Legislature(2001 - 2002)
04/03/2002 03:30 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
HB 496-PUBLIC UTILITIES EXEMPT FROM REGULATION CHAIR MURKOWSKI announced the first matter before the committee, HOUSE BILL NO. 496, "An Act providing that a utility or electric operating entity owned and operated by a political subdivision of the state competing directly with a telecommunications utility is not subject to the Alaska Public Utilities Regulatory Act." Number 0061 RANDY RUARO, Staff to Representative William K. (Bill) Williams, Alaska State Legislature, presented HB 496 on behalf of Representative Williams, sponsor. He told members HB 496 is about fairness, and he characterized the present statute as unfair as written. The current statute would allow an unregulated or partially rate-regulated utility to compete with a municipal utility and cause the municipal utility to become fully rate-regulated by the Regulatory Commission of Alaska (RCA); Mr. Ruaro called the resulting situation unbalanced. He mentioned the bill's zero fiscal note. He also reported that the RCA had submitted a letter saying it didn't oppose the bill and that the issue is one to be decided legislatively. MR. RUARO drew attention to the sponsor's proposed Amendment 1, which read [original punctuation provided]: Page 2, Line 3 Delete: "company" Insert: "operating entity" This is a technical change to conform the terminology used in the legislation on page 2, line 3 to the terminology in the existing statute on page 1, line 8. Number 0220 CHAIR MURKOWSKI asked if there were situations in other areas of the state similar to the one in Ketchikan. MR. RUARO said he wasn't aware of any similar situations, but the language would cover future municipal utilities. Number 0271 REPRESENTATIVE HALCRO asked if the bill could be tightened to avoid giving municipal utilities blanket immunities against regulated competition. MR. RUARO pointed out that a municipal utility is subject to its own city code and to oversight regulation on rates through the municipality, city council, and utility board. Immunity is not preserved if the competing entity is also fully regulated. He said the bill would keep things on a "level playing field." The municipal utility would become fully rate-regulated only when it was subjected to competition that was fully rate-regulated as well. Number 0406 CHAIR MURKOWSKI surmised that [paragraph] (2) would provide for a municipally owned utility to be regulated if the competing utility entering the market also were rate-regulated. MR. RUARO added "fully rate-regulated" to Chair Murkowski's inference and then said she was correct. CHAIR MURKOWSKI asked if there is a distinction between "fully" and "less-than-full." MR. RUARO pointed out a spectrum of regulation levels from unregulated to fully rate-regulated. Fully rate-regulated is what a utility would become without the legislation. Number 0523 JIM VOETBERG, Assistant City Manager, City of Ketchikan; Assistant General Manager, Ketchikan Public Utilities (KPU), testified before the committee. He proclaimed his support for HB 496. Mr. Voetberg told the committee that the City of Ketchikan owns and operates several utilities including telecommunications, electric, water, wastewater collection and treatment, and solid [waste] collection and disposal. The legislation is important to Ketchikan because it allows the city to continue operating in a similar manner to what it has for over 50 years. It also provides local leaders with an important tool for economic development of the community. MR. VOETBERG warned that should the city become regulated under the RCA, the cost to ratepayers would be an estimated $700,000 annually. This cost does not include a rate study that could be as much as $250,000 for each utility division. He gave a breakdown of what might contribute to the rate-study cost. Mr. said this isn't the time to increase costs to residents and businesses, given the economic situation of the city. MR. VOETBERG identified AP&T [Alaska Power & Telephone Company] as the one phone company that had opposed the legislation. He said the city has listened to the company's arguments and disagrees with some of its conclusions. He gave the example of a procedure whereby a utility can seek waivers from regulatory oversight by the RCA. However, the procedure can be very time- consuming and expensive, particularly when a company opposes the waiver. He said AP&T had made it known that a waiver for KPU would be opposed; the costs of this would be passed on to ratepayers. He noted that AP&T also had suggested [HB 496] is special legislation, but he said the City of Ketchikan doesn't find "creating a level playing field" is special legislation. Number 0691 MR. VOETBERG addressed March 5, 2002, correspondence with RCA chairperson Nan Thompson, in which Ms. Thompson said the RCA doesn't support or oppose the legislation, which defers the policy issues to [the