must tell the members how much of the rate money would be used for those activities; advise the customer that the cooperative would not refuse to serve or discriminate against the customer if they decline to consent; and, finally, they have to receive the consent of the cooperative members. He explained that they define expansion and political activity on page 2, line 23 through line 30, of HB 169. The term "expansion activity" means an activity that is intended to attract customers to an electric cooperative who at the time of the activity are customers of another electric public utility. The term "political activity" means an activity intended to advocate for a political position not directly related to the core services of the utility or to advocate for a public policy issue not directly related to the core services of the utility. What they are trying to do is keep the cooperative management focused on the core services they were chartered to provide, which is low-cost reliable electric power. MR. LOGAN continued that there are restrictions currently in place against using rate money for some political purposes. This issue has been considered before by the legislature. When AS 42.05.381 was originally enacted it required only that rates be just and reasonable as determined by the Alaska Public Utilities Commission (APUC). In 1976 it was amended to require the APUC to specifically omit certain expenditures related to advertising and public relations. The problem is these activities are taking place even though they are specifically prohibited in statute. With HB 169 they are simply asking the legislature to allow rate payers to protect themselves. Number 0679 REPRESENTATIVE MURKOWSKI wondered if they have to get everyone's consent or 50 percent. MR. LOGAN responded that the utility would propose a certain activity and perhaps put on the billing statement what they were planning on doing with a portion of the rate and the customer could check "yes" or "no." REPRESENTATIVE MURKOWSKI said that it is 50 percent plus one. MR. LOGAN said that it was not the way they had envisioned it originally, but they would not be opposed to it. The utilities keep records of all their members and what share they own of the cooperative. They know what percentage the customer's vote would count for. The general manager of the state's largest utility testified that it would not be difficult to administer. REPRESENTATIVE HALCRO pointed out that most of the utilities have a board of directors that are elected by the members. He wondered why they do not just allow the members to simply vote out the board of directors if they're angry as opposed to putting limits on them by statute. MR. LOGAN responded that the problem with that is the money is still gone and they can get rid of the people who made the decision, but the customers cannot get their money back. Representative Green asked Nan Thompson [Chair, Regulatory Commission of Alaska], when she testified in the Utility Restructuring Committee, whether or not the Regulatory Commission of Alaska (RCA) would be able to make retroactive rate adjustments. She responded that they cannot. It reinforces the need for the bill, because they can spend the money for some wild-eyed scheme and then be voted out, but the customers money is still gone. He referred to a letter from Chugach Electric Association [CEA] saying that in 1998 CEA incurred $797,891.77 of direct expense associated with the unsolicited takeover attempt. That is pretty serious money. REPRESENTATIVE HALCRO agreed that it is a tremendous amount of money, but pointed out that if the cooperative comes under attack by an outside group they will be limited to respond in public. In one sense they are protecting the rate payers' dollars, but they are also tying the cooperative's hands to be able to respond in a situation they might need to. He asked Mr. Logan if he would agree. MR. LOGAN answered, "Actually, no." He said that he went over it with the drafter and in anticipation of that question he looked at the definition of "expansion activity," which means an activity that is intended to attract customers to an electric cooperative. It does not say anything about defending the current customer base. He pointed out that "political activity" means an activity intended to advocate for a political position not directly related to the core services of the utility, while he thinks any measure providing utility to a current member is a core service of the utility. Number 1132 GEORGE KITCHENS, President, Golden Valley Electric Association (GVEA), testified via teleconference from Fairbanks. He said that he is testifying in opposition to HB 169. He indicated that some very good points have been made by Mr. Logan that cooperatives are owned by their members, the members do elect the board members and board members do hire managers to run electric cooperative. It is true that members can recall board members and they can elect new ones. He indicated that one area he would like to point out is the timing of the legislation, particularly when they are considering electric restructuring in Alaska; it may be a bad idea. He does believe that the RCA is the appropriate body, since they do review utility rates, to determine what costs should or should not be included in rates and could do so through regulation to address specific issues, such as those proposed in this legislation. HB 169 may discourage efforts by Alaska cooperatives to attract and retain business customers in the state. It may also thwart efforts of the electric industry to develop new and innovative services. HB 169 may also infringe upon free speech rights granted under the constitution. He indicated that they are not sure what the shape of the restructured market will look like in the state, but it is entirely possible that electric cooperatives in a competitive marketplace might be advertising to attract customers outside of their traditional service areas and to the extent that legislation or regulations that evolves to achieve a competitive marketplace. It would restrain their opportunity to participate in a competitive marketplace if they are restricted from advertising outside their service areas to attract new customers. He reiterated that the timing of the legislation is off, considering the timing of the restructuring of the electric market. Number 1320 BERNIE SMITH, Commissioner, Regulatory