Legislature(2003 - 2004)
03/10/2003 03:16 PM House L&C
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HB 111 - EXTEND REGULATORY COMMISSION OF ALASKA Number 1733 CHAIR ANDERSON announced that the final 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." Number 1715 NAN THOMPSON, Commissioner, Regulatory Commission of Alaska (RCA), informed the committee that the RCA supports HB 111. She explained that the RCA's mission is to protect consumer interests by ensuring affordable and reliable utility and pipeline services as well as ensuring that the utility and pipeline infrastructures are adequate to support community needs. The agency has come a long way since its creation in 1999 and has reduced the notorious backlog to a manageable open caseload of several hundred cases. The RCA hopes to spend time focusing on some of the important policy issues facing the market. Ms. Thompson submitted her written comments to the committee. Number 1609 WESLEY E. CARSON, Alaska Communications Systems (ACS), stated, "My reason for being here is to emphasize the importance of deferring any action to re-authorize the Regulatory Commission of Alaska until the state has articulated a clear set of telecommunications policies to guide the commission." Mr. Carson also provided the committee with his written testimony. REPRESENTATIVE GUTTENBERG asked if Mr. Carson believes that the RCA needs more guidance from the legislature. MR. CARSON replied yes and related his belief that a lot of discretion is afforded to the states under the Telecommunications Act of 1996. As the RCA is charged with implementing the law, there is an opportunity for the legislature to clarify, by statute and policy, the direction for the commission. Number 1510 JIMMY JACKSON, Attorney, General Communications Incorporated (GCI) informed the committee that he has worked with GCI for 10 years and for the 10 years before that he worked for the Alaska Public Utilities Commission (APUC), the predecessor of the RCA. Mr. Jackson related GCI's support for the four-year extension as proposed in HB 111. He recalled that four years ago five new commissioners were confirmed by the legislature when the RCA was established. Recently, two of those commissioners have been replaced and the current legislature has confirmed two new commissioners. During last year's special session, the RCA legislation amended timelines and time limits for the proceedings. He related that GCI believes that it's now time to trust the RCA to deal with the very complex issues before it and for the legislature to allow the RCA to get on with its business. Mr. Jackson said that it's not possible for the legislature to become experts in the area of telecommunications and electrical utilities. Number 1450 MR. JACKSON estimated that the RCA has spent hundreds of hours dealing with the issues about which ACS has complained. When cases come before the RCA they are usually held in trial-like settings and one of the parties often goes away disappointed. Therefore, GCI isn't satisfied with all of the decisions the RCA has made over the last few years. However, GCI understands that the commissioners are doing their job in a professional and fair way. Stability would be beneficial to the agency, and therefore GCI supports the four-year extension. Number 1371 KRISTI CATLIN, Director, Governmental Affairs, AT&T Alascom, provided the following testimony: As you know, AT&T Alascom, and before that, Alascom, has a long history of providing telecommunications services to the state of Alaska. In fact, it has the longest history of any inter-exchange carrier in the state today. It is from those very roots, and having witnessed the broad changes in technology and market shift over the years, that we would like to offer our perspective and respectfully make some requests for the legislature to consider. We believe that both telecom service providers and policymakers have a two-fold obligation to the constituents of this state. Those are: ensuring that basic telecom services remain affordable to everyone in the state; and providing a regulatory environment that fosters continued investment in the state telecom infrastructure, thereby ensuring that advanced services will reach to all parts of the state. In the early days, Alascom was the only long distance carrier in Alaska, and as such, a regulated monopoly. Regulations were put in place to ensure that Alascom did not misuse its monopoly power in pricing its services to consumers. In addition, in 1991, when intrastate long distance competition was initiated, additional regulations were developed to ensure that Alascom did not misuse its monopoly power to subvert competition. At the same time, new entrants to the long distance market were granted broad and significant freedoms. And even though the market was highly competitive in 1995 when AT&T bought Alascom, for the most part, it bought a company regulated as though it were a monopoly. As we all know, the regulations governing utilities with a legal monopoly work in two directions: first, they protect the consumer from unreasonable prices on the one side of the equation, and second, they ensure a reasonable return for the regulated utility on the other side. Without a reasonable return, companies do not invest and services, therefore, do not advance. Many of the regulations which restrict AT&T Alascom today are vestiges of that monopolistic environment I spoke of previously. However, in this highly competitive marketplace, they do not serve as an