Legislature(2001 - 2002)
06/21/2002 10:14 AM Senate JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CHAIRMAN ROBIN TAYLOR called the Senate Judiciary Committee
meeting to order at 10:14 a.m.
[THE FOLLOWING IS A VERBATIM TRANSCRIPT]
CHAIRMAN TAYLOR: We have with us two members of the ACS that are
here. They gave their formal presentation yesterday, but returned
this morning primarily so the committee could ask questions. Let
me remind both of you, both Leonard and Ted, that you are still
under oath and ask that if you have anything further you wish to
add or supplement to your testimony before we begin questions.
MR. STEINBERG: Thank you Mr. Chairman and Senators. I have just
two very brief items that I wanted to mention to you and I
promise they won't take very long. Yesterday, at pretty much the
beginning of my comments I had presented to you the results of an
analysis that I had done relative to case aging and I mentioned
to you that I identified a specific category of cases, tariff
filings that have been suspended by the RCA for more than 180
days. I aged those cases and found that the average of those
cases was 504 days.
After yesterday's proceeding, a colleague asked me a question and
the question was, 'Did my list include rate cases?' And the
answer to that question is yes. As you have heard from ACS and as
you've heard from other witnesses, rate cases tend to be the most
complex and the most-lengthy proceedings that are processed by
the RCA. It occurred to me then - I asked myself a question - I
wonder what the impact of that is on the result that I had
produced. So, I went back to my list and I pulled out all of the
rate cases and reran the aging. As you might expect, as I
expected, the result was that the age of the case began to drop
because the rate cases were no longer reflected such that the
[indisc.] study, tariff filings suspended longer than 180 days
but not including rate cases, produced an average age of case of
423 days. So that's what the rate cases are. I just want to
clarify that because again I think we need to be focusing on the
right issues and to the extent that we're going to do some
collective problem solving, I thought it was important to go back
[indisc.].
CHAIRMAN TAYLOR: What is the average aging then of the ones that
you pulled out - the tariff rate cases?
MR. STEINBERG: I did not look. I found at least one that I know
exceeded 1,000 days, but I did not go back and run the aging of
the rate cases, themselves. I could certainly do that and offer
that to you.
CHAIRMAN TAYLOR: You might, if it's not too big a problem, and
give us both numbers so that we can see what is the aging of rate
cases and what is the aging of tariff cases and…
MR. STEINBERG: I think I can do that, yes. One other item that I
wanted to bring to your attention. It actually is a follow up on
a line of questions that Senator Cowdery had put to witnesses at
the beginning of the hearing having to do with staffing of the
RCA. I wanted to just present to you what I think is the most
recent active battle at the RCA and also is a supplement to the
promise that I made to you yesterday regarding the use of the
[indisc.] staff versus public advocacy section. Based on the
RCA's web page, which, I think, is fairly current, the Commission
has at this point in time 57 positions that are filled. I do not
know whether or not they have more positions than that that are
authorized. They have 57 positions that are filled; five of those
positions, of course, are commissioners and then the non-
commissioner positions. We have five positions that are allocated
to the public advocacy section and 47 positions that are
allocated to a category of commission's staff. [Indisc.] includes
support positions, clerical positions, and the various
professional positions that provide advisory input into the
Commission. In addition to that, the Commission also receives the
services of three assistant attorneys general and, at least my
experience has been, that's done on a contractual basis. The
Commission contracts with the Department of Law for those
services. That's in addition to the 57.
I bring that up because Senator Cowdery had asked some questions
that I think are important questions relative to the adding of
staff to the Commission and whether or not that's necessary to
get the job done and how that translates into the regulatory cost
charge, which is the charge that shows up on the bills of all
consumers who are served by regulated companies who ultimately
pay the bill. I don't think I know the answer to the question of
whether 57 employees is the right number. I just really don't
know that. I wonder whether or not the allocation of five
positions to the public advocacy section and 47 positions to
other activities creates the right balance and would offer that
into the record as something that as we go forward we can take a
look at as we look at whether or not staffing is [indisc.]. Those
are the two items I had and I would be happy to answer any
questions.
SENATOR COWDERY: You've worked with the APUC and the RCA?
MR. STEINBERG: I was employed by the APUC. I have never been
employed by the RCA.
SENATOR COWDERY: When the APUC got dissolved and the RCA was
created, how many employees were lost? Was it a majority or was
it a few or I know we had people who testified who had some
longevity and…?
MR. STEINBERG: Senator, I was employed by Alascom at the time
that that other sunset process was going forward. My recollection
of that following year was pretty much the same as the
recollection you've heard from every body else. It appeared to me
to be business as usual. I don't have a specific recollection of
how many employees if any were lost during that period. Of
course, you're going to have normal turn around and attrition at
every agency and even if [indisc.] lost, I don't know whether or
not it exceeded what you might normally expect. It would be a
question, I think, that somebody would have to go back and check.
SENATOR COWDERY: I wonder if we could ask that of the Commission
- to get that information.
MR. STEINBERG: Senator, first, if you don't mind, I would like to
supplement the response that was given to Senator Ellis yesterday
concerning the representations that have been made to the
[indisc.]. I have with me two press releases issued by ACS that I
would like to submit to the record, but I would just note the
first one was issued on October 25, 2001 and that contains a
quote from the company's chairman, Mr. Robinson, and says, 'While
we are pleased with our progress in many areas, we are mindful
that on a year-to-date basis total local telephone revenues have
decreased over the past year. This is a result of a combination
of unfair competitive arbitrage opportunity associated with a low
cost fee rate coupled with decade old retail rates, which do not
permit us to earn our regulated revenue requirement.'
That was from October 25 of last year in a press release to the
investment community. Also, on February 20 of this year in
another press release to the investment community, Mr. Robinson
was quoted as saying, 'We continue to face a market with unfair
competitive arbitrage opportunity associated with the low cost
[indisc.] rates.'
So, just to establish for the record that I believe that we have
notified the investment community that there are regulatory
issues here which may have an impact on earnings and the
company's future.
The other thing that I'll let you decide - there were some
comments made yesterday by a representative of GCI concerning the
law that was used in Fairbanks and the input. I think some of the
comments were made specifically about matters that we would take
issue with. It's frankly a little bit arcane and detailed and I
don't want to take the committee's time if it's not of interest
to the committee. So, I'll let you decide as to whether you want
to hear it.
CHAIRMAN TAYLOR: Thank you, I think Senator Donley's question is
still yet to be resolved, at least it certainly is in my mind and
I defer to him on follow up.
SENATOR DONLEY: I'd appreciate a follow up because I'm trying my
best to understand this model, because it seems to be the root of
the problem here.
CHAIRMAN TAYLOR: Not only is it the root of the problem, I think
it's the excuse for where we have got to in the problem. We
somehow up here in Alaska have created our own individualized
model and when they ran the model, you end up forcing one entity
to provide access to lines at a below cost ratio and I can't
understand how any governmental entity could force somebody in
the private sector. I think of Senator Therriault's welding shop.
Could the government come in and say you have to provide your
workmen and your shop at 25 percent below what your actual cost
is of employing them and somebody else gets to sit in an office
someplace, take orders for welding and have your people have to
go out and do it and have to maintain the building and everything
else and they can compete directly against? I can't imagine how
that happens, but that appears to be exactly what's happened in
this market. If you can explain how that model drives this, I
know it would certainly help me and Senator Donley's question is
unresolved in my mind.
SENATOR DONLEY: I'd just appreciate any information from anybody
out there that would help me better understand how this model
functions so I can reach my own conclusion whether it's an
appropriate model or not.
MR. STEINBERG: Let me begin by stating that first there is a
distinction to be made between the model and the inputs, the
costs, that are put in to run the model. We have issues with both
of those matters. We think that while a model was adopted, but by
far the biggest portion of the driver of the answer isn't the
model's structure, but it's the inputs that are used to calculate
the numbers. The inputs used here are crucial and if you go back
and look at what the FCC's rules were about that, it's clear that
the RCA's intent was to measure the costs of the particular
carrier at issue, the incumbent carrier costs and set rates based
on those costs. I'd like to read to you a couple of quotes from
some of the FCC orders. For example, in its first report and
order on these issues, the FCC said, 'As a result of the
availability to competitors of the incumbent [indisc.] unbundled
elements at their economic costs, consumers will be able to reap
the benefits of the incumbent [indisc.] economies of scale and
scope as well as the benefits of competition.' Now the phrase
there - at their economic costs - that the incumbent carriers'
cost - okay? Similarly the FCC wrote that the [indisc.]
methodology that we've talked about aims to 'establish prices for
interconnection and unbundled element based on costs similar to
those incurred by the incumbent.' So it's clear, I believe in the
FCC rule, that the objective was to base UNE rates on the
incumbent carrier's costs. That's not what was done in Alaska. In
fact, on calling, GCI proposed a different standard, a standard
that, in fact, was accepted by the arbitrator ruling on this
matter and then it was further endorsed by the RCA.
What was that standard? Well, that was the standard of an
efficient least cost company in a competitive market place. It
has nothing to do whatsoever with ACS, with ACS's costs, with the
costs in Alaska. This was a hypothetical standard. We were
supposed to be able to meet the standard of an efficient least
cost company in a competitive market place. Frankly, Senators, we
believe this is an illegal standard, a wrong standard that we've
attempted to pursue this matter in federal court where there is
jurisdiction, but we have been stymied so far by the RCA's
opposition to federal court jurisdiction.