Commission of Alaska (RCA), testified via teleconference from Anchorage. He stated that he was willing to answer any questions. He said that they think the idea behind the legislation is good and well, but their main concern is that they need to let the members vote on it and if they vote for "expansion activity" than so be it. He suggested that they could probably add the "political activity" to the statute, which would strengthen the statute and remove those costs when they do a rate case. CHAIRMAN ROKEBERG wondered if they restricted "expansion activity" to a market expansion outside of the certified service area. MR. SMITH responded that what they would prefer, because the core activity is a little vague, if they used a term that would be directly related to the certified services of the utility; therefore, if they go outside of their certified area they would have to go to the RCA to expand that certification area and the RCA would have a chance to review that. CHAIRMAN ROKEBERG said that insofar as the vote and the tariff rate-making activities if it would make it a little (indisc.). MR. SMITH responded, "Yes, Mr. Chairman, I think so." Number 1472 DON EDWARDS, General Counsel, Chugach Electric Association (CEA), testified via teleconference from Anchorage. He stated that he agrees with what Mr. Kitchens said in his testimony and his reaction to HB 169 is that things are not as they appear and he is worrying that that is true of the legislative process. It has been made clear and the purpose of the bill is to prevent the Matanuska Electric Association (MEA) from a takeover. He indicated that they are sympathetic to the problem, but they do not agree that HB 169 is the right vehicle to remedy that problem. They have also made it clear that the effect of the bill will not be to prevent the kind of expenditures that the supporters of the bill say as a reason for it. Even though they don't know exactly what the bill is intended to do they can look at some of the things it might do. One of those things is that it is only electric cooperatives who are specially disabled by HB 169; therefore, if an investor-owned electric utility were to make expenditures for political activities or expansion activities presumably they would not be similarly disabled. He noted that he shares Mr. Kitchens' concern that if competition begins to develop that it will specially disable electric cooperatives from operating in that environment. The second point is that when they are dealing with restrictions on speech and HB 169 would restrict commercial speech in the "expansion activity" portion and it would restrict political speech in the "political activity" portion. When dealing with that the law is quite clear that they have to be able to articulate strong policy reasons in support for the restrictions. The means have to be tailored carefully to deal with the problem; they cannot be any more extensive than is necessary. The problem with disabling only electric cooperatives and not investor-owned utilities highlights that problem with the bill. He added that CEA strongly opposes HB 169. Number 1674 REPRESENTATIVE HALCRO said that Mr. Logan gave them an example of how much money CEA had to spend to defend themselves from the unsolicited takeover attempt. He wondered, considering the amount of money that CEA had to spend, if they are still in opposition to the bill. MR. EDWARDS stated that they are and it is important that a company, especially a cooperative, be able to communicate with its customers. It is important even in an noncompetitive environment. He agreed that they be able to respond quickly and set the record straight immediately. He pointed out that as cooperatives they operate under a democratic system and to some extent he would counsel that it should be acceptable and they should rely on that process. ERIC YOULD, Executive Director, Alaska Rural Electric Cooperative Association (ARECA), trade association for the electric utility industry in Alaska, said his association not only includes cooperatives but also municipals as well as IOUs [Investor Owned Utilities], hence ARECA represents virtually the entire state when it comes to the electric industry. He said that he is here to tell the committee that his board of directors, roughly a month ago in consideration of HB 169, unanimously adopted a resolution in opposition to this legislation. Frankly, he noted that ARECA is in opposition for many of the same reasons and all the same reasons that Mr. Edwards and Mr. Kitchens have already mentioned. He explained that as a matter of fact both of these gentlemen have articulated many of the things that he would have told you and just to save time he will not. MR. YOULD commented that he did have a couple of additional points that he would like to make. He mentioned that HB 169 is aimed strictly at cooperatives (co-ops) and not only that but strictly electric co-ops. He asked why telephone co-ops were not included or municipal utilities. He said that Mr. Edwards had indicated that the answer is "invest in your own utilities." Mr. Yould agreed. He acknowledged that HB 169 is really trying to restrict the activities one business sector in the state that is a very viable business sector and it is a sector that is important since it provides 70 percent of the electricity in the state. He emphasized that it does a very good job of providing electricity so he has to say if the legislature is going to attempt to tie electric co-op hands why not tie everybody's hands at the same time. MR. YOULD remarked that he would like to talk a little bit more about friendly consolidations. He reminded the committee that in rural Alaska, for instance, there is a little tiny co-op in virtually every community out there but ARECA has found that perhaps the most appropriate template for rural Alaska is consolidation and ownership by one large co-op such as Alaska Village Electric Cooperative, Incorporated (AVEC) which owns rights to sell electricity in 51 villages. He added that HB 169 as expansion activity is presently defined would preclude or severely restrict those types of consolidations and he can see a time in Alaska as the need to gain better efficiencies comes along (obviously here already since ARECA is looking at it with Power Cost Equalization) that friendly consolidations could be very important mechanisms to make sure that cheaper electricity is