legislature]. MR. VOETBERG offered that the City of Ketchikan wants to level the playing field with [HB 496]. He gave the example of a company like GCI [General Communications Incorporated] being lightly regulated, while [KPU] would be fully rate-regulated. He told the committee the legislation doesn't stifle competition; it only makes it occur on an even basis. He stressed the importance of the "relatively small change" to AS 42.05.711(b)(2) to the community of Ketchikan. Number 0821 CHAIR MURKOWSKI surmised that KPU is a municipally regulated utility and not subject to the RCA. She asked, if a wireless company were to come in, whether KPU would be fully [rate]- regulated. She asked the difference between fully regulated and lightly regulated. She said currently wireless companies are "popping up all over." Number 0905 MR. VOETBERG replied that "fully rate-regulate" refers to a situation in which the [RCA] will require a rate study. The costs charged to customers would have to be justified by the study, and the RCA would ensure that the costs and charges are balanced. He said "lightly rate-regulated" is a situation wherein an entity doesn't have to undergo the process, and rates can be set at whatever rates that entity desires. Mr. Voetberg explained that whereas the fully rate-regulated entity is required to go through a long process to determine its rates, a lightly regulated competitor can quickly undercut those rates by small margins and thereby pick up customers. Number 0966 CHAIR MURKOWSKI asked how AP&T is regulated, for example. MR. VOETBERG answered that he isn't aware of how the company is regulated, but it isn't fully rate-regulated. Number 0998 HEATHER GRAHAM, City of Ketchikan, offered that sometimes it takes longer than several months for a company that is fully rate-regulated to change its rates, and it can be a lot longer than that. Number 1040 MICHAEL GARRETT, President, AP&T Wireless, testified via teleconference. He told the committee his organization opposes HB 496 because it could encourage the city to subsidize competitive businesses it owns with monopolized services it provides in other utilities. He said it removes all independent oversight. The cities that could be affected by the new change "have an administrative solution." He called the bill "special legislation" to support one group. MR. GARRETT told members that existing law gives the [RCA] the ability to waive the regulatory requirement of the city if it finds that doing so is [in the] public interest. He said the proposed changes remove the burden of proof from a city that a waiver [must be] in the public interest. He characterized the RCA as the best qualified to make decisions on such matters. Number 1149 MR. GARRETT pointed out that even the [federal] Securities and Exchange Commission (SEC), in its Telecommunications Act of 1996, identified that "competitive services should not subsidized by [noncompetitive] services." The SEC empowers the state to make sure that "accounting or other measures" are in place; he said the RCA is that body for Alaska. The proposed changes would take away that authority from RCA. He posited that the changes in the law could be considered contrary to the Telecommunications Act of 1996. Number 1177 MR. GARRETT referred to section 254(k) of the foregoing Act. He said current [state law] is consistent with the federal law, but the language in HB 496 wouldn't be. He said the bill is a result of his company's attempt to provide competitive services in Ketchikan. Mr. Garrett said AP&T wouldn't have a problem with [KPU's] remaining unregulated if RCA found that to be in the public interest. If "the city" were to file for a waiver with the SEC, AP&T would ask to make comments on the applications, "but that would be an issue between the city and the RCA, not AP&T," he told members. Number 1262 MR. GARRETT referred to previous statements that the city would be "regulated" and AP&T "lightly regulated." He said AP&T is a family of companies that have both competitive and noncompetitive services; all of their noncompetitive services are regulated by the State of Alaska. He said if KPU faced regulation, it would be in the same position as AP&T. He asked several questions based on different scenarios that he said could be created by the bill. MR. GARRETT conceded there was a risk the RCA might not approve a waiver if the city filed for one. He said the RCA would have to justify that decision. He claimed that this would leave no independent organization - other than the utility - to look at the facts. Number 1364 CHAIR MURKOWSKI asked Mr. Garrett how long the waiver process takes. MR. GARRETT answered that he didn't know. He said he wasn't sure if RCA had a set a timeline. CHAIR MURKOWSKI requested a comment about Mr. Garrett's assertion that the bill could be used to maintain a monopoly situation in Ketchikan. Number 1436 MR. VOETBERG replied that KPU has been operating the utility for