incentive for investment - they only serve to add cost and thereby provide a disincentive for investment. As far as protection of the consumer on prices, we have almost 20 years of empirical evidence in the long distance market in the U.S. to show that competition serves the consumer well. In 1984, when AT&T was first broken up, the average discounted corporate minute was around $.45. Today, the average discounted corporate minute is under [$.045]. That's a whole order of magnitude swing. And yet, during the same time period, the long distance industry went from approximately $9-$10 billion to about $90-$110 billion. It was deregulation of the industry and the management of competition that spurred investment. And in 1995, when AT&T fell below 60 percent market share in the Lower 48, the FCC ceased regulating AT&T as the "dominant carrier" and deemed the market for long distance as "competitive". And yet, here in Alaska, where AT&T Alascom now has 42 percent of the long distance business and shrinking, and our largest competitor, GCI, has 46-48 percent of the long distance business and growing, AT&T Alascom is still considered the dominant carrier, despite a four-year attempt to get relief from this regulation at the RCA. This regulation adds substantial to our cost structure for tracking, journalization, and reporting. It also adds regulatory process that our competitors don't have that keeps us from being competitive in the marketplace. The whole situation begs the definition for "dominance". Additionally, with the increased costs and inability to compete effectively because of outdated regulations, our ability to attract capital and invest in the network is severely "hamstrung". Number 1167 I believe that over the next 12-18 months, this state must wrestle with some difficult issues of telecom regulation. At stake is the very survival of an infrastructure that's struggling to keep up with the rest of the country. In a true free market, there is less regulation, not more. And competition, not regulation, becomes the force to shape the market. I would ask you to carefully and thoughtfully consider the market dynamics at work here, and the definitions of broader market issues such as "dominance" and "competition". I would also ask you to carefully consider your role in mandating an environment that has less regulation, not more, in order to create and maintain incentives to invest in the modern telecommunications infrastructure that all Alaskans desire. As you consider House Bill 111 reauthorizing the RCA, please know that AT&T Alascom could support legislation which would extend the RCA for another 2-4 years, however, as we stated last year - only if the RCA is truly committed to bringing about regulatory reform. Status quo is not an option if you intend to have a healthy, competitive telecom market and infrastructure in Alaska. We have drafted appropriate language to assist the legislature in defining "dominance", and are submitting it for your consideration. Number 1099 REPRESENTATIVE GUTTENBERG requested that Ms. Catlin expand on the issue of disincentives for investment. MS. CATLIN informed the committee that the current regulations cost the company between $2-$5 million annually. The company also has a difficult time due to the high costs of serving the Bush regions of the state. It's difficult to attract investment from AT&T unless [AT&T Alascom] is free from some of the costs associated with the existing regulation, she said. One step toward being free from some of the costs associated with the existing regulation would be release from the "dominance" regulation. Ms. Catlin pointed out that AT&T must keep separate books for Alaska, which amounts to about $2 million a year. REPRESENTATIVE GUTTENBERG asked what it would take to get the RCA to respond to the market dynamics. MS. CATLIN responded that she believes the RCA needs policy direction from the legislature to [encourage] investment in Bush Alaska. Number 1007 REPRESENTATIVE CRAWFORD inquired about the "dominance" regulation. MS. CATLIN specified that [AT&T Alascom] is looking to be relieved from an annual report filing, which is related to the journalization issue. She explained that AT&T Alascom is required to perform certain network reporting that the competitors aren't required to do. She informed the committee that AT&T Alascom is required to file a 25 percent outage report daily as well as a quarterly report. Furthermore, if AT&T Alascom wants to make any rate increases, it must file on 45 days notice to the public with cost justification. For example, if the company had a $.15 per minute plan and AT&T eliminates the plan, then [AT&T Alascom] would need to move its customers to a $.14 per minute plan with a $4.99 monthly charge. She explained that AT&T Alascom could end up in a proceeding that could be protracted to answer the question as to whether it was a rate decrease or increase, although it isn't necessary or to the benefit of AT&T Alascom's consumers. Ms. Catlin said, "It isn't really that we want to raise our rates, but we need the flexibility in the marketplace to be competitive." MS. CATLIN, in further response to Representative Crawford, clarified that there are three things required under the dominance regulation: journalization, competitive flexibility with tariffs, and network reporting. Number 0886 JIM ROWE, Executive Director, Alaska Telephone Association (ATA), informed the committee that ATA is available to all the incumbent local exchange carriers in the state. The