But, nevertheless, this is the standard that the arbitrator
adopted, but the RCA endorsed the arbitrator's decision was that
of an efficient least cost company in a competitive market place.
What that means when you think about it is the costs they were
going to use were the least expensive costs that could ever
possibly exist. That means there's absolutely no incentive for
any competitor, be it GCI or anybody else, to ever go build
anything, because they could never get it as cheap as the most
efficient, least cost company could ever get it. That is an
extremely high standard.
Now, our colleague at GCI represented to you yesterday that the
inputs that were provided into the model were all adjusted for
Alaska conditions. I believe that was perhaps a little bit
misleading and I would like to refer you to and this is for the
record - exhibit 105 to the arbitration proceeding and it's
entitled GCI Input Picture for the FCC Model. In other words this
is the document GCI relied on to propose costs in the arbitration
we've been talking about.
Now, what were the standards that they provided in this document?
There were three ways that they talked about establishing costs
and I'll just read these to you off this document. This is page
one called GCI Input Pitches Support Documentation, June 12,
2000. Interestingly, June 12, 2000 is only about a month or so
before Commissioner Thompson went on a fishing trip.
The first item was to accept FCC default value. That was the
first alternative weighed that [was] going to have cost inputs.
Let me just mention to you in this context that the model that
was chosen if you step back one step, as I mentioned yesterday,
ACS developed its own cost based model, fully compliant with the
FCC rule for tele [indisc.] hypothetical network, etc. That was
rejected out of hand and what was put in place was the derivation
of the FCC universal service model, otherwise known as the
synthesis model. That model requires over 1,300 separate inputs
to run that model. Now, [indisc.], the parties were going to
obviously litigate those things that were most important so there
was a vast majority of input that were run in that model were, in
fact, the FCC's default input. I believe it was over 85 percent
of all of the input value that were run in by the Commission for
the Fairbanks and Juneau arbitration, 85 percent of all those
inputs were, in fact, just flat estimate default inputs.
The other two ways that GCI suggested was adjusting FCC defaults
for labor and material cost differences between Alaska and the
Lower 48 for setting the actual GCI costs. Well, in theory those
sound just fine, but I brought with me today a document that I am
going to introduce into evidence that shows a comparison of the
FCC default values and the GCI inputs and the ACS inputs for
these items that were in dispute. I can tell you of all the items
that are in the document, this exhibit, the GCI values were
accepted in all cases. And, in many cases, the GCI values were a
fraction of what ACS's calls for. So, for example, when it comes
to something that's called the digital loop carrier, and the
first item on there is something called fixed line fiber - and
these are very technical archaic terms, I realize, but I'm just
using them as examples, the FCC input value for this was
$152,000. GCI's value was $201,000. ACS's cost was $315,000. When
it came to running the model, they didn't use the ACS number of
$315,000; they used the GCI number of $201,000. Let me give you
another example...
CHAIRMAN TAYLOR: Let me interrupt - that GCI number - that was an
actual cost - that was based on an actual cost of either
installing or putting in that type of equipment or fiber?
MR. STEINBERG: It's a good question, Senator. In most cases, we
know where the ACS number comes from. In all cases I can tell
you, the ACS number is based on our most current costs to acquire
[indisc.] of equipment and materials and our most current labor
rates. Those are the two things that went into the ACS cost
input.
Now, we have heard the arguments from GCI, but these are all
supposed to be forward looking costs and you can't use those
because those are all historical costs.
CHAIRMAN TAYLOR: That would just be higher, because labor costs
are not going to go down.
MR. STEINBERG: Our position, Senator, the best evidence we have
of what our costs will be tomorrow is what it cost us today or
yesterday. We have no better evidence of what it will cost.
CHAIRMAN TAYLOR: And your numbers are subject to audit?
MR. STEINBERG: Yes, absolutely, we provide a detailed cost
support by each and every one of our numbers. Let me ask you a
question.
CHAIRMAN TAYLOR: Where did the number come from then, that GCI
proposed and was adopted?
MR. STEINBERG: Let me answer your question this way then,
Senator. The Commission, when it ordered arbitration, also
adopted what was called a baseball arbitration style. And what
baseball arbitration is, if you've had any experience with that,
two sides come in. They both put in their pitch and the
arbitrator simply takes one or the other. There's no, if you
will, compromise position. Furthermore...
SENATOR DONLEY: Wait a minute. I don't understand that. You mean
the arbitrator is either going to go with yours or theirs?
MR. STEINBERG: That is correct. And in most of these cases, I do
not believe that GCI submitted substantial cost evidence. In
other words, I believe that for many of these decisions,
certainly the FCC default that were used, there was no evidence
on the record to support any of these numbers. The only evidence,
particularly for the FCC's default numbers, was that it was the
FCC's default number.
CHAIRMAN TAYLOR: But an FCC default number is going to be based
on Lower 48. It's not going to have anything to do with Alaska.
MR. STEINBERG: Exactly, Senator, but even then, there was no real
evidence. There was no documentation of exactly where those
numbers came from. We can get into a dispute with our…
CHAIRMAN TAYLOR: ...large an FCC default number would be lower.
MR. STEINBERG: Yes.
CHAIRMAN TAYLOR: I'm sorry Senator Donley. You had a question.
SENATOR DONELY: Well, I understand that technique of arbitration
when you have a lot of diverse types of issues involved, but I
don't understand that technique of arbitration when it's just a
series of numbers.
MR. STEINBERG: We do not believe that it is appropriate, Senator,
if that answers your question. We believe it should be incumbent
on the Commission and its arbitrators to make findings of fact
based on the evidence and not just simply pick one or the other
depending on whichever one looks best. Let me remind you that the
standard that was adopted by the arbitrator based on GCI's
proposal was that of an efficient least cost company in a
[indisc.] marketplace. In other words, the burden was put on ACS
to show not that these were its costs and its forward looking
costs, but that these would be the costs of an efficient least
cost company in a competitive marketplace, an almost impossible
standard to meet. And under those circumstances in virtually
every case, the arbitrator elected to endorse the proposal put
forth by GCI. There's a lot of arcane detail in all this and I
don't want to bog you down, but I wanted to give you a flavor for
when GCI, standing before you, and said that the numbers were
adjusted for Alaskan costs. They were GCI's numbers, most of
which we don't really understand the basis of them. But,
whatever, they were clearly not ACS's costs and we believe that
was the standard that was set by the FCC.
SENATOR THERRIAULT: Who is the arbitrator in power this month?
MR. STEINBERG: The arbitrator was Mr. Paul Olson. He is a hearing
officer employed by the Commission.
CHAIRMAN TAYLOR: Let's repeat that. He was a hearing officer
already employed by the Commission that appoints him as their
arbitrator?
MR. STEINBERG: That is correct.
CHAIRMAN TAYLOR: Is he one of the staff people, then, that we
hear about chatting with the commissioners and working with the
commissioner? Maybe they are doing that on other matters, maybe
not on this one adjudication he wouldn't be, but on others?
MR. STEINBERG: Senator, all I can tell you is that we have
theories and we have suspicions about communications and that
they have occurred between the commissioners and the hearing
officer or an arbitrator in this case. We have no proof of that,
but it would be an interesting area of inquiry.
CHAIRMAN TAYLOR: At least he is an employee within the staff - he
is one of those staff people you were talking about?
MR. STEINBERG: Yes.
SENATOR DONLEY: Labor costs - I don't know.
CHAIRMAN TAYLOR: Let me follow up on that one, then, because I
also have labor down as an item that I wanted to talk about today
with you as far as these formulas, because it seems to me that if
you adopt, as the Commission has, this hypothetical model of the
most efficient that anybody could ever be, then you're also
establishing and adopting if you're most efficient, the most
efficient labor force and the least costly labor force.
SENATOR DONLEY: That's what I was getting concerned about.
CHAIRMAN TAYLOR: I think what that means is if you adopt that
model, basically you're going to break somebody out there and
maybe what you're breaking is a union.
MR. STEINBERG: That's exactly correct, Senator. I don't know if
you're aware that ACS is a union shop. GCI primarily is not. It
does not surprise us at all if they have lower labor costs, but
that doesn't mean that that's our labor costs and we believe it's
the intent of the federal law that these G and Es are supposed to
be based on our costs. In other words, whatever it costs ACS to
go out and [indisc.], that's what it ought to be charged the
competitor. If the competitor has lower labor costs, and he can
go out and build that line himself for less, there's nothing
under the law that prevents it from doing so. In fact, the law
encourages that type of activity and so, if GCI has lower labor
costs and wants to take advantage of them, we invite them to go
out and build their own local loops and we'd like to buy them
from them, based on their lower labor costs, but that's not the
way it works.
CHAIRMAN TAYLOR: In fact, there is one and they've refused to
allow you.
MR. STEINBERG: That is correct.