over 50 years under the control of the city council. Section 254(k) of the federal regulations prohibits cross-subsidization. He told the committee that if there is a concern, any company can go to the Federal Communications Commission (FCC) and file a complaint. Mr. Voetberg said the proposed change in the state statute has nothing to do with section 254(k) of the federal regulation. Number 1490 MS. GRAHAM agreed with Mr. Voetberg, saying federal law bars cross-subsidies between competitive and noncompetitive services; that bar remains, regardless of what the Alaska State Legislature does. CHAIR MURKOWSKI asked if she was correct in assuming Mr. Voetberg's and Ms. Graham's testimonies were claiming that there is a process in place through municipal regulations that will prevent rates from going "willy-nilly or unchecked." MR. VOETBERG and MS. GRAHAM concurred. CHAIR MURKOWSKI asked if Ketchikan had considered a waiver. MR. VOETBERG said it had not. Number 1553 CHAIR MURKOWSKI asked Mr. Voetberg what he foresaw procedurally if a waiver were requested. MR. VOETBERG estimated it would take several months. There would be a "back and forth" of filings in the case of an opposition. He said the [RCA] is very busy, and decisions can take one to two years. Number 1596 REPRESENTATIVE HALCRO suggested there needs to be a more balanced way to tie the locally owned utility's exemption to the level of exemption that a new entrant into the market enjoys. The concern is that if one is lightly regulated, there should be consideration of adjusting the exemption to what type of competition comes in. Representative Halcro expressed his concern that if a blanket grant of immunity is bestowed upon a locally owned utility that is unregulated by the RCA, and a new entrant to the market that is regulated wants to enter, a competitor might be bogged down in rate-filing requirements and other regulations. Number 1677 CHAIR MURKOWSKI pointed out that the only way it would equalize itself is if a fully regulated utility were to enter the market; then the two would be put on par. She asked if Representative Halcro's concern [arises] if KPU, for example, were unregulated and the entrant were regulated. REPRESENTATIVE HALCRO said he was trying to think of how the playing field could be kept level. CHAIR MURKOWSKI offered that it would be quite confusing if several entrants came into the market at six-month intervals at different levels of regulation. Number 1733 REPRESENTATIVE MEYER asked how it would pertain to cooperatives. He gave examples from Anchorage. CHAIR MURKOWSKI said she wasn't sure it would apply because [the examples] weren't municipally owned public utilities. REPRESENTATIVE ROKEBERG said they are different. He stated his belief that GCI and Alaska Communications Systems (ACS) are regulated utilities in the state, and that if they were to enter the Ketchikan market and compete with the local utility, they would be regulated and the Ketchikan utility would not be, under [HB 496]. He expressed doubt that GCI or ACS would readily accept the "lightly regulated" moniker. Number 1789 CHAIR MURKOWSKI said she didn't know where everybody fit in that lightly-versus-fully-regulated spectrum, including GCI and ACS. REPRESENTATIVE HALCRO asked if anyone available from the RCA could assist the committee in understanding the issue. Number 1814 REED STOOPS, Lobbyist for General Communications Incorporated (GCI), testified before the committee. He told the committee GCI wasn't taking a position on the bill, but said he would like to explain the status of the regulations on ACS and GCI. If Ketchikan didn't get the legislation and would be regulated by the RCA, it would be regulated as a monopoly in the same way that the Anchorage Telephone Utility (ATU) was regulated when GCI began to compete [with ATU]. MR. STOOPS said the reason for a different set of regulations for a monopoly than for a competitor is that a competitor comes in with no protection. The in situ utility's urge to compete will likely force it to lower costs against the entrant and shift the costs to those operations where the utility holds a monopoly. When a new competitor gets its foot in the door and becomes established, it loses its "lightly regulated" status and is placed on an equal footing with the its fully regulated rival. Mr. Stoops characterized the premise of the federal Telecommunications Act as encouraging competition by allowing a competitor to enter a market and then be subject to full regulation if it has gained enough of a market share and has become established. Number 1933 MR. STOOPS, in response to Representative Halcro, explained that "lightly regulated" companies are required to get a certificate of authority, subject to consumer complaints and a variety of regulations that fall short of rate regulations; there is no need to regulate their rates because they are entering with no market share. He offered that the regulatory process