Legislature(2003 - 2004)

03/17/2004 03:20 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 515-MUNICIPAL WATER AND SEWER UTILITIES                                                                                    
                                                                                                                                
CHAIR ANDERSON  announced that the  next order of  business would                                                               
be HOUSE  BILL NO.  515, "An  Act relating  to the  regulation of                                                               
municipal  water  and sewer  utilities  not  in competition  with                                                               
other water and sewer utilities."                                                                                               
                                                                                                                                
Number 0268                                                                                                                     
                                                                                                                                
CHAIR ANDERSON  introduced HB  515 on behalf  of the  House Labor                                                               
and Commerce  Standing Committee, sponsor.   He said  it's fairly                                                               
straightforward as it exempts the  Anchorage Water and Wastewater                                                               
Utility (AWWU)  from regulation by  the Regulatory  Commission of                                                               
Alaska  (RCA).   He  explained that  no  other municipally  owned                                                               
water or  wastewater utility  is regulated by  the RCA,  save the                                                               
City  of  Pelican,  which  requested   regulation  of  its  water                                                               
utility.   He said the  Municipality of Anchorage  (MOA) believes                                                               
current   RCA   regulation   processes  are   cumbersome,   slow,                                                               
expensive, and unresponsive to local  needs.  Therefore, he said,                                                               
Mayor  Begich   and  the  MOA   assembly  believe   the  proposal                                                               
encompassed in  HB 515 would  be more efficient and  positive for                                                               
the ratepayers.  Chair Anderson explained:                                                                                      
                                                                                                                                
     Ratepayers  in Anchorage  are required  to pay  for the                                                                    
     expense  of RCA  regulatory process  as a  surcharge on                                                                    
     every  bill.   That means  our constituents  are paying                                                                    
     this  every  month,  and  that's  whether  or  not  the                                                                    
     utility has a case pending.  ... A good example is from                                                                    
     1993 until  2003, AWWU never  had a rate  increase from                                                                    
     the  RCA   or  the  APUC,  the   former  Alaska  Public                                                                    
     Utilities Commission.  ... The ratepayers still  had to                                                                    
     pay the regulatory assessment on every bill. ...                                                                           
                                                                                                                                
     In  2004, AWWU  ratepayers are  projected to  pay about                                                                    
     $500,000  ... to  the RCA  to cover  the costs  of this                                                                    
     regulation.   The greatest  costs appear  to be  in the                                                                    
     form  of regulatory  delay in  obtaining approval  of a                                                                    
     requested change.   The  [MOA] is  directly accountable                                                                    
     to  ratepayers served  by the  utilities, and  they are                                                                    
     the   voters,   obviously.     The   municipality   has                                                                    
     experienced    successfully    regulating    enterprise                                                                    
     activities; that's the reason  they want it under their                                                                    
     purview.  Examples  of this are the  Port of Anchorage,                                                                    
     solid waste  services, and,  of course,  Merrill Field.                                                                    
     All of those  are financially sound and,  I think, they                                                                    
     provide first-class consumer and customer service.                                                                         
                                                                                                                                
     The municipal public hearings are  held on any proposed                                                                    
     rate increase,  and the public is  really involved with                                                                    
     the hearing  process.  Under  this format,  rather than                                                                    
     RCA,  it's  amenable to  easier  access,  going to  the                                                                    
     [municipality]  versus  going  to  the  RCA  and  those                                                                    
     fairly complicated meetings.                                                                                               
                                                                                                                                
Number 0493                                                                                                                     
                                                                                                                                
CHAIR ANDERSON read from page 2, lines 5-8, which states:                                                                       
                                                                                                                                
               (B)  a water utility owned by a political                                                                    
     subdivision  that   does  not  directly   compete  with                                                                
     another water utility; or                                                                                              
               (C)  a sewer utility owned by a political                                                                    
     subdivision  that   does  not  directly   compete  with                                                                
     another sewer utility.                                                                                                 
                                                                                                                              
He noted that subparagraphs (B) and  (C) would be exempt from RCA                                                               
regulation under this proposed bill.                                                                                            
                                                                                                                                
Number 0533                                                                                                                     
                                                                                                                                
MARK  PREMO,  General  Manager, Anchorage  Water  and  Wastewater                                                               
Utility, testified in support of  HB 515, which would exempt AWWU                                                               
from economic  regulation by  the RCA  and place  it in  the same                                                               
status  as every  other municipally  owned  water and  wastewater                                                               
utility  in Alaska  except one.   Providing  background, he  said                                                               
AWWU  consists  of  two  separate   utilities,  both  subject  to                                                               
economic  and service  area regulations  by the  RCA.   The water                                                               
utility,  a   former  municipal  utility,  has   been  under  RCA                                                               
regulation since  inception of  the [former] APUC  in 1970.   The                                                               
Anchorage  sewer  utility  was  formerly  owned  by  the  Greater                                                               
Anchorage  Area Borough,  and was  voluntarily  submitted to  the                                                               
APUC for regulation in 1971.  He continued:                                                                                     
                                                                                                                                