CHAIRMAN TAYLOR: They went out on the base and utilizing the
contractor on the base who never provided an opportunity for
anybody else to bid, he installed copper for GCI and that is, in
fact, the only telephone loops that these people own in the
entire state. So, when I asked if you own any copper yesterday,
it's, 'Oh yes, we put in this subdivision.' What they failed to
say was the second shoe which should have been dropped and that
is, 'And we are refusing to allow ACS to share in those lines and
compete with us for those customers out there, because we don't
want competition out there.' To me it's the most hypocritical
thing I've ever seen in this discussion. They're going to exclude
you guys from the only copper that they own, but they're going to
use this commission to mandate that they have access to every
inch of copper that you own at a price below your costs. Now is
what I'm saying to you a correct assumption and is that true that
they have worked with the Commission to exclude you from access
to those lines?
MR. STEINBERG: I cannot represent the extent with which they have
worked with the Commission, Senator Taylor, but I can represent
to you that the only lines in Anchorage, which are not available
to a competitor are the UNE bases or those lines that you refer
to as the Aurora Subdivision on the [indisc.].
CHAIRMAN TAYLOR: And why are they not available?
MR. STEINBERG: GCI is not making them available to us.
CHAIRMAN TAYLOR: I thought they wanted competition.
MR. STEINBERG: We'll let the committee come to its own
conclusions about that.
SENATOR THERRIAULT: We've got volumes of documentation [indisc.]
on that. There was no discussion about this yesterday. [indisc.]
I'd like some kind of backup on.
CHAIRMAN TAYLOR: I think we all need that, Senator Therriault,
because I was shocked when I was told that last night that this
was one - to me appeared to be one of the most hypocritical
things I had ever heard of - that we get access to your lines,
but you don't get access to any of ours and, literally, I think
the part that even frustrates me more, and I don't live in this
community, but I travel in and out of it, I've been watching ads
on the TV showing GCI pretending to be out installing copper. It
shows ads where they're digging and they're installing things and
doing things and they're telling the community that this is part
of competition and that they're going to go out and build these
systems. They're not, are they?
MR. STEINBERG: We believe that's correct. GCI will tell you that
they're installing a lot of coaxial cable. Of course, it's their
unregulated plan and it's interesting, Senator, they have
installed quite a bit of fiber optic cable around Anchorage, some
of which is to serve some of their business customers and to
provide transport to their own facility. I will note that we have
several times asked them for access to some of their fiber optics
facilities in the ground and they have refused to provide us
access to those facilities saying, 'Gee, they have no obligation
and they're not going to.' So it's very much a one-sided sharing
arrangement.
CHAIRMAN TAYLOR: Their fiber optic is their TV cable.
MR. STEINBERG: It's their basic backbone for - if you carry both
a TV signal and voice signals and transmission. They have to have
quite a bit of fiber installed around Anchorage and they refuse
to share access with us.
CHAIRMAN TAYLOR: But they're not allowed, because of federal law,
I guess, to use that for telephonic?
MR. STEINBERG: They are allowed to do that, but they don't have
to share it. Unfortunately, there is a glitch in the federal law,
I believe, which obligates incumbent carriers to share all of
their facility, but it does not impose a reciprocal obligation
on competitive carriers. Now, if the legislature so desires, they
can do the kind of thing that we believe could probably be fixed
with state law - something you might want to consider at some
point in the future.
CHAIRMAN TAYLOR: Would you draft an amendment or have your staff
do so to suggest to the committee how that might be fixed? I
think what many of us have assumed is that the RCA was going to
provide for at least a level playing field among competitors. I
think that's all we have a right to expect and the competitors -
that there be a level playing field. I don't see anything in this
situation that would involve a level playing field at this point.
So, if you have a suggestion for legislation that might amend or
change that to put in a fairer standard, I'm sure we'd be
interested in seeing it.
MR. STEINBERG: [Indisc.]
CHAIRMAN TAYLOR: Senator Ellis, you had question yesterday and...
SENATOR ELLIS: I had a question yesterday and I posed it to Mr.
Carson.
CHAIRMAN TAYLOR: And that was it? Okay. Senator Therriault, go
ahead.
SENATOR THERRIAULT: A question for Ted. Yesterday you talked
about the diversion process and the notes that I wrote down for
myself here is that you thought it was well intended by RCA to
deal with the backlog or deal with the number of cases coming in.
Looking back at some of the input from ARECA, they passed a
resolution, 02-19, saying that they wanted RCA extended for an
additional two years, but they do have some things that they
think should be worked on. And one of them is that number two
here - how the RCA can revise its processes to assure that fewer
issues are tried in a trial like proceeding. In addition, I've
heard from USA in Fairbanks, the water/sewer utility, expressing
a similar desire, that fewer things go to that elevated sort of
judicial proceeding where you have to have loads of attorneys and
it just drives the cost up. Isn't that in fact what the RCA was
trying to do with this diversion process is instead of having
things elevated right to this quasi-judicial process, instead
divert it. And that's one of the diversions. That is something -
and hopefully less expensive - where they could request
additional information and maybe reach a decision based on
information they just got from the companies without involving a
lot of the attorneys.
MR. TED MONINSKI, ACS Attorney: As I indicated yesterday, I think
that is what the RCA is doing. There is no way for me to know
that for sure. This procedure, and I call this diversion a
procedure, was introduced for the first time within the context
of this specific tariff. There was no prior notice to the
regulated industry that I'm aware of that the procedure was going
forward. Ultimately, what you might expect under these
circumstances is sort of a generic application that the
procedures have, that we might have had a ruling. The Commission
might have taken input from people, tried to identify the best
way to streamline the process on the basis of one of those who
came into the record. But, that didn't happen and I think that
was part of the flaw of this process was that this didn't happen.
I'm glad you asked the question, because I really want to clarify
for the committee and for anybody who is listening. ACS agrees
with the comments that you've heard earlier about some of the
very cumbersome procedures that are still part of the process;
it's extensive and costly discovery that goes on, especially in
rate cases.
What I would like to suggest to you, though, is that not all
cases fit that load and not all cases require some of the things
we no longer have access to. The Commission's caseload needs to
be looked at and analyzed and stratified so that we get the right
procedures and apply them to the right cases. There are cases
that I think can move very very quickly that will not require all
of the judicial proceedings that you might use in a rate case.
There's a body of cases in the middle of that mix that still
require some opportunity to put evidence into the record and to
the extent the advisory statutes will continue to provide
advocacy functions, some opportunity to test that the
propositions that are going to be put forward by the advisory
staff. And that is really what I was trying to get at by delaying
my comments was that sort of the notion that you have to strike
the right balance and must not throw the due process baby out
with the bath water as we try to streamline. Streamlining is
important. We endorse it and will continue to participate doing
that.
SENATOR THERRIAULT: I guess the ruling thing the RCA would have
to do. So, it seems like they're getting input. I know they've
heard from USA up in Fairbanks that why does everything have to
be this heightened hearing that drives up costs. So, it seems
like they're trying to be responsible in one aspect. You would
have liked to have seen them get to that process - this rule
making, which would have taken staff time and effort, too. So,
maybe they short-circuited or jumped to the new process without
going through a development phase, but they've got their backlog
to deal with, too. So, it seems like they're being pulled from
more of a competition direction. In that instance, they are
trying to do something that has been suggested [indisc.].
MR. MONINSKI: I appreciate that tension. [indisc.]. I think I
would characterize it this way that not knowing for sure what the
Commission's intentions were, but it looked like this was an
effort to streamline the process is a good thing. There were some
things that short-circuited the rule making. There were some
things that got stepped over. They were important things. They
were opportunities to be heard, opportunities to cross-examine
witnesses. In the appropriate cases, where real disputes, the
opportunity to create a factual entry record, those things got
missed or at least they appear to have been missed in this
process and they're really important things.
SENATOR THERRIUALT: When you made reference to the AECA case
yesterday and the fact that the courts threw it back to the RCA,
in fact, didn't the RCA make the ruling in a quasi judicial sort
of setting, like a judge would in a summary judgment, that there
was no issue of fact here and just ruled on the case based on the
information that had been presented and the courts decided that
no, in fact, there were some issues of fact, again, similar to a
judge being overturned and having something remanded back down to
them?
MR. MONINSKI: It certainly appears to be in the nature of a
summary judgment, but for those people who practice in front of
the Commission [indisc.], summary judgments typically are
prompted by a motion for summary judgment at which point in time
people can come in and put their positions forward as to what the
material issues of fact are seeming to exist. That motion part
that didn't exist in this case, in the AECA case, again when the
diversion process was introduced for the first time, an advisory
staff memorandum made the recommendation to the Commission. That
memorandum was released on the day of the tariff [indisc.]. The
filing party, AECA, did have the opportunity to comment on that
memorandum within 30 days. It made its comment within 30 days and
the Commission didn't reject the filing. There was no opportunity
to look at data from other parties who might be able to raise
other issues of material facts. That did not occur. That was the
case that was [indisc.].
CHAIRMAN TAYLOR: So, it gets appealed, gets sent back down and
now somebody has to actually got to sit down and listen to the
facts, huh?
MR. MONINSKI: We've been hearing the schedule is for early 2003.
CHAIRMAN TAYLOR: 2003?
MR. MONINSKI: Yes, sir.
CHAIRMAN TAYLOR: Then what's [indisc.] in here?
MR. MONINSKI: At this point there will be the more formalized
regular judicial process associated with this case.
CHAIRMAN TAYLOR: I understand that, but what's the issue? Isn't
it rates?