makes sure the market competes fairly. Mr. Stoops said at a point at which an entrant achieves a 40- to 50-percent market share, the RCA might deregulate the former monopoly carrier. The RCA looks out for the interests of the consumer, he added. REPRESENTATIVE HALCRO suggested that adoption of the legislation would continue all of KPU's protections as a monopoly without having to allow the potential for competition. MR. STOOPS replied that the legislation would entrust the Ketchikan municipal government with the same function as the RCA. He posited that [AP&T] would be faced with the choice of having the RCA be the judge or having the municipality that owns the utility be the judge. Number 2033 REPRESENTATIVE ROKEBERG mentioned case law. He said the "incumbent elect" would be in an unregulated situation "in this case." He asked if there is automatic assertion of authority by the RCA, even though there is no economic regulation to set tariffs or terms of the transmission-line uses and so forth. Number 2065 MR. STOOPS answered that under current law, all regulation is municipal. If AP&T came in [to the Ketchikan market], KPU would have to go under RCA regulation for the first time, and would have to justify and make filings regarding its rate structure in the future. He pointed out that if the bill were passed, the authority would remain with the City of Ketchikan. If AP&T were concerned, it would have to appeal to the FCC and file a federal action, rather than [appealing to] the RCA. REPRESENTATIVE ROKEBERG surmised, then, that [the City of Ketchikan] could keep any other entity from competing with it unless an entrant wanted to install its own transmission grid. MR. STOOPS responded that AP&T is thinking of providing wireless service and would put in its own equipment. He said there needs to be some oversight because the incumbent carrier has all the business. When people are being switched from one carrier to another, there needs to be somebody to make sure that happens or to file a complaint with, if it doesn't happen. Mr. Reed said the key issue at hand is the question of who will be the recipient of those complaints when they inevitably happen. He cited the RCA, the City of Ketchikan, and the FCC as possible entities that could fulfill that adjudicative role. The policy decision is the appropriate forum for resolving disputes that would result from an entrant's offering competitive service. Number 2141 CHAIR MURKOWSKI referred to Representative Halcro's earlier suggestion about leveling the playing field; he said that with the premise of the federal Telecommunications Act [of 1996], it makes no sense to "try to have everybody travel up at the same level." [Utilities] in a monopoly position are saddled with a high level of regulation until another company can "even out" the market shares and until positions change enough that there is additional regulation oversight [for the new entrant]. Number 2176 MR. STOOPS said that situation already exists in the RCA process whereby it orchestrates a balance. He said in the present case [of KPU], a municipal entity owns and regulates a utility. He added that he couldn't think of a fair way to balance that situation. CHAIR MURKOWSKI remarked that the RCA has an overwhelming number of cases in the area of telecommunications and cannot keep up. She said she'd like to know the RCA's perspective on the matter. Number 2285 REPRESENTATIVE ROKEBERG referred to AS 42.05.221 and commented, "It seems to me that this is just economic regulation and there is still some jurisdiction from the RCA or some other matters." MR. VOETBERG responded that there must still be a certificate of public convenience for the serving area for the "rate-regulation portion." REPRESENTATIVE ROKEBERG offered his opinion that if independent competitors were to enter the market, they would be subject to the same RCA restrictions and a sorting out of those issues that were not economic- or tariff-related. He stated his assumption that KPU is not entirely exempt. Number 2350 MR. VOETBERG mentioned the FCC and pointed out that KPU has a rule exemption for its area; a competitor who wanted to compete using KPU's facilities would have to go to the RCA in order to get the exemption lifted. He said there is a process in place for that. TAPE 02-48, SIDE B Number 2356 REPRESENTATIVE HAYES moved to adopt Amendment 1, which read [original punctuation provided]: Page 2, Line 3 Delete: "company" Insert: "operating entity". This is a technical change to conform the terminology used in the legislation on page 2, line 3 to the terminology in the existing statute on page 1, line 8. There being no objection, Amendment 1 was adopted. Number 2345 REPRESENTATIVE ROKEBERG moved to report HB 496, as amended, out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, CSHB 496(L&C) was moved out of the House Labor and Commerce Standing Committee.
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