     An  umbrella  organization,  AWWU was  formed  in  1975                                                                    
     following  the  unification   of  the  Municipality  of                                                                    
     Anchorage.    The  Municipality of  Anchorage  in  1991                                                                    
     petitioned  the  then-APUC  to   exempt  AWWU  and  its                                                                    
     electrical  utility  from  regulation.    The  decision                                                                    
     split  evenly by  a  vote  of 2-2  on  the question  of                                                                    
     exempting the electric utility and AWWU.                                                                                   
                                                                                                                                
     The  opinion   by  the  commissioners   opposing  self-                                                                    
     regulation  cited  competition  by  the  municipality's                                                                    
     electric   utility/cell   phone  utility   with   other                                                                    
     utilities as the primary reason  why AWWU should remain                                                                    
     regulated  by the  state.    No commissioner  suggested                                                                    
     then, or has since  suggested, that competition between                                                                    
     water  and wastewater  utilities  was  present, nor  is                                                                    
     there any competition there today.                                                                                         
                                                                                                                                
     There are a number of  small, private, class D (indisc.                                                                    
     -  coughing) water  systems in  Anchorage that  are not                                                                    
     publicly owned  and which do not  receive regular water                                                                    
     service from  AWWU.  Ten  are certificated by  the RCA.                                                                    
     Seven of  those are also economically  regulated by the                                                                    
     RCA,  and  the  other  three  appear  to  be  community                                                                    
     systems  run  as  cooperatives, therefore  exempt  from                                                                    
     economic regulation.  House Bill  515 does not apply to                                                                    
     any  of these  small  systems, since  none is  publicly                                                                    
     owned with public oversight.                                                                                               
                                                                                                                                
Number 0691                                                                                                                     
                                                                                                                                
MR. PREMO continued:                                                                                                            
                                                                                                                                
     Why   does  the   Municipality   of  Anchorage   desire                                                                    
     exemption  from  RCA  regulation?     The  current  RCA                                                                    
     regulations  and  procedures  are slow  and  expensive.                                                                    
     From  1993  to  2003,   AWWU  never  requested  a  rate                                                                    
     increase, yet  AWWU ratepayers have  paid approximately                                                                    
     2.8 million [dollars in]  regulatory assessments to the                                                                    
     RCA during this  period as part of  every monthly bill,                                                                    
     and  are projected  to pay  just short  of $500,000  in                                                                    
     2004 to cover the cost of regulation.                                                                                      
                                                                                                                                
     One of  the two supporting  documents I sent  to Juneau                                                                    
     two  weeks ago,  at  the time  of  local regulation  of                                                                    
     municipal water  and wastewater utilities,  [has] dates                                                                    
     listed  incorrectly with  regards to  the timeframe  in                                                                    
     which  AWWU had  no rate  increases.   It  has 1993  to                                                                    
     2004.   It should be corrected  to be 1993 to  2003, as                                                                    
     the chair correctly stated.                                                                                                
                                                                                                                                
Number 0755                                                                                                                     
                                                                                                                                
MR. PREMO continued:                                                                                                            
                                                                                                                                
     During the  last decade there  were a number  of minor,                                                                    
     relatively  simple  procedural  tariff  filings  during                                                                    
     this period of time for  action, such as minor service-                                                                    
     area  adjustments and  tariff-rule  changes.   However,                                                                    
     the greater  cost to AWWU  and its customers is  in the                                                                    
     form of  the cost  of preparing filings  and regulatory                                                                    
     lag.   History shows  that local regulation  is faster,                                                                    
     less structured, and more economical.                                                                                      
                                                                                                                                
     Current    RCA   regulations    and   procedures    are                                                                    
     nonresponsive  to  local  need,  which  is  our  second                                                                    
     point.    The  RCA  process was  designed  for  private                                                                    
     utilities   and  is   not   entirely  appropriate   for                                                                    
     municipal  utilities.     The   RCA  process   is  very                                                                    
     structured.   The  municipality is  more responsive  to                                                                    
     local  needs   and  is  directly  accountable   to  the                                                                    
     ratepayers who  are served by  these utilities.   These                                                                    
     customers  are also  municipal  voters.   Hearings  are                                                                    
     held by the municipality in all rate matters.                                                                              
                                                                                                                                
     I ask  for the committee's  support on House  Bill 515.                                                                    
     Self-regulation  has  worked   effectively  across  the                                                                    
     nation  and   in  other  Alaskan  communities   and  in                                                                    
     Anchorage.   Actually, Anchorage has regulated  some of                                                                    
     its  own public  utilities  for many  years, many  more                                                                    
     years, in  fact, than the state  regulators.  Anchorage                                                                    
     has a  proven record and has  effectively regulated the                                                                    
     Port   of  Anchorage,   Merrill   Field,  Solid   Waste                                                                    
     Services;  all are  financially strong,  high reputable                                                                    
     enterprises that provide excellent customer service.                                                                       
                                                                                                                                