MR. MONINSKI: The AECA, through this process, made a tariff
filing and in that tariff filing they set out - I'm doing this
from memory - I believe they set out about 10 separate issues
they want to address in the [indisc.]. The court referred to
those [indisc.] that were out there as the 10 issues that needed
evidentiary support and that's basically what got sent back to
the Commission. So, it's not necessarily a rate case per se.
There are other mechanisms that are part of that tariff filing
that will be before the Commission.
CHAIRMAN TAYLOR: But, ultimately those 10 things will have some
impact upon a tariff or a rate whether or not that tariff can be
approved by the Commission. In other words, this filing that
initially was made, before it goes up to the court and comes back
down again, this filing was for an increase, wasn't it?
TED: Senator, no. The filing itself, was a filing that
established the procedure, the notice requirements, the dispute
resolution process associated with what happens when a local
exchange company changes what's called the first point of
switching and again we get into these types of issues on it. I
apologize [indisc.], but when the first point of switching
changes, it has an impact on or can have an impact on other
carriers that interconnect with that point of switching and this
tariff deals with how that process would work.
MR. STEINBERG: If I can address the question you've raised? That
tariff filing does, like most tariff filings, have a financial
impact on [indisc.]. ACS did have a strong interest in the tariff
that was filed, but this tariff filing affects ACS and other
incumbent carriers' ability to design and upgrade their network
to make it as efficient as possible to serve the future. And,
essentially what has occurred is the competing carriers have had
a very large voice in telling the incumbent carriers how they can
design their network and how they can upgrade their network and
how to make their network more efficient or not - or less
efficient. And so ACS certainly had financial concerns related to
this tariff because the outcome will affect our ability to either
make our network more efficient or not. So far, we've been stuck
in the not category, but it does have financial implications for
us.
CHAIRMAN TAYLOR: Senator Donley's question still echoes in my ear
and I have to hark back to that because it hasn't really been
resolved in my mind and that is if we continue with the process
that you and GCI are basically caught up in, where is the
incentive for anybody to go out and build new copper, to build
new lines in houses? It doesn't make sense to me that ACS would
want to do that when you're going to have to pay out of pocket
your actual costs, but under this formula you're only going to be
allowed to charge the competitor who wants to use the lines
you've now installed - you're only going to be able to charge
them a portion of your actual costs which means for every
customer that they pull off the system, that the loops you've
just developed, you're losing money. Why would you ever want to
build any lines? And if in fact GCI will eventually be required
to allow you as the competitor at that point to come in and
utilize their lines and basically if the same formula is applied,
you will get their lines for less than their cost of installation
and then you could go into that subdivision and offer those
people $10 less per month or whatever for their phone service,
just as GCI has done to you in the areas where they're competing.
So, why would either one of you have any incentive at all to ever
put in any additional copper?
MR. STEINBERG: Your analysis is on the mark, Senator, and, in
fact, that's why the FCC in its rules and its orders was very
careful to insure that the proper price signals were such that
this whole notion of competition only works if the proper price
signals are set out to the marketplace. And, if you discount the
cost of a line and you make it cheaper than it really is, it
completely distorts the marketplace in just the manner you're
referring to. I would like to add, however, that the consequences
are even greater than the direct issues that you've raised. Not
only do we have to provide our lines at some discount to whatever
it actually cost us to put it out there, but what happens is that
our competitor essentially has the same facility, they offer the
same services, but they have a lower cost if it sold than we
could ever have. What that does is drives down the market price
and, as we said, in the short term this may be good for
consumers, but in the long term, it means that not only do we not
recover from GCI on the lines that they have taken, but we really
can't recover on the line that goes to our customers either,
because the entire marketplace has been driven down by the party
that has the lowest cost of goods sold. And the point here is
that cost of goods sold should not be an artificial number. It
has to be a real number for the economic consequences to be
favorable long term.
CHAIRMAN TAYLOR: Well, what worries me is not just the new
investment of new lines going now, which isn't happening, by the
way. You're not putting much out. [END OF SIDE A]
TAPE 02-43, SIDE B
CHAIRMAN TAYLOR: ...phone company is to install a bunch of switch
gear and an office some place and then bootleg off of the
incumbent, but what really worries me is what happens - let me
give you an example. Some guy goes out here in a subdivision and
he's putting in a new water line and he takes his backhoe and he
cuts through your buried cable. You have to go out and fix your
cable, right? You're mandated to do that. You can't say no we're
not going to fix the cable. So, you go out and spend the money to
fix the cable, but you're not going to recover any of these
costs. You may be fixing the cable going into a system where you
haven't got a single customer left. GCI's got all of them and
you're losing money every month on that system, but you have to
maintain the system. So, what are you going to do? You're going
to do it at the least cost possible. You're going to band-aide
that system. And you're going to band-aide it again the next
time. And guess what happens two or three years from now when the
economics of this either drives you people out or into bankruptcy
or whatever and we end up with nobody doing any maintenance of
any significance on this infrastructure and nobody investing in
this infrastructure. That's what I'm fearful of - is that
possibility. And is that going on today?
MR. STEINBERG: Absolutely, Senator. Just to give you a real life
example, a few months ago there was a fire at a newly constructed
hotel downtown at the corner of 7th and A. It was a hotel that
was almost ready to open. A fire burned it down and in the course
of that fire, most of the telephone facilities for the
surrounding buildings were heavily damaged. It turned out that
almost all of those were GCI customers but, of course, they were
all riding on our lines. It was ACS that went out to make all
those repairs. To date we've done that, but as our financial
situation gets squeezed further and further, we are less able to
do that. I tell you, as we sit there in our management meeting
and we look at our expenses and our capital costs, we have tried
to squeeze every dime that we can out of that and our objective
is to do so without affecting service. But now, we've squeezed
everything out that doesn't affect service. The next thing we are
going to start squeezing will affect service and that's where
we're headed under the current scenario.
CHAIRMAN TAYLOR: How many layoffs have you had now in the last
two years?
MR. STEINBERG: I can't give you a number, Senator, but I can tell
you that there have been layoffs and people have been let go.
CHAIRMAN TAYLOR: Aren't you currently offering an incentive for
people to leave?
MR. STEINBERG: Yes we are; it's a voluntary incentive.
CHAIRMAN TAYLOR: When I hear that, with an expanding market here
- at least Anchorage, Wasilla, and so on and places like out in
the Valley, they're growing in population. I live in an area
where we're shrinking in population, but if you're growing in
population, somebody's got to be out there installing new lines.
MR. STEINBERG: Yes.
CHAIRMAN TAYLOR: If you're growing in population, somebody's got
to be maintaining the existing system and upgrading it. When
something breaks, you put in a better switch. There's not going
to be any incentive that I can see when the thing breaks for you
guys to put in anything other than the same kind of switch that
broke last time because you've got it in inventory and let's get
it slapped together as cheaply and as quickly as we can, because
the two good lineman that we used to have that did this work we
just gave them bonuses so they could leave because we cut down on
our costs. It's that maintenance of the system that I think
provides a significant threat to all of us who rely upon these
services. What you're telling me is that is going on and shortly
will be getting worse.
MR. STEINBERG: If I could just add to that, Senator. I can't
speak for GCI or what their motives or business plan is, but I
can imagine they might like very much having us just exactly
where we are. We know that in our recent rate change they were a
significant advocate of increasing our depreciation, our ability
to recover through rates for the cost of equipment. What this
does is it reduces our ability to go out and spend money on new
equipment and particularly to upgrade facilities. I think Mr.
Carson, when he was here yesterday, testified that in the
delivery of broad band today, at least at the end of 2001, GCI
had to pull in to about 27,000 cable modems in the state. These
are unregulated services for the delivery of broadband. ACS
deployed approximately 7,000 [indisc.] Bell modems. These
essentially deliver the same kind of services, but via a
regulated service. To be able to continue to deploy via Bell
modem, ACS has to upgrade its facility. That costs money to the
extent that we are squeezed on our capital costs and our expenses
and we cannot afford to upgrade. Then, guess what? That seems to
deliver more of the market to our competitor, the unregulated
cable provider. Now, I don't know if this is part of their
business plan or not. I can't speak for them, but I can imagine
it would be a desirable position for them to be in.
SENATOR THERRIAULT: With regards to the cost of [indisc.], all
the discussion seems to be put in if you go out and run a
[indisc.] and you're exempt [indisc.] hotel fire with damage to
the infrastructure. That wasn't infrastructure that you put in,
though. It was infrastructure that you purchased. Correct?
MR. STEINBERG: If I understand, you're drawing a distinction
between ATF and ATU?
SENATOR THERRIAULT: What I'm trying to get to is a difference
between putting in a new line tomorrow versus the infrastructure
that you purchased, because ACS is the conglomeration that has
been put together by purchases over a number of years of
different systems. I don't quite understand exactly how the rates
are set, what information RCA takes in with regards to the
purchase price and your debt, because a lot of this cost is the
debt that you're paying on purchases that you made. Now, looking
back, did you pay too much for the facility?
MR. STEINBERG: To answer your question if I might, Senator. There
were several issues in the beginning of our rate case that needed
to be resolved between ACS and the Commission's staff [indisc.]
and between ACS and GCI. The issue of cost of capital was an
issue that when there were some differences between ACS and the
public advocacy section, as the case began, those issues got
resolved. So, those are not significant issues. They did not
require hearings to get resolved. The parties were able to find a
compromise [indisc.]. What went to hearing was strictly the
dispute between ACS and GCI over what the depreciation rates
ought to be. What I can tell is the Commission ended up resolving
that largely in GCI's favor with rates that are much closer to
the rates proposed by GCI for depreciation than the rates that
ACS has proposed. I don't know if that answers your question.