available. He reiterated that HB 169 as presently written would preclude those sorts of things. MR. YOULD said that co-ops are getting into other businesses that compliment their core business. He noted that satellite television, home security, Internet, and dispersed generation are possibilities. He explained that it is entirely possible that companies such as Chugach selling fuel cells up in Fairbanks or vice versa and once again HB 169 as presently written would preclude those types of activities. He reiterated that ARECA is universally against HB 169. Number 1840 CHAIRMAN ROKEBERG said that since everybody is opposed to HB 169 he asked what can the cooperatives and associations represented by the testifiers do about not wasting their members' money in the future. He inquired as to what the testifiers have as a counter proposal. MR. YOULD replied by asking the committee to assume that perhaps the takeover attempt was not frivolously made because it is not necessarily a bad idea to have consolidation. He admitted that at least the takeover attempt got the issue out on the table and as a matter of fact there was a similar takeover attempt just in the other direction back in 1993. He noted that consolidation is not necessarily bad. CHAIRMAN ROKEBERG emphasized that those were two efforts where probably millions of dollars of consumers' monies have been wasted by people's egos in his opinion. He acknowledged that on the other hand Mr. Yould would say, and Chairman Rokeberg will not argue the point, that sometimes consolidations are positive particularly if the weaker company, business, or entity is not going to survive. Nevertheless, he remarked that he thinks that ARECA should review that and perhaps come up with some recommendations along these lines. Number 1977 REPRESENTATIVE HALCRO reminded the committee that the Matanuska Electric Association (MEA) letter says that their attempted acquisition of Chugach was supported by 59 percent of their members so in that case 59 percent (and he is not sure if that is 59 percent of total MEA members or 59 percent of those who voted) said "Go ahead; it's a good idea" then the members are in fact [in favor]. MR. YOULD reiterated that it was a good idea. REPRESENTATIVE HALCRO observed that he does have problems with HB 169 but he is just saying that in that particular instance which Chairman Rokeberg referred to the members obviously did not think it was a bad idea. MR. YOULD acknowledged that Representative Halcro's observation was a very good point and as a matter of fact as everybody knows there was an election recently out in MEA land which resulted in a change in the board perhaps in response to backlash although that is hard to say. He remarked that the one board member who is no longer there at MEA was an 18-year veteran and a very creditable veteran. CHAIRMAN ROKEBERG observed that it sounds like there is another 59 percent [who did not approve the attempted takeover]. Number 2034 REPRESENTATIVE HALCRO commented so the 59 percent that voted in favor of the takeover are the 59 percent that responded. He mentioned that in some cases as in the instance when the Anchorage Telephone Utility (ATU) had Citizen's Utility, which was out of Connecticut, come in and make a public push to acquire ATU. He indicated that the two were battling it out so in this kind of case where an outside electrical co-op or investor-owned utility is coming in and they are not as page 1, line 5, says "subject to regulation by the commission," it would be subject to regulation by their own commission in their own home-chartered state or home-chartered area he would assume. He asked Mr. Logan if an outside company coming in, which is pitching to buy Chugach, MEA, or Joe's Electric Co-op, falls under HB 169 guidelines and are they going to have to go to their members in California, Washington, or their own state and get permission before they start flooding the airwaves saying what a good company they are. MR. LOGAN replied no but an outside company would indeed be regulated by the commission because in order to serve customers they would have to have a certificate of need (CON). He reiterated that an outside company would indeed be regulated by the commission but the outside company would not fall under the auspices of HB 169. He said that while it was initially the sponsor's position that if an outside company were to launch some type of a hostile takeover against the members of a cooperative the cooperative could defend themselves, the sponsor has since decided that, as he mentioned in the previous committee in which the chairman was in attendance, some type of sunset might be appropriate. He noted that the Regulatory Commission of Alaska (RCA) Chair had indicated that they would be watching these types of things closer so a sunset provision could let it go for a few years and see if the RCA actually does protect consumers the way the legislature has envisioned they should and if so HB 169 could evaporate. He explained that also if an investor-owned utility purchased another utility citizens could come up and buy "ML&P [Municipal Light and Power in Anchorage]." He commented that if something like that happened then HB 169 would also sunset to allow Chugach or MEA to be where they are today in a position to defend themselves. Number 2140 REPRESENTATIVE HALCRO envisioned a situation happening where an outside company comes in who has the ability to go out in the marketplace and pitch their wonderful story of why they should acquire MEA. He added that then Chugach wants to jump in and be an equal competitor for acquisition then Chugach's hands are tied with HB 169. He noted that citizens from the outside can basically take a walk in the park while Chugach is scrambling around trying to get permission from their members. MR. LOGAN explained that the sponsor [does not think that] would necessarily be a bad thing and that is, speaking from his experience as a former Chugach board member, the whole reason for the co-op being there is to provide customers with reliable, low-cost power. He commented that if the co-op's members do not want to take over ML&P then management should not be able to force it down their throat. CHAIRMAN ROKEBERG announced that the committee will put HB 169 aside and take it up immediately at the next meeting. [HB 169 was heard and held.]
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