Number 0834                                                                                                                     
                                                                                                                                
MR. PREMO continued:                                                                                                            
                                                                                                                                
     AWWU   has  provided   its  customers   with  excellent                                                                    
     service, low,  stable rates, and  sound finances.   For                                                                    
     more than  a decade, ratepayers have  benefited from no                                                                    
     rate  increases  as  AWWU  has  reduced  positions  and                                                                    
     expenses by  leveraging technology,  improving business                                                                    
     processes, while  at the same time  increasing spending                                                                    
     on system  repairs and rehabilitation, all  without the                                                                    
     direction and assistance from RCA.                                                                                         
                                                                                                                                
     Over the years,  the mayor and the  assembly made sound                                                                    
     decisions  in   their  oversight  of  AWWU   and  other                                                                    
     municipally  owned   utilities.    Most   recently,  in                                                                    
     January of  2004, AWWU filed  for water  and wastewater                                                                    
     increases  to be  effective in  2004 and  2005.   These                                                                    
     rate increases  are for increased  payments in  lieu of                                                                    
     taxes,  operating expenses,  and debt-service  costs of                                                                    
     facilities  constructed  in  prior  years.    Effective                                                                    
     February  23,  2004,  the   RCA  granted  AWWU  interim                                                                    
     refundable rate  increases.  I expect  the RCA approval                                                                    
     to make these rates permanent  in the fourth quarter of                                                                    
     2004.                                                                                                                      
                                                                                                                                
     The  Municipality of  Anchorage and  the administration                                                                    
     support  the  establishment  of a  strong,  independent                                                                    
     board to oversee and regulate AWWU in lieu of the RCA.                                                                     
     In  conclusion, with  the passage  of  House Bill  515,                                                                    
     municipal  regulation  of  AWWU will  balance  consumer                                                                    
     protection with ... financial  soundness, and AWWU will                                                                    
     continue to  operate on  a sound  business basis.   The                                                                    
     RCA  would still  continue to  regulate AWWU  water and                                                                    
     wastewater certificated service areas.                                                                                     
                                                                                                                                
Number 0940                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GATTO  asked  for  clarification  about  MOA  and                                                               
Pelican as the only two entities currently under RCA regulation.                                                                
                                                                                                                                
MR. PREMO replied  that this was correct with  regard to publicly                                                               
owned water and wastewater utilities.                                                                                           
                                                                                                                                
REPRESENTATIVE  GATTO wondered  if Pelican  would have  to pay  a                                                               
higher cost because of an exemption to the MOA.                                                                                 
                                                                                                                                
MR. PREMO  deferred to  Mark Johnson,  commissioner and  chair of                                                               
RCA.                                                                                                                            
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked Mr.  Premo  to  explain the  AWWU                                                               
billing process.                                                                                                                
                                                                                                                                
MR. PREMO replied  that it's done on an independent  line item so                                                               
the customer can identify the charge.   The present rate is 0.867                                                               
percent for  both the  water and the  wastewater, since  they are                                                               
billed  separately.   He said  the interim  increases granted  on                                                               
February 23, 2004, were 13.61  percent for water and 8.06 percent                                                               
for wastewater.  He explained that  AWWU pays $500,000 a year for                                                               
regulatory compliance  to file tariff charges;  this increase was                                                               
the first  granted since 1992 and,  in fact, in 2001  there was a                                                               
lowering   of  the   rate  for   wastewater   of  2.75   percent.                                                               
Emphasizing that  the $500,000 passed on  to the RCA was  for the                                                               
RCA to  conduct its work,  he noted  that AWWU must  also prepare                                                               
cases that go to the RCA  commission; these costs are in addition                                                               
to the $500,000 and are incorporated into the RCA charge.                                                                       
                                                                                                                                
Number 1221                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked what effect  HB 515 would  have on                                                               
the recently  granted interim rate  increases, and if  AWWU would                                                               
have to conduct hearings to establish permanent rate increases.                                                                 
                                                                                                                                
MR. PREMO responded  that the rate increases before  the RCA have                                                               
undergone the public process and  been passed by local ordinance.                                                               
He  recommended  keeping these  increases  in  place because  the                                                               
long-range financial plan had included this income.                                                                             
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked for the anticipated  amount of the                                                               
net revenue  increase resulting from the  February 2004 increases                                                               
for water and wastewater.                                                                                                       
                                                                                                                                
MR. PREMO  replied that in  2004 the interim  refundable increase                                                               
would  result  in  $5.9  million   and,  when  the  rates  become                                                               
permanently established,  the AWWU has projected  a collection of                                                               
$6.1 million over a 12-month period.                                                                                            
                                                                                                                                
Number 1382                                                                                                                     
                                                                                                                                
CHAIR ANDERSON suggested this has  nothing to do with the current                                                               
rate increase.                                                                                                                  
                                                                                                                                