SENATOR THERRIAULT: I'm not sure I phrased my question correctly.
During this last session there was another bill dealing with
water and sewer and whether a state grant that had been given to
a utility that was privatized could eventually end up in the
pockets of the private owners and the discussion that took place
in the legislature was that no, the RCA would not allow rates to
be charged that took into account grants that had been used for
infrastructure, and that if somebody overpaid and when the
infrastructure sold again to another private holder, if that new
purchaser paid more for the infrastructure than the rates could
justify, then RCA might enter the picture and not approve the
sale, because it's not going to be an economic business - that
you paid too much for the infrastructure. The rates you're going
to be able to charge are not going to be on a volume to service
your debt. And I'm wondering when we're talking about the
infrastructure here, rates you're able to get for use of the
infrastructure, if part of it is perhaps that as a business that
ACS has put together from the assets you pay a premium.
MR. STEINBERG: I believe I understand your question, Senator, and
let me answer it this way. In short, I do not believe that the
price that was paid for the ACS [indisc.] influence on the
outcome of [indisc.]. In fact, the rate cases are based on what's
called the rate base. And it is the amount of [indisc.] that's
reflected in the plant and equipment, the specific ground, the
facility and the central offices. Those are hard numbers of what
the equipment is worth and what was spent for it, how much it has
been depreciated, what's left. That is different than what is
paid for. That's the basis for setting the rate.
SENATOR THERRIAULT: The other thing I just wanted to touch on was
you heard about this Department of Justice investigation and the
testimony that we've had back and forth. My own staff calls to
the department indicate that it was initiated when GCI was
thinking about or initially had proposed purchase of this other
fiber optic cable and I'm just wondering what your level of
understanding on that is. Are you aware of any Department of
Justice investigation of GCI or is it just this? If GCI is to be
a potential buyer or part of a group of buyers, a decision would
have to be made and, therefore, they've kept that open until
assets are actually sold to somebody other than GCI?
MR. STEINBERG: Let me begin by saying it's my understanding that
the Justice investigation is a substantial investigation to some
extent. I do not know exactly what the boundaries are on that.
So, I'm concerned about saying too much that divulges any kind of
confidential information. I will say that ACS was contacted by
the Department of Justice and asked for information in the course
[indisc.] more comfortable not offering any details that would be
in violation of [indisc.] confidentiality.
SENATOR THERRIAULT: Is it your understanding that the Department
of Justice would look at a potential anti-trust issue if GCI were
[indisc.] that other fiber optic cable and even though GCI is no
longer attempting to make that purchase, the Department of
Justice would keep a docket or case open until the sale to
somebody else was finalized?
MR. STEINBERG: [indisc.] unable to answer your question, Senator,
because I do not know the scope of the Department of Justice's
investigation. We were contacted and asked to provide
information, but beyond that I do not know the details, frankly,
of the justices in implication or scope or its plan [indisc.] of
those matters.
SENATOR COWDERY: I'm getting back to what Senator Therriault said
about the original cost to ACS of their purchase. Am I right in
thinking that the upgrade cost that you had to endure are the
greatest influence to your rates or to your situation where
you're at now - financial situation?
MR. STEINBERG: It's difficult to answer your question, Senator,
and I'm not the most knowledgeable person to comment on this
entity. I can get back to you on it. I can tell you this much
that during the period when the municipality owned the utility
and when the utility was up for sale, the municipality really
squeezed its costs down to nothing. So that when ACS acquired
this property, we found it was - essentially there was a
significant amount of what we might refer to as deferred
maintenance and the capital costs in the first few years were
quite significant because there was so much that had not been
done that had to be done, it was in conflict. I don't know if
that answers your question.
SENATOR COWDERY: Well, you're having ongoing besides [indisc.], I
assume. Purchase - you're having ongoing upgrades in costs that
are extensive.
MR. STEINBERG: Absolutely. Yes, in other words, in order to
provide modern facilities and modern services, such as broadband
over telephone, a DSL line, requires significant upgrades to the
base that, in fact, can be very expensive and obviously, it's not
an investment that's prudent if we can't recover our costs.
SENATOR COWDERY: These upgrade costs are primarily ACS's costs,
not GCI's costs. Would that be a fair statement?
MR. STEINBERG: That is correct.
SENATOR COWDERY: Thank you.
CHAIRMAN TAYLOR: Anything further? Gentlemen, I want to thank you
very much for the information you have provided us and to the
extent that you have recommendations for how this committee might
structure legislation that will probably be pending before us
within another three or four days here, we would appreciate
having your advice and recommendations just as we would from GCI
and from every other witness for that matter that has testified.
You people have, especially those within the audience, you know
what this system and this business is all about. You know it from
the unique aspects of your own businesses. We don't know that and
for us to create solutions to your problems, I think is very
dangerous business and dangerous ground for us to be on. But, we
don't seem to have a choice in this matter and to the extent that
we are going to be required to come up with something, I would
certainly hope it would be something we could all take some pride
in and hope for the future that it will be a better system than
we have today. Thank you again for your testimony. I appreciate
your patience in standing by.
I'm going to start off with yesterday's sign up sheet, because I
think it probably reflects better the current status of people's
travels and vacations and other things that we have totally
interfered with through calling these hearings. Let me start off
with Jim Rowe from ATA. Jim, again, thank you for standing by all
this time and we appreciate your patience very much. If you'll
raise your right hand, please? Do you solemnly swear to tell the
truth, the whole truth and nothing but the truth to this
committee on these matters? Do you so swear?
MR. JIM LOWE: [Indicates yes]. I'm Jim Rowe, Executive Director
of the Alaska Telephone Association. I would like to say to the
committee that I'm both honored and appreciative of this
opportunity to address this committee on these issues that are
very important to us.
Let me tell you a little bit about ATA. I know you've been around
longer than I have here. You know plenty about it. Most of you
weren't here at least for the beginning of it in 1949. We're a
volunteer association, essentially. We have two staff members -
myself and Joyce Slosnikov. You probably all know Joyce from
either having attended our receptions [indisc.]. Senator Taylor
and his wife graciously attended one of our meetings. You know it
doesn't work without Joyce and it stumbles along in spite of me,
but basically the decisions are made by volunteer committees. We
have 14 [indisc.] members. That's incumbent, local exchange
carriers. All of the incumbent level exchange carriers in the
state with the exception of the smallest and the largest are
members. They vary in size considerably and in the service areas.
We have a small [indisc.]. We have one that's modestly large, MTA
and that's 50 - 60,000 lines. We have a lot of little [indisc.]
companies in the [indisc.], about half of them coops. [indisc.]
That year, at the time, it was a simple bill going forward
[indisc.]. We wanted to look at it and see what our feeling was,
if we wanted to support this or not. We haven't liked every
decision that's come out of this commission by any means.
[Indisc.].
11:15 a.m.
SENATOR WILKEN: Senator Taylor, pardon me for interrupting. This
is Gary Wilken. Could you ask the witness to please get closer to
the microphone? We can just barely pick him up.
CHAIRMAN TAYLOR: Sure thing. He's very soft-voiced, Gary. It's
nice to hear you're there.
MR. ROWE: Take down the costs, but [indisc.] not doing any
better.
As this committee already knows from my letters of May 1 and June
6, the ATA supports the reauthorization of the RCA and we will
support it in special session. This is in spite of the fact that
we don't agree with all the decisions they've made. I think the
testimony by Mr. Moninski, Mr. Carson and Mr. Steinberg has been
excellent. Many of the concerns, particularly in the rural
nature, particularly since different rural exemption concerns
that my members appear at the top of their list of priorities -
very much.
We have for years before even the last commission went away
talked about the separation of staff - advisory and public
advocacy staff. We're not satisfied with the separation that was
made when we last [indisc.]. However, we appreciated the effort
that was made. [Indisc.] We considered these things when we had
our government affairs committee meeting earlier this year. We
have spoken with the Commission and realize they are putting out
regulations, putting out proposed regulations and asked for
comments from us on what we would like or changes we would like
and we agreed we would participate. When I say we, I am speaking
on behalf of my members. I don't vote when making these policy
decisions.
We have participated in the process of proposed regulations that
were put out in April. I'd have to go back and look at that date
for sure. And there have been reply comments put out just a
couple of days ago on the RCA's web. We think we can correct some
of the concerns we have through working through this regulatory
process. We have utter faith that if we're not satisfied, then we
can come to the legislature any time and tell of our problems and
that you will address those and we think it's important enough
that it is not a sunset year and we have a concern that needs to
be changed in statute and we come to you [indisc.]. I think we
pretty well have to have that faith in our legislators. We elect
them; we elect them for a purpose [indisc.].
The five sitting commissioners we have were appointed in 1999.
With the exception of one prior year of experience by Nan
Thompson, there is no historical knowledge. The learning curve is
steep, I feel and members feel, 18 - 24 months. We've got people
who are in very complex jobs regulating a number of different
utilities - telephone, electric, water, sewer, refuse. [indisc.].