members of ATA are regulated utilities. Mr. Rowe said that in general, ATA is in support of the four-year reauthorization of the RCA. However, ATA does have some concern with the operation of the RCA. He pointed out that with one term of the commissioner expired, the government put forward two names for the commission seat. Additionally, a recent executive order addressed the staffing of the public advocacy section. He explained that [ATA] believes that those actions demonstrate that the RCA has the attention of the administration. In deference to Governor Murkowski's attention, prudence dictates that the actions of this commission be monitored. With regard to the staff changing, there is the belief that other things might be happening and ATA is waiting to see. Mr. Rowe stated that ATA is concerned with some orders that have come out of the commission. He recalled that an earlier witness testified that some party before the commission is always displeased. However, Mr. Rowe suggested that there are some parties that are more regularly pleased than others and ATA's members are in the group that is not as regularly pleased. Mr. Rowe said, "At this point we're not anxious, Mr. Chairman, to say please go ahead and pass this bill today, but we are concerned. We're watching very carefully." He mentioned that ATA has particular interest in investment and infrastructure. Number 0730 H.A. RED BOUCHER, Vice Chairman, Board of Directors, Chugach Electric Association, Inc., informed the committee that he is an elected board member and responsible to the 60,000 member owners of Chugach Electric, which is Alaska's largest provider of electric energy. He noted that he is the chair of the Government and External Affairs Committee and also the Technology Committee. He explained that the committee should have his written testimony. Mr. Boucher noted that from 1984- 1990 he served on the House Labor and Commerce Standing Committee, and although the faces have changed, the issue remains the same. He did note that one difference now is that Alaska is competing in a global economy. MR. BOUCHER recalled that in 1999 the Alaska Public Utilities Commission (APUC) was reorganized under AS 46.42.04, AS 46.42.05, and AS 46.42.06 in order to improve it's efficiency. The newly-formed RCA was charged with the responsibility to ensure the furnishing of safe and adequate service to all public utility patrons without discrimination and at reasonable rates, consistent with the interest of both the public and the utility. Last year Chugach Electric testified before the Senate Judiciary Standing Committee about the effectiveness of the newly formed commission in carrying out its mandates. He said that Chugach Electric was concerned that the regulatory process takes too long and if the additional staff was necessary, Chugach Electric more than supported it. In fact, Chugach Electric contributes $400,000 to RCA's budget. During the testimony [last year], the Chugach Electric board president had recommended four improvements. They included (1) the need for an oversight committee to work with the RCA and utilities to seek best practices and benchmark performance; (2) the need for the commission chair to have a senior level staff person to help carry the large workload; (3) the need for the RCA to lighten its caseload; and (4) the need for a better method of resolving disputes between parties. Number 0374 MR. BOUCHER stated that these recommendations [have been ignored]. He noted that the Joint Committee on Legislative Budget and Audit (BUD) recommendation for an extension to June 30, 2005, points out the need for these [changes]. There is no easy solution, he remarked. However, the RCA needs commissioners and staff who fully understand the complexities of rate regulation, the Alaska marketplace, and balance the financial help of the utilities with the needs of their owners and consumers. Mr. Boucher related that Chugach Electric supports either approach, the governor's proposed four-year extension of the RCA or BUD's June 30, 2005, extension. The question isn't whether the legislature should extend the RCA, because that's a matter of law. However, Chugach Electric strongly recommends an amendment to [HB 111] providing for a government-appointed panel of industry experts with the authority and obligation to work jointly with the RCA and the regulated community in order to improve the regulatory process. Currently the Chugach Electric Board spends 50 percent of its time dealing with regulatory matters. Mr. Boucher stressed that Chugach Electric would like to get onto the business of building an electric energy and transmission company that meets the challenges Alaska will face in a globalizing economy. The Murkowski administration and the legislature have emphasized the need to expand Alaska's economy in order to face the state's financial challenges. Mr. Boucher said Chugach Electric shares that vision. Number 0146 MR. BOUCHER, in response to a question from Representative Lynn, confirmed that the recommendation was for a government oversight committee of the RCA. In fact, there was supposed to have been a committee appointed by the legislature so that this wouldn't be an issue. However, that didn't happen and thus the recommendation is suggested again, he added. REPRESENTATIVE LYNN questioned how far such a recommendation would be taken. If there's a panel to watch the RCA, should there be a panel to watch the panel, he asked. MR. BOUCHER emphasized that this type of issue can only