MR. PREMO  agreed and  noted that  this bill has  to do  with the                                                               
internal  financial  workings of  the  utility  and keeping  them                                                               
economically healthy.                                                                                                           
                                                                                                                                
REPRESENTATIVE  GATTO asked  Mr. Premo  to think  of it  from the                                                               
point of view of a ratepayer in Anchorage.  He said:                                                                            
                                                                                                                                
     There  is  an  interim   rate  increase  for  about  $6                                                                    
     million;  it's before  the  RCA.   Before  the RCA  can                                                                    
     determine, you come to the  legislature and get the RCA                                                                    
     out  of  the process,  and  the  rate increase  becomes                                                                    
     permanent because  there is no other  entity to control                                                                    
     it.   Therefore, the  ratepayer looks  at us  and says,                                                                    
     "Well, you couldn't  do it through the RCA,  so you got                                                                    
     legislation to do it."  Am I correct?                                                                                      
                                                                                                                                
MR. PREMO replied:                                                                                                              
                                                                                                                                
     I  don't think  you're totally  correct, Representative                                                                    
     Gatto, in the  fact that, when we file  a rate increase                                                                    
     the process is  a two-step process.   I'm sure Chairman                                                                    
     Johnson [of  the RCA] can  speak to  it.  We  filed the                                                                    
     rate  increase in  January.  ....  There's a  permanent                                                                    
     part  of the  rate  increase  they'll make  permanently                                                                    
     effective based  on RCA's ruling,  but in  addition, at                                                                    
     that point in  time, we asked for what  we call interim                                                                    
     rates.      Those   interim   rates   are   established                                                                    
     approximately 45  days on with  the commission.   Those                                                                    
     interim  rates  have  been  granted;  we're  collecting                                                                    
     those interim rates today, already.                                                                                        
                                                                                                                                
     When  the  commission  finally  rules,  I  expect,  the                                                                    
     fourth quarter  of this year,  ... those  interim rates                                                                    
     will be made permanent.   There may be some adjustments                                                                    
     in what  the actual rate  structure is, within  a point                                                                    
     and a  half, a point,  would be my expectations  at the                                                                    
     most.    Should we  have  been  overcollecting, in  the                                                                    
     RCA's viewpoint,  in this point in  time, we'd actually                                                                    
     have refundable.   That's why  we say  they're interim,                                                                    
     refundable rates.  So, in  essence, the RCA has already                                                                    
     approved the interim request, sir.                                                                                         
                                                                                                                                
Number 1438                                                                                                                     
                                                                                                                                
CHAIR ANDERSON  commented that RCA  is cumbersome  and expensive,                                                               
that  AWWU wants  to  join  the large  majority  of entities  not                                                               
regulated  by  RCA,  and, while  he  appreciated  Mark  Johnson's                                                               
chairmanship  of RCA,  AWWU wanted  to  make it  easier and  less                                                               
expensive for  its customers through  local control of  water and                                                               
wastewater  utilities.   He said,  "It's more  of a  payment that                                                               
isn't necessary,  because you're not  using them as  a regulatory                                                               
body, because there hasn't been the need."                                                                                      
                                                                                                                                
MR. PREMO agreed and stated:                                                                                                    
                                                                                                                                
     We believe  we'd be much  speedier with respect  to our                                                                    
     own regulatory  process that  we would  set up  here in                                                                    
     Anchorage  to overview  the utility,  which would  be a                                                                    
     very  strong   board-type  of   overview.     We  think                                                                    
     depoliticizing any decisions is  important.  We need to                                                                    
     make  sure there's  long-term health  stability of  the                                                                    
     utility,  and,  obviously,  we  need  to  be  customer-                                                                    
     responsive in  the fact that  we'd be over  the purview                                                                    
     of the local assembly, with  the local assembly being -                                                                    
     they're  voters  -  also being  ratepayers,  much  more                                                                    
     responsive,  nominally  in  the  decrease  of  the  RCA                                                                    
     surcharge,  but, more  importantly, in  the interaction                                                                    
     and  the cost  of  interaction with  the  RCA ...  and,                                                                    
     ultimately, the  speed with which we  could conduct our                                                                    
     business internally.                                                                                                       
                                                                                                                                
Number 1588                                                                                                                     
                                                                                                                                
REPRESENTATIVE LYNN asked what difference  HB 515 would make to a                                                               
homeowner's pocketbook.                                                                                                         
                                                                                                                                
MR. PREMO said he couldn't answer  directly, but AWWU had a long-                                                               
range financial  plan and he  anticipated a decrease in  the cost                                                               
of regulation to the overall  utility; this decrease would affect                                                               
the  cost to  the ratepayer.   He  said local  control creates  a                                                               
higher level of accountability because  the voters can make their                                                               
wishes known.  He said:                                                                                                         
                                                                                                                                