I deal with telecom issues. [indisc.]. This makes that learning
curve very steep. You've had the privilege of hearing some
wonderful acronyms and terms. Some we make up ourselves and
you've got more of a dose of this than perhaps you would have
liked, but not enough to be able, say, probably make all the
decisions that are necessary and my personal feeling [indisc.],
you know what? You have to be born in this trade to have any idea
where they are going. And they change it so often whether you
were born there or not, but they stay pretty current on it. Ms.
McPherren commented that knowing the importance of long tenure of
commissions - and she was complimenting some years ago [indisc.],
I think she said 12 - 14 years by some of them and how that
knowledge was valuable. I'm sure at the time issues were still
changing and people's experience and education typically helps.
These new folks have welcomed, I say new folks, [indisc.] new
commissioners, that welcomed workshops with the industry and we
think that's very important. We've encouraged that. We appreciate
that they made the effort and it's taken time away from other
things. However, we feel like educated people, they make
necessary decisions, it's better for the public interest to have
these workshops. They have made significant progress toward
understanding telecom issues.
I can hardly address electric issues, but let me say the first
day of hearings we heard from three people from Chugach.
Following them there were people from ARECA. It's no surprise to
me that these people were pretty united in their views, Chugach
being the largest member in ARECA. Chugach indicates significant
frustration in the six-year rates, failing to note I think that
when half that time was [indisc.] on to the old APUC, and in the
time since that - three years, they have a unified commission.
And my feeling is that a half to two-thirds of that time these
folks were learning, plus they had to pull out files from the old
drawers and read them, which at my speed of reading is much
slower than the first time. So, I think what we've got is a
learning process and when we try to correct some problems and
bring in a new commission, some of that also goes to problems
slowing down some of the dockets. [Indisc.]
The definitive timelines in the final version of HB 333 were
added, I understood, working with [indisc.] to address some of
the concerns of the electric [indisc.], Chugach in particular,
but the also address some concerns that my members have and we've
worked to modify them and [indisc.].
We're on the record in the House saying yes, we're satisfied with
these timelines; this makes things good. There's nothing here we
can't live with. It didn't mean the world was perfect, but we're
in support of getting this commission reauthorized. Part of that
is what we've gotten here today.
[Indisc.]
The concerns of telephony are far different than electric -
[indisc.] extremely precarious, changing. Quite honestly, in
their wisdom, we really wish maybe not as an individual,
[indisc.] but that Congress in its wisdom can allow the electric
utilities to go into a competitive environment in 1996 and we
[indisc.]. We worked very diligently with [indisc.] with Senator
Stevens' staff. Nevertheless, we got a piece of legislation that
was a fascinating exercise [indisc.]…. very much a compromise for
the multitude of stage that probably can't be administered, can't
be worked, might be in the public interest. God help us all.
CHAIRMAN TAYLOR: Jim, let me ask you, are all of your members
classified as rural?
MR. ROWE: Yes.
CHAIRMAN TAYLOR: What would happen to your membership if that
classification were to be dropped by the legislature, if we just
set it as a policy, that there are no rural… I mean RCA is
piecemeal doing that right now, depending on how big the outfit
is. If somebody wants to cherry pick them, they're pulling them
off right now. They pulled off Juneau; they pulled off Fairbanks;
they've even pulled off North Pole. They took away the rural
exemption. So, why shouldn't we as a legislature to encourage
competition, wipe out the rural designation all together and let
them start cherry picking all over the state? Would your
membership like that?
MR. ROWE: I expect you'd hear from us very quickly.
CHAIRMAN TAYLOR: Might we hear some of the same complaints that
we're hearing from ACS today? That you've paid for an
infrastructure that you're now being ordered by a commission or
ordered by the state to provide that infrastructure at below your
maintenance cost?
MR. ROWE: Probably far more vocal than you've heard from ACS and
certainly at the federal level. I may just give my opinion and
certainly that of my members. We'd fall off our chairs thanking
you. It's absolutely absurd. I realize rural is a term in the
English language, but you know what? I tell you I have something
big at home. Do you know how big it is? Would it help you a
little if I told you how big it was? Is it the size of the
breadbox? Is it the size of a Volkswagen? It's big, isn't it? If
it's a pine tree, maybe the size of a Volkswagen isn't too big.
And I say this because within the Beltway when they created this
act, the multitude of the [indisc.] that passed the
Telecommunications Act said in rural areas, we need to do a
little something, we need to be a little bit careful. You know
what? Maybe competition won't work there and Ms. Tindall, when
she was up here, in her statement said, the law of the land is
competition. Let me say until the '96 Act, the law of the land
did not codify universal service. That's in there. I assure you
the print is equally bold that universal service isn't
competition. Well, we better hang our hats on that because we
desperately need it in the state of Alaska. Up here the folks and
it's interesting when I talk to them - we had a former
commissioner told us one time at the Anchorage office of ATA, you
know people that live way out there, I don't know why they even
should have telephones. They want to live out there. I was rather
new to it. I was a bit chagrinned. Let's think again rural. Folks
within the Beltway pay for this now. Most of them, quite
honestly, we strive to get FCC commissioners up here in Alaska.
We want them to sit in the middle seat near a [indisc.] coat
section when they come up and then we want to take them down to a
place that we can't get to with commercial transport in the
morning and get out of at night, because you know that is rural.
Their idea of rural when they wrote this act is places where we'd
never be careful because competition might not work [indisc.].
I asked my assistants to look up something [indisc.] yesterday
[indisc.]. There are 32 flights in from major carriers on a daily
basis from Washington, D.C. and that's if they don't want to
drive the 240.4 road miles from Washington D.C. [indisc.] Now if
our congressional legislators in their wisdom thought we'd better
be careful in Roanoke, Virginia, because it's rural and
telecommunications might not be able to sustain competition in
this area, let me suggest that even [indisc.] in Juneau and the
North Pole. I think we should be very careful.
CHAIRMAN TAYLOR: That isn't what happened, though. We now have a
commission that has removed the rural exemption from those
people. GCI as I speak is building internally about a 20 x 30
switch gear office inside of ACS's building and in fact ACS has
to provide it for them and build it for them so they can move in
there. That's in Juneau right now.
MR. ROWE: Then they're wrong.
CHAIRMAN TAYLOR: That's what's happening. This is not something
that we can sit around and speculate about. These people are
being required to provide this service in Juneau to their
competition at below their rate of cost so the competitor can
move into Juneau and start underselling them. And this is all
being done by the Commission that you're telling me, your
organization said was fine to let go for another four years, was
fine to let go with just the restrictions placed on it by the
House. If that's fine, if that's hunky dory, what we should be
doing according to your membership, then maybe we ought to remove
rural and let your membership enjoy the same level of competition
that apparently the RCA wants to encourage in four of our cities,
three of whom used to be rural.
MR. ROWE: In my estimation, those communities still are rural.
The federal courts ought to do something about this and the FCC
ought to have it turned around. We, as a membership, disagree
with these decisions.
CHAIRMAN TAYLOR: Yeah, Jim, but isn't that a decision that is
left up to the discretion of the states under federal law - who
will be rural and who will not?
MR. ROWE: Whether the rural exemption may be lifted is left up
to the state commission. After a public interest determination,
in my estimation it was not made.
CHAIRMAN TAYLOR: Well, let's assume they do go through the proper
hoops and jangles the next time around and then we end up in
higher court, which provides significant deference to a state
agency that has expertise in an area and we reviewed yesterday
the standards of which that would be upheld or overturned. And
it's a very high standard; it's almost abuse of discretion. You
almost have to get that high. I guess my concern is that I don't
know which one of your members is going to be next on the hit
list to have the word 'rural' removed and find themselves
building quarters for someone to come in and compete against them
at below their cost. I don't know which one of you guys is next
on the list, but if North Pole is big enough that it doesn't
qualify as rural anymore, I would think that there are several
members of your association that ought to be concerned today
about what this commission is doing and where it's headed.
MR. ROWE: I think we're absolutely concerned with that.
CHAIRMAN TAYLOR: Do you have recommendations that you would like
to make as far as legislative changes, in policy for this
commission which we might contemplate during this special session
that might improve that security that some of your members feel
is jeopardized right now?
MR. ROWE: I don't feel we get absolute security through
regulatory commission oversight and not necessarily [indisc.].
The system of government is certainly less than perfect. Of
course, it is elected, appointed, confirmed by people and we all
have our frailties and foibles. We have some of those in the room
with us today.
SENATOR COWDERY: Are you saying that the legislature should not
work towards changes to improve RCA's guidelines, timelines or
things of that nature? You said there were problems with the APUC
and then you also said about new commissioners. I don't think
this hearing or this Senate Judiciary has ever suggested that we
need to change the - that's really up to the administration if
they want to change commissioners. I don't think it's a desire of
us to do it, but I think it should definitely be improved and
there is incentive for improvement in the wind-down period. So, I
guess that's more of a comment and you can answer that, but I was
just wondering, do you think we should leave it the way it is for
four years - one year extension, two years or no extension. For
the incentive that was talked about yesterday, the wind down year
seems to have quite a bit of incentive impact on improvement.
MR. ROWE: Through the chair, I am concerned that we get to this
razor's edge or is it going to fall off the plate and be gone and
that the best decisions will be made on improvement if the
deadline is right in front of us? I often, probably not as much
as you folks, but as we get to the middle of May I think these
folks who are being pushed to work 'til midnight every day are
going to make the decisions that are really in the public
interest because they're tired now and pressured to get to leave
in another 36 hours. I think that's a tough time and I don't envy
any of you that opportunity. I have asked, certainly after
legislative session, why do you really do that? How can you do
it? I don't think there's enough thanks for what you put in on
those days.