be debated during the RCA's sunset time period because the utilities have no other forum in which to air their problems. He pointed out that these types of problems can't be brought up when an entity has a case before the RCA. Number 0035 EVAN J. GRIFFITH, General Manager, Chugach Electric Association, Inc., noted that the committee should have a handout from him. He relayed Chugach Electric's view that the RCA must consider the financial health and utilities in the process [tape ends midspeech]. TAPE 03-19, SIDE A Number 0012 MR. GRIFFITH referenced an opinion update from Moody's Investors Service and highlighted the following statement: "This rate case outcome is in contrast to largely supportive regulatory treatment provided to Chugach in the recent past." He noted that Standard & Poor has placed Chugach Electric on a credit watch, which isn't good in the investment world. Standard & Poor says that this rating action reflects the expected financial impact on the utility of the latest rate order by the RCA. In addition to substantially weakening debt service coverage, the RCA's rate order signals heightened regulatory and refinancing risks for the utility and may cause [Standard and Poor] to apply more stringent guidelines in assessing Chugach Electric's credit quality, he said. Mr. Griffith cited a letter from David Rose, Chairman and CEO of Alaska Permanent Capital Management Company, which expressed concern with regard to the impact of the order on Chugach's bondholders. The RCA's latest ruling has placed Chugach Electric in default on its bond requirements for 2002. In fact, Mr. Griffith related that he is preparing a report specifying that Chugach Electric has sustained a $2 million loss in 2002. Number 0112 MR. GRIFFITH emphasized that this was Chugach Electric's first request for a rate increase since 1994. The order said that Chugach Electric had done fairly well in the presentations. However, the numbers didn't back up what was said and no rate stability was achieved. He noted that Chugach Electric actually ended up with a 1.5 percent rate decrease. Mr. Griffith related the [company's] belief that there must be a balance of consumer protection and solid economic base. Furthermore, he added, the large businesses in the Railbelt have to be on solid financial ground; otherwise the implications for economic development aren't good. Number 0219 ERIC YOULD, Executive Director, Alaska Rural Electric Cooperative Association (ARECA), informed the committee that members of ARECA generate approximately 90 percent of the electricity throughout the state. He noted that Chugach Electric, Alaska Municipal Light & Power, Golden Valley Electric Association, and Homer Electric are members of ARECA as well as many medium and smaller utilities. He has submitted written comments and a resolution from ARECA's board of directors. Mr. Yould commented that Mr. Boucher did a fine job in summarizing much of the frustration that the [electric] industry has with the RCA. He related that ARECA's board supports a one-year sunset extension as well as significant changes that would streamline the RCA's process. MR. YOULD testified that when the RCA was reconstituted in 1999, it inherited a tremendous backlog, some 700 cases. The RCA also gained 14 new positions to address that backlog, which has been reduced to about 200 cases. Mr. Yould pointed out that the majority of the backlog reductions occurred only within the last year to year-and-a-half, when the RCA was up for sunset review. Therefore, Mr. Yould contended that if the RCA had not had its "feet held to the fire" there would be an even larger backlog of cases. The RCA has a serious problem with the amount of time and money it takes to perform its work, he observed. One recent case took more than two years and cost $5 million to adjudicate between three utilities. That $5 million came out of everyone's pocket in the Railbelt, he commented. Number 0400 MR. YOULD pointed out that last year the legislature called for a special subcommittee to propose changes to streamline the RCA. Although the legislative subcommittee was never formed, the electric utility industry assembled its own internal group to review the statutes of the RCA. Mr. Yould noted that this list of recommendations was originally submitted to the governor's office. The governor's staff had indicated that it could make many of the changes administratively, and if ARECA supported a four-year sunset extension, the administration would fix the RCA. MR. YOULD recounted that ARECA had determined that there were several elements of the RCA's statutes that required some statutory changes. ARECA has submitted a paired-down list of changes for the committee's consideration. Mr. Yould stated that a four-year extension of the RCA will not result in any efficiencies. Number 0550 MR. YOULD concluded that ARECA could support a two- to four-year sunset extension for the RCA only if there were first some changes in the law that would streamline the process. Mr. Yould said that should the legislature decide not to proceed with these changes recommended today, he hoped that it would listen to Mr. Boucher's recommendation to establish a blue ribbon commission. Such a commission would enable all utility industries to determine what streamlined changes should be made in order to best serve the public. CHAIR ANDERSON, upon determining there was no one else who wished to testify, announced that HB 111 would be held over.
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