     Right  now,  quite  candidly,  I see  it  as  just  the                                                                    
     opposite.  What  you have ... is a  situation where you                                                                    
     have local control  in the fact that  any rate increase                                                                    
     goes  through the  assembly  through  an ordinance  and                                                                    
     public hearing  process.  However, how  many times have                                                                    
     I  seen  a local  assembly  member  stand up  and  say,                                                                    
     "Well,  you know,  this is  going to  be looked  at and                                                                    
     approved  by the  RCA before  it becomes  implemented."                                                                    
     So they, in  essence, are saying, "Yes,  we've done our                                                                    
     job, but  really the RCA  is accountable."   Well, now,                                                                    
     what  we're  doing  is  we're  transferring  that  back                                                                    
     around   and  making   those  local   officials  really                                                                    
     accountable for their actions.                                                                                             
                                                                                                                                
REPRESENTATIVE  LYNN said,  "I guess  that  answers my  question.                                                               
The potential for  the future is, there's going to  be less money                                                               
out  of  pocket  for  the individual  user  of  these  utilities.                                                               
That's what I wanted to hear.  That's the odds are."                                                                            
                                                                                                                                
Number 1711                                                                                                                     
                                                                                                                                
MARK K.  JOHNSON, Commissioner,  Chair, Regulatory  Commission of                                                               
Alaska  (RCA), Department  of Community  & Economic  Development,                                                               
testified  that   a  fundamental   policy  call  is   before  the                                                               
legislature as  whether municipal  self-regulation of a  water or                                                               
sewer utility is the appropriate way to proceed.  He said:                                                                      
                                                                                                                                
     In  general,  we  believe   that  the  regulatory  cost                                                                    
     charges   that   have  been   paid   to   RCA  by   the                                                                    
     municipality, by  AWWU, have  been overstated  in their                                                                    
     decisional document.   That was  the document  that was                                                                    
     placed  in front  of the  assembly. ...  Fundamentally,                                                                    
     from the  RCA's perspective,  ... we believe  that AWWU                                                                    
     is a pretty well-run  utility.  Nonetheless, we believe                                                                    
     there  are some  inherent problems  in the  local self-                                                                    
     regulation. ...                                                                                                            
                                                                                                                                
MR.  JOHNSON pointed  out the  significant benefits  to consumers                                                               
from RCA  jurisdiction over the  years.  The primary  benefit has                                                               
been relative  rate stability  over an  extended period  of time.                                                               
Although it  is likely attributable  in part to  wise management,                                                               
he said certainly  declining interest rates had a lot  to do with                                                               
it, in addition  to significant consumer benefits  when a utility                                                               
that  sets rates  knows it  is  subject to  RCA jurisdiction  and                                                               
review.  He continued:                                                                                                          
                                                                                                                                
     We  suggest  that  what  you   have  before  you  is  a                                                                    
     fundamental  alteration of  that framework.   We  don't                                                                    
     believe  that  the  benefits  are  as  clear  as  maybe                                                                    
     stated.  For example, it  should not be overlooked that                                                                    
     the  municipality,  ... if  they  intend  to stand  for                                                                    
     self-regulation   through  a   board,  ...   will  have                                                                    
     significant  expenses  in  setting up  that  board  and                                                                    
     staffing it. ...                                                                                                           
                                                                                                                                
     What  is  clear  is  that if  this  legislation  passes                                                                    
     today,  rates could  be set  by the  Anchorage Assembly                                                                    
     with the adoption of a  municipal ordinance.  As noted,                                                                    
     that is not a difficult  process.  There's no question,                                                                    
     at  least in  my  view,  that without  the  RCA in  the                                                                    
     picture,  the  degree  of   scrutiny  that  those  rate                                                                    
     decisions might  be exposed  to might  be substantially                                                                    
     reduced.  I say it's  a municipal ordinance process; it                                                                    
     could be introduced and heard  before the assembly in a                                                                    
     very, very short  period of time.  And  we believe that                                                                    
     it would probably  usher in an era  of rate instability                                                                    
     that would not at all be beneficial to the consumer.                                                                       
                                                                                                                                
Number 1891                                                                                                                     
                                                                                                                                
MR. JOHNSON continued:                                                                                                          
                                                                                                                                
     The  additional  thing  that   I  would  call  to  your                                                                    
     attention is  the history of self-regulation  is really                                                                    
     not all  that clear. ...   In Fairbanks, the  water and                                                                    
     sewer  utility  used  to  be   owned  and  run  by  the                                                                    
     municipality.   The experience in  Fairbanks was  not a                                                                    
     positive one. ...  Staff informs me that,  in fact, the                                                                    
     public was  very much urging  that the  municipality no                                                                    
     longer run  that utility  and turn  it over  to private                                                                    
     hands.  And that utility today rests in private hands.                                                                     
                                                                                                                                
     I suggest that the transitional  process ... may not be                                                                    
     quite as clear  as some would suggest to you.   We have                                                                    
     a process  that's very well established;  we adjudicate                                                                    
     these  matters, usage  of a  written  record; when  ...                                                                    
     commissioners  we  hear  a   variety  of  matters  from                                                                    
     multiple utility groups.  The  process is very familiar                                                                    
     to those  that participate in it.  ... The municipality                                                                    
     would have to establish  something comparable and, as I                                                                    
     suggested, nothing of that  nature has been established                                                                    
     by the municipality so far.                                                                                                
                                                                                                                                
     We believe that the RCA  is particularly well suited to                                                                    
     deal  with the  problems  which are  inherent in  self-                                                                    
     regulation  by a  municipality.   One  of those  issues                                                                    
     relates  to the  reasonableness and  the collection  of                                                                    
     payments in lieu  of taxes.  In the case  of AWWU, that                                                                    
     takes the  form of the MUSA  [Municipal Utility Service                                                                    
     Assessment] and  other payments.   Of course,  you have                                                                    
     self-regulation, as you have  a municipal assembly that                                                                    
     on the  one hand  has an  appetite for  spending money,                                                                    
     and yet they would also  be placed into the category of                                                                    
     setting the rates.  I  suggest that there's an inherent                                                                    
     conflict  in  that approach.  ...  We  view this  as  a                                                                    
     fundamental policy call in front of the legislature.                                                                       
                                                                                                                                
Number 2024                                                                                                                     
                                                                                                                                
REPRESENTATIVE GATTO observed that the fiscal note indicated RCA                                                                
staff would be reduced by two positions, saving $258,000.  He                                                                   
asked if this was accurate.                                                                                                     
                                                                                                                                
MR. JOHNSON replied  that a full year's  reduction would actually                                                               
be $345,000;  there wasn't a  direct match between  two positions                                                               
and the $345,000.  He said  he hadn't yet broken out the proposed                                                               
reductions  among  the various  operating-expenditure  categories                                                               
listed on the fiscal note.                                                                                                      
                                                                                                                                
REPRESENTATIVE GATTO asked  if Pelican would be  forced to assume                                                               
a higher  RCA cost as a  result of RCA's losing  the revenue from                                                               
AWWU.                                                                                                                           
                                                                                                                                
MR. JOHNSON  replied that  the impact on  Pelican would  be quite                                                               
small.                                                                                                                          
                                                                                                                                
Number 2099                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG asked  if  the  refundable interim  rate                                                               
increase would not apply if AWWU assumed authority.                                                                             
                                                                                                                                
MR. JOHNSON  replied that it  would depend on the  effective date                                                               
of the legislation  and on whether the  Anchorage assembly wanted                                                               
to make the rate increase permanent.                                                                                            
                                                                                                                                
REPRESENTATIVE  ROKEBERG offered  his  belief  that the  attorney                                                               
general's office staffs an office  in the RCA that represents the                                                               
public's concerns  about rate matters.   He asked, if  there were                                                               
going to  be a hearing on  rates, whether this office  would take                                                               
up the case, as a rule.                                                                                                         
                                                                                                                                
Number 2167                                                                                                                     
                                                                                                                                
MR.  JOHNSON  replied  that  the   attorney  general  or  his/her                                                               
designee  would make  that  decision.   He  mentioned audits  and                                                               
investigations  and that  the  attorney  general participates  in                                                               
this kind of  a case, but said there was  no scheduled hearing at                                                               
this time.                                                                                                                      
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked if there is  a six-month timeframe                                                               
in which  RCA has  to take up  this matter or  it would  become a                                                               
permanent rate increase.                                                                                                        
                                                                                                                                
MR.  JOHNSON affirmed  that, saying  he preferred  to comment  no                                                               
further on this current rate case.                                                                                              
                                                                                                                                
Number 2234                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG noted  that  RCA is  supposed  to be  an                                                               
independent body  acting outside  the purview  of politics  so it                                                               
can  give fair,  reasonable,  and just  hearings  on tariffs  and                                                               
dockets.  He also noted that  an office of public advocacy exists                                                               
within  RCA,  and  said  the  purpose is  to  have  a  regulatory                                                               
authority   rather   than   self-regulation  on   the   part   of                                                               
politicians.                                                                                                                    
                                                                                                                                
MR.  JOHNSON  replied  that  he thought,  in  every  state,  that                                                               
publicly elected  officials determined  the extent to  which they                                                               
wanted self-regulation  by entities  that have other  due process                                                               
procedures in place.   He noted that the  Anchorage assembly acts                                                               
pursuant  to public  notice and  provides  opportunities for  the                                                               
public to  participate in  its process;  he reiterated  that this                                                               
issue is a  fundamental policy call of the legislature.   He said                                                               
regulation could  come from RCA  or the legislature  could choose                                                               
to  establish  a  different process  to  permit  municipal  self-                                                               
regulation.                                                                                                                     
                                                                                                                                
CHAIR ANDERSON  suggested losing $500,000 from  AWWU could result                                                               
in RCA's losing positions.                                                                                                      
                                                                                                                                
MR. JOHNSON replied  that RCA could increase cost  charges on the                                                               
remaining utilities it regulates or  could reduce its budget.  He                                                               
said he believes  the responsible thing to do would  be to reduce                                                               
RCA's budget.                                                                                                                   
                                                                                                                                