However, an answer, I would really like to see, first of all, the
pressure that they aren't going to fall off the cliff here any
minute gone. I absolutely think we should be looking at
improvement. I welcome any improvement whether it's in this
Regulatory Commission or any other state agency we have made that
need to be looked at. That's why we sent you people to Juneau. We
need improvement in our government. We need continual improvement
in all our government. We absolutely like to live with timelines
and any ideas I think many ideas and people in industry, many
entities in industry can bring ideas that are valuable to this.
But as we had so much time dedicated even to these hearings, I
think it's important that we should be working carefully on this
and not making things in haste as we've had the chair mention a
number of times, making this special session. Making decisions in
special session is very short and making it when we're about to
fall off the cliff is very short, also. I would like to whether
it's the timelines get something through there; I would like to
get reauthorization of the Commission.
I know one senator asked one of my members if we really need a
regulatory commission. Are there other states that don't have
one? Well, no. There aren't any states that don't have one. Yes,
we really need one. Do we need it to be different? Do we need it
to do something else? Every state doesn't have the same
regulations. They're not all appointed, some are elected. There
are different ideas working in democracy. Let's have a regulatory
commission. Let's look at all the improvements we can make and
change and after we write that, as we did three years ago and
make all the improvements we can think of that day, let's
continue to look at it and I hope your door will be open,
Senator, when we come next time and say, 'Look, there's some
other tweak that we didn't get quite right last time and can we
work on that? Will you entertain it?'
I would feel comfortable that your door will be open. You were on
the telecom committee. You were very involved and listened to our
complaints then.
SENATOR COWDERY: A good friend of mine that I have lunch with
every Saturday that comes to town is a former commissioner, Don
Shraer. I got a letter from him. He phoned me personally on this
and I questioned him a lot. He was a commissioner; that was with
APUC. He told me and I am convinced it's a tough job, but he
certainly thought that on the wind-down thing it seems to get
more action. And if it winds down, you're in a wind-down mood,
you can always extend it. You can always extend it for another
four years, if you get [indisc.]. But with what you've just said,
I don't think we can do these necessary changes in a special
session. In fact, I am excused for the special session. I got
excused before I left, because the 24th, next Monday, is my 51st
anniversary and I was planning a trip. I am going to the special
session and I am going to do in my mind what I think is in the
best interest. But, I'm not going to stay past the 3rd of July. I
guarantee you that, but I'm going to be there. So, we sat here
and listened to ideas and I listened to my good friend, Don
Shraer. I've had lunch with him on Saturdays for 20 years. So,
anyway, you've been to my office, I believe. We've talked many
times in Juneau and I think we're all here trying to do the right
thing. That's why I ask you, should it be a four-year extension
or shorter? Just your thoughts.
MR. ROWE: Congratulations, may I offer that, sir. Four years, two
years. I think bringing it up in too short a time period is
dysfunctional. I really think it makes us all worry about that
and not on the rate cases, not on the tariff issues and not on
the things that need changing. I also feel like when we get as I
think we should, timelines, a piece of legislation passed, I
think within a year after that we'll have some other ideas we
would like to bring to you. It doesn't mean they did something
wrong. Language isn't perfect.
I have a whole other issue I'd like to go on to, if I may. I have
rambled quite a bit and for that I do apologize. Your patience in
the fourth day of this testimony is amazing. I do thank you and
appreciate all the members sitting here for that. But, our Chair,
Nan Thompson, is the State Chair of Federal State Joint Board on
Universal Service. And the federal system the telecommunications
for a rural state like Alaska with millions of dollars flowing
through the state, almost $75 million in universal service
support, as you've heard. This is probably the sixth most
important decision in telecommunications. We have five FCC
commissioners. They do the general council [indisc.]. And for
this person to be able to have such influence in this position,
it's very important to the state. She gave a speech two days ago
before the Senate subcommittee on communications and I have a
copy of that speech here. She spoke about the necessary
dependence of high cost of [indisc.] in the state [indisc.] that
telephone rates in rural areas with the failure of universal
support system could go up from $25 to $97 per month per
customer. This is rural customers - not in Anchorage. I think
it's critical and wonderful that there will be a person in that
position. The next state chair of the Federal State Universal
Services Joint Board will not be from the state of Alaska. That
person is now sitting on a commission in Maine or in Florida or
in Pennsylvania. We will not have access to that person, nor will
that person appreciate the rural nature of our communities and I
think it's very important to keep that person there and have
access to that person particularly that we have the opportunity
to educate that person.
CHAIRMAN TAYLOR: I think it's fascinating that she gives a speech
back there two days ago on how critical rural is to Alaska and
yet sits as the commissioner who selects the panels that will
make the decision and has personally insisted on setting on every
GCI case and then ruled that North Pole is no longer rural - a
decision that both you and I disagree with... [END OF TAPE]
TAPE 02-44, SIDE A
CHAIRMAN TAYLOR: ...and make these grand statements about how
you've got to save rural in Alaska. But when it comes back home
to making decisions, she makes certain that rural no longer
applies to Juneau, Fairbanks or North Pole. Maybe you can
explain that distinction. I have a hard time understanding that,
how she testifies one way here and gives a speech that I think is
quite different back there from what the facts are of what the
board has decided to do. How do you explain that distinction?
MR. ROWE: I appreciate [indisc.] absolutely frustrated. That
question you asked there, I can't explain it, I wish I could, I
wish, you know, I have my personal bias, I certainly wish
everybody saw the world through my eyes…
CHAIRMAN TAYLOR: Let me ask you a couple of other things, Jim.
You've had a, you've had apparently a lengthy correspondence
going on with Nan via e-mail.
MR. ROWE: That's correct, sir.
CHAIRMAN TAYLOR: And some of this stuff is kind of curious to me
rd
in that back on the 23 of March, you're talking about a meeting
in Kotzebue, 'I can't be out of the office.' This is from Nan
back to you. Let me get to your part. You were encouraging her
to stop off in Sitka. Were you having kind of an annual meeting
or something?
MR. ROWE: Yes.
CHAIRMAN TAYLOR: Okay, and you said, 'permit ATA to provide your
accommodations for Tuesday and Wednesday nights and cover
additional travel costs. And suggest that you stay around for
the business lunch, board meeting and evening banquet' and so on.
And her response I thought was kind of fascinating. She said no,
she probably wouldn't be able to do that but she would try to
make your dinner and stuff. And then she says, 'You were very
discrete and did not say anything about the substance of the
discussion about the PAS,' P-A-S in caps, 'regs. But your face
during the discussion suggested unease. Perhaps your shoes were
tight. It's okay to tell me what you think about an R docket.
The due process concerns that exist in U dockets do not apply.'
Can you tell us what in the world the PAS, P-A-S, regs are about?
MR. ROWE: Yes. That's what I mentioned a little bit earlier.
We're looking, we're hoping for better separation of staff,
between the advisory staff and the public advocacy section.
CHAIRMAN TAYLOR: PAS is the Public Advocacy Section?
MR. ROWE: PAS is the Public Advocacy Section. Mr. Moninski
mentioned this quite a bit in his testimony and we certainly
agree. I think he mentioned that there were only five people
under PAS right now. Now these are the regs that were being put
out. This letter, not that I remember the dates exactly, but by
the quote you just gave me, it is indicative that there was a
public meeting where the PAS, Public Advocacy Section, proposed
regulations had just been put out and distributed for public
comment. When I say for public comment, let's put it this way,
it was the first time I'd gotten to look at them, it was a public
meeting. And they were there. And I obviously looked at them
and saw things I didn't like [indisc.], which I didn't. That's
one reason we, as ATA, had issued comments in response to what we
had seen on these PAS. But I also [indisc.], this is a draft,
this is put out to industry for comment and this is why it's put
out there. We get to give our opinion and the reply comments
that I mentioned…
CHAIRMAN TAYLOR: She was encouraging you to participate in that
process?
MR. ROWE: And let me go into a little bit more. You asked the
difference between the R docket and the U docket. The R dockets,
there's no ex parte prohibition. We're talking about policy
things here. U dockets are adjudicatory dockets where you can't
have ex parte communications. I want to [indisc.] from my company
to your company.
CHAIRMAN TAYLOR: We've had a hard time finding out where that
line is.
MR. ROWE: Right.
CHAIRMAN TAYLOR: I noted on another one of your emails here, it
says, you were emailing to Nan, that says, 'I just got a call.
At the Neptune bankruptcy hearings last week, it was publicly
disclosed during cross-examination that ACS has an agreement
signed last December to loan Neptune $15 million for a three-year
right to purchase the terrestrial infrastructure in Alaska and
pricing control during that time.' And the commissioner's
response back to you was, 'I saw that on ACS's 10K.' What's a
10K?
MR. ROWE: Financial report. I hadn't seen it there.
CHAIRMAN TAYLOR: Is a 10K a public document?
MR. ROWE: Yes. They're on the web. I think they put it on their
own website.
CHAIRMAN TAYLOR: Okay. 'I saw that on ACS's 10K and wondered who
they were loaning to. I noticed because I thought it odd that a
company in such allegedly dire financial straits could loan $15
million in cash to a third party.' Is ATA somehow involved in
that discussion? Is ACS one of your members?