CHAIR ANDERSON asked if he agreed  that Mr. Premo could reduce or                                                               
stabilize rates  as a  result of  not having  to pay  $500,000 to                                                               
RCA.                                                                                                                            
                                                                                                                                
MR.  JOHNSON acknowledged  that  as a  possibility,  but said  he                                                               
didn't  believe the  committee could  predict with  any certainty                                                               
whether the  reductions would be  passed on to  ratepayers, since                                                               
the  outcome  would   be  out  of  the  hands  of   RCA  and  the                                                               
legislature,  and   into  the  hands   of  the   Municipality  of                                                               
Anchorage.                                                                                                                      
                                                                                                                                
Number 2341                                                                                                                     
                                                                                                                                
ROBERT  LOHR, Office  of Management  and Budget,  Municipality of                                                               
Anchorage, stated support for HB 515 and said:                                                                                  
                                                                                                                                
     I do  have three comments.   First, as the  chairman of                                                                    
     the  RCA has  indicated, this  is a  fundamental policy                                                                    
     call   for  the   legislature.      But  actually   the                                                                    
     legislature has made the policy  call, and that is that                                                                    
     municipally owned utilities  are exempt from regulation                                                                    
     by the  RCA, with very limited  exceptions.  Currently,                                                                    
     as  has   been  indicated   by  Mr.  Premo   and  other                                                                    
     testimony,   the   only  publicly   owned   water-sewer                                                                    
     utilities that are currently regulated  by the RCA with                                                                    
     respect to rates, services, and  practices are AWWU and                                                                    
     the City of  Pelican.  In the latter  case, Pelican has                                                                    
     asked to  be economically regulated by  the commission.                                                                    
     So this  policy call's  been made, and  this bill  is a                                                                    
     small adjustment to  that policy to make  it clear that                                                                    
     AWWU  can  qualify  for the  same  treatment  as  other                                                                    
     publicly owned water and sewer utilities have.                                                                             
                                                                                                                                
TAPE 04-27, SIDE B                                                                                                            
Number 2397                                                                                                                     
                                                                                                                                
MR. LOHR continued:                                                                                                             
                                                                                                                                
     I  worked   with  the  regulatory  commission   or  its                                                                    
     predecessor, the  APUC, for  nine or  ten years,  and I                                                                    
     was there  when the regulatory cost  charge was created                                                                    
     ...  in  1992.     So  I'm  very   familiar  with  that                                                                    
     mechanism.    But  with   respect  to  ratemaking,  the                                                                    
     process that will be followed  in the future by AWWU is                                                                    
     extremely  similar   to  that   that  is   followed  in                                                                    
     preparing a rate case for  the RCA; namely, the revenue                                                                    
     requirement  is established,  and that's  based on  the                                                                    
     cost of  operating the  utility.   It is  a rate-based,                                                                    
     rate-of-return model  that is  very familiar to  all of                                                                    
     those involved with public utilities.                                                                                      
                                                                                                                                
     That  process would  not change.   The  cost-of-service                                                                    
     study  to  allocate  those  costs  among  the  customer                                                                    
     classes  properly would  not change.   And,  third, nor                                                                    
     would  the rate  redesign  phase, where  the costs  are                                                                    
     adjusted  to match  those  costs  of providing  service                                                                    
     such  that  the cost  causer  becomes  the cost  payer.                                                                    
     Those  techniques are  well known.   They  are industry                                                                    
     standards, and they would be  followed under AWWU, as a                                                                    
     self-regulated utility.   I am  sure that the  board of                                                                    
     directors of AWWU will insist on it.                                                                                       
                                                                                                                                
Number 2329                                                                                                                     
                                                                                                                                
MR. LOHR continued:                                                                                                             
                                                                                                                                
     As   Mr.   Premo's    already   indicated,   there   is                                                                    
     accountability  in the  fact that  the  voters and  the                                                                    
     ratepayers are  one and  the same.   And the  mayor and                                                                    
     the assembly  would continue  to be  fully accountable.                                                                    
     I would make  just one note:  the assembly  has not, in                                                                    
     fact,  approved the  rates.   What  they  have done  is                                                                    
     approved  the filing  of the  rate case  with the  RCA.                                                                    
     The permanent rate decision would remain.                                                                                  
                                                                                                                                
     The  third comment  I'd  like to  make  is that  recent                                                                    
     legislative audits have asked  the commission, the RCA,                                                                    
     to  focus  on  small  ... water  and  sewer  utilities,                                                                    
     because there are  65 utilities out there  that are not                                                                    
     certified, which the  commission is aware of.   I would                                                                    
     respectfully suggest that this would  be a good area of                                                                    
     attention.    I  know  that   the  commission  has,  in                                                                    
     response  to   the  legislative  audit,   adopted  some                                                                    
     regulations  to  relax  the certification  process  for                                                                    
     those utilities.  But, to  date, I believe many of them                                                                    
     remain uncertified.                                                                                                        
                                                                                                                                
Number 2271                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked about  the  status  of the  small                                                               
water utilities.  He said in  his area of Anchorage, for example,                                                               
there are  a number of  class "a,"  "b," and "c"  designations by                                                               
the Department  of Environmental  Conservation (DEC).   He asked,                                                               
"Those small co-op or neighborhood-type  water utilities that are                                                               
privately owned in the main, are they regulated by the RCA now?"                                                                
                                                                                                                                
MR. JOHNSON  replied that, in  fairness, he  is still new  at his                                                               
job and  learning a lot.   He said in  general, as it  relates to                                                               
the small water  and sewage utilities, there are  a larger number                                                               
than  65,  and   the  RCA  has  made  efforts   to  provide  some                                                               
rudimentary  form of  regulation to  them.   He said  the primary                                                               
regulatory  framework at  this  time is  through  DEC, which  has                                                               
various classes, although he didn't  know how those classes would                                                               
relate  to  RCA's  proposed  limited   certification.    He  said                                                               
although RCA is  moving into that area of  regulation, it remains                                                               
to be seen how it intends to pay for those efforts.                                                                             
                                                                                                                                
Number 2206                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  said  in Anchorage  there  are  several                                                               
hundreds  of these  type  of  water systems.    He  asked if  the                                                               
municipal water  service competes with these  small private water                                                               
systems.                                                                                                                        
                                                                                                                                
MR. PREMO responded:                                                                                                            
                                                                                                                                
     We  need  to  kind  of  differentiate  the  classes  of                                                                    
     utilities.  ...   Regarding  how  the   RCA  classifies                                                                    
     utilities,  which is  on a  very  class description,  a                                                                    
     class "a"  would be one  like the  [AWWU].  We  have $1                                                                    
     million or greater [of] revenue,  all the way down to a                                                                    
     class  "d," which  is less  than  $250,000 of  revenue.                                                                    
     There are 11 of those  utilities within Anchorage.  All                                                                    
     but AWWU  are rated  as a class  "d" system,  less than                                                                    
     $250,000 in revenue annually.   Of those, all but three                                                                    
     are  economically  regulated,  and they  are  privately                                                                    
     owned.                                                                                                                     
                                                                                                                                
     There are  three that  are not  economically regulated,                                                                    
     but they are  run, in essence, as a  cooperative.  They                                                                    
     are  outside of  regulation.   The other  thing that  I                                                                    
     think you  are speaking  to is that  there are  also an                                                                    
     additional 90 water systems  within the Municipality of                                                                    
     Anchorage  that report  to  the DEC  as  a small  water                                                                    
     utility.   I think that's  what you were  referring to.                                                                    
     So, that might give you a basis for the number.                                                                            
                                                                                                                                
Number 2107                                                                                                                     
                                                                                                                                
REPRESENTATIVE DAHLSTROM noted that she  was from Eagle River and                                                               
that her  community had been  discussing secession from  the MOA.                                                               
She asked Mr. Johnson what the  changes being discussed in HB 515                                                               
would be if Eagle River did secede.                                                                                             
                                                                                                                                
MR. JOHNSON  replied that  he thought parts  of Eagle  River were                                                               
served  by AWWU.   He  noted  a broader  question:   What is  the                                                               
ownership interest  in the utility?   He said people who  live in                                                               
the  Chugiak area,  for  example,  live in  the  MOA, but  aren't                                                               
served  by AWWU;  they still  have an  ownership interest  in the                                                               
utility.   He  said it's  an extremely  complex question,  and it                                                               
would  depend on  the terms  of the  separation of  Chugiak/Eagle                                                               
River from the MOA.                                                                                                             
                                                                                                                                
Number 2011                                                                                                                     
                                                                                                                                
MR.  LOHR  added, "I  believe  that  the  RCA would  retain  full                                                               
authority over  certificates.  That  is, service  territories and                                                               
their boundaries would continue to  be regulated by the RCA, even                                                               
if this bill was adopted and enacted."                                                                                          
                                                                                                                                
REPRESENTATIVE GATTO asked  Mr. Johnson if the RCA  was likely to                                                               
approve the two increases requested by AWWU.                                                                                    
                                                                                                                                
MR. JOHNSON declined to comment.                                                                                                
                                                                                                                                
CHAIR ANDERSON  said he thought  this bill was for  the consumer;                                                               
that rates  would be  lowered or stabilized;  and that,  from the                                                               
perspective  of the  Anchorage legislators,  the consumers  would                                                               
save money and still get efficient service.                                                                                     
                                                                                                                                
Number 1930                                                                                                                     
                                                                                                                                
CHAIR  ANDERSON moved  to report  HB  515 out  of committee  with                                                               
individual  recommendations and  the  accompanying fiscal  notes.                                                               
There  being no  objection, HB  515 was  reported from  the House                                                               
Labor and Commerce Standing Committee.                                                                                          
                                                                                                                                

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