MR. ROWE: They are not one of our members now, Mr. Chairman, no.
It is an important issue to the companies in ATA, or at least to
some of the companies in ATA. The Neptune acquisition, or at
least the bankruptcy of [indisc.] Alaska Fiberstar is of interest
because they have an undersea cable that eventually somebody else
can certainly [indisc.] capacity difference, but I understand it
is a greater capacity than GCI, which is still a far greater
capacity than the old Alascom cable. When Alaska Fiberstar went
into bankruptcy, our hopes were that somebody picking it up out
of bankruptcy, picking it up at a much reduced cost, would find
rates of transport going outside to drop significantly, which
would be a benefit of all of the customers in Alaska, of course.
It would also then, maybe that's not fair, from my biased
viewpoint, it would be a benefit to all of the customers in
Alaska. It would put pressure on GCI and I would expect it to
reduce its rates on its cable as well so that it could be
competition. Now...
CHAIRMAN TAYLOR: Who regulates that, by the way?
MR. ROWE: I'm sorry, you'll have to address somebody who's better
at regulations than that.
CHAIRMAN TAYLOR: I mean, are they regulated?
MR. ROWE: They're not a common carrier.
CHAIRMAN TAYLOR: I mean are they regulated on that fiber optic
cable? I don't believe they are. I believe they're exempt from
regulation under federal law on that cable. And so any attempt,
or any hope that you might have, that somehow by this bankruptcy
occurring and somebody being able to compete against them, I
don't think there's any regulatory authority that could tell them
to charge less. The only thing that would cause them to charge
less would be the market.
MR. ROWE: And that's what we're hoping. That going into
bankruptcy and somebody else acquiring an independent party,
particularly acquiring the cable that Neptune is going after.
CHAIRMAN TAYLOR: Thanks. Other questions? Senator Therriault, go
ahead.
SENATOR THERRIAULT: What's your preference for the length of the
extension?
MR. ROWE: I got to have a preference [indisc.].
SENATOR THERRIAULT: What's your preference on behalf of your
group? Do we have a resolution or something that you've passed
or in writing you've said we prefer a one-year extension while
these things are worked out or what is ATA's position?
MR. ROWE: We have found acceptable the legislation that's gone
forward. I think less than one year would be unfortunate. I
think one year is a bit unfortunate, but it would put a timeline
and I think what we're doing is looking for a compromise. Would
we be irate with a one-year extension? Unfortunately, I'll say
to you, probably not. We would prefer a two-year. We were
willing, at the end of the legislative session, as we discussed
with the House, we would like to have two years. In honesty, we
need a regulatory commission. I don't want it for two years to
die off then. I don't want it for one year to die off then. Nor
do I want it for four years to die off then. We need it for
regulated industry.
SENATOR THERRIAULT: And you think that trying to deal with the
statutory timelines and PAS and ex parte, all that in a sunset
year would be inappropriate? With the pressure?
MR. ROWE: Would it frighten us? Yes. It would be inappropriate.
We have many things I would like to see corrected, absolutely.
And I appreciate this committee's efforts, even in the summer
after a long session, going back to another one and spending this
time.
CHAIRMAN TAYLOR: You actually believe that anything that we don't
correct, so to speak, in the special session, that you're going
to come back and you're going to have some happy bunch of
legislators that just want to take this whole floor wars up again
and go through all this again in the next year and maybe the year
thereafter. I suggest to you that nothing has happened since
1999 because that was a bloody enough war nobody wanted to take
this thing up and that the only reason that attention is being
focused on it now and that people are listening and concerned
about it is because of the wind-down year. But I don't think
you're going to get everything accomplished you want in July or
in June. And I think that you're going to have a very hard time
getting the Legislature's attention a year or two from now for
those additional things that you didn't get accomplished in here.
But that's just my opinion and I share your hope that you would
get those things accomplished.
MR. ROWE: I appreciate your concern in dealing with this, Mr.
Chairman, and the committee's as well. I really look forward to
working with you to make it better for the people we all serve,
the people we are working for. I do have faith that our
legislators will have their doors open for us when we have
concerns to voice.
CHAIRMAN TAYLOR: Well, you don't have to worry about that.
MR. ROWE: [Indisc.] correct.
CHAIRMAN TAYLOR: If you have any suggestions as concerns the
three or four major items that have come up, timeliness,
insulation of commissioners from inappropriate communications,
the manner in which we're going to have due process and advocacy
for the public, those are at least four major topics that have
come up. If you have others, Jim, we would really appreciate, on
behalf of ATA, your submitting them to us in a form of amendment
or whatever to the legislation that is contemplated that the
Governor will provide us with so that we'll have an opportunity
to address your concerns. I don't believe you're going to have
another window of opportunity like this for the near future. And
as a consequence I would hope that we could resolve your
industry's concerns at the same time that we're taking up these
other matters. So if you have anything, please submit it to us
and we will make it part of the record and part of any committee
substitute that will come out of this committee. I'll assure you
of that.
11:57 a.m.
CHAIRMAN TAYLOR: Well, we've run out of time for the morning.
We'll start back up again at 1:30. I have from yesterday, I have
next Dana Tindall, Patrick is it Luby, L-U-B-Y, Judy White, if
Judy's still, I think she's gone, it looks like Dale Lehman or
Layman, yeah Dale, oh, it's Dr. Dale, excuse me, Don is it Reer
or Rees, Reed, okay, and Leslie Pate, oh she didn't want to
testify and neither did Doug Neill. But we'll come back and
we'll get you people taken care of as quickly as we can this
afternoon. We'll start up again at 1:30. We'll stand in recess.
1:38 p.m.
CHAIRMAN TAYLOR: …quorum present again, that being Senators
Cowdery, Ellis, Therriault and Chair Taylor. At the break, we
concluded the testimony of Jim Rowe. Dana Tindall did not wish
to testify further, although for the record she did wish to
correct one statement she had made yesterday, and that was that
former Senator Tim Kelly is also a lobbyist working for GCI at
the end of the session as I understand it. And she said she
would submit that in writing rather than come over. But I was
aware of that and wanted you guys to be aware of it.
SENATOR ELLIS: Mr. Chairman, before we go to the rest of the
public testimony, I have an announcement for the group and that's
over the noon hour, there was a unanimous decision issued by the
Alaska Supreme Court. Had you heard of that yet?
CHAIRMAN TAYLOR: No, uh uh.
SENTOR ELLIS: I've got copies of it here. The unanimous decision
affirms the RCA order that Chugach could not sell retail
electricity in the service area of ML&P without getting first
approval of the RCA. So, the RCA was upheld by the court and I
wanted to pass that out to folks and share that with you.
CHAIRMAN TAYLOR: Sure.
SENATOR ELLIS: I thought it was interesting given the
discussions.
CHAIRMAN TAYLOR: Oh yeah, yeah.
SENATOR ELLIS: And these are extra.
CHAIRMAN TAYLOR: Have you got another one? Could you give me one
more?
SENATOR ELLIS: That's the breaking news from the noon hour.
CHAIRMAN TAYLOR: Yeah, yeah. It's over this certification of
need and necessity, huh? And that's the geographic...?
SENATOR ELLIS: Certificate of public convenience and necessity.
CHAIRMAN TAYLOR: Yeah, and that's for geographic areas, John,
where they're allowed to... I don't know that we heard much
testimony on that one.
SENATOR ELLIS: It was the court rejecting Chugach's claim that
federal anti-trust law allows it to ignore the Commission's
certificate approval process.
CHAIRMAN TAYLOR: Okay. Thank you, John. I appreciate that.
Patrick Luby, you're here on behalf of AARP?
MR. PATRICK LUBY: Yes, sir.
CHAIRMAN TAYLOR: Raise your right hand please. Do you swear the
testimony you're about to give this committee be the truth, the
whole truth and nothing but the truth and do you so swear?
MR. LUBY: Yes.
CHAIRMAN TAYLOR: Thank you.
MR. PATRICK LUBY: [Indisc.], Senators. My name is Patrick Luby,
I work for AARP as an advocacy representative. AARP is not an
energy company, it is not a telephone company, no one asked us to
appear before this hearing and we don't have any fishing lodges.
SENTOR COWDERY: What's AARP stand for?
MR. LUBY: It's just AARP, it used to be American Association of
Retired Persons, but we changed the name legally several years
ago to just AARP.
SENATOR COWDERY: That's what I thought.
MR. LUBY: We are customers.
CHAIRMAN TAYLOR: We have put your - if that is the same thing, we
have put that into the record. We received it from you I think -
was it yesterday or the day before?
MR. LUBY: I don't think so.
CHAIRMAN TAYLOR: Your statement.
MR. LUBY: No I haven't given it to anybody yet.
CHAIRMAN TAYLOR: Oh, well, I've got it here. Go ahead, I didn't
mean to interrupt.
MR. LUBY: AARP is a consumer organization. We're customers of
the utilities that RCA supervises. Half of our members in Alaska
are over age 65, half are under age 65. Most of our members are
heads of households. People tell us that they join AARP to
receive useful information. They trust us. As consumers, we
trust the oversight authority of the Regulatory Commission of
Alaska. We rely on the RCA just as our members rely on AARP. We
believe the RCA offers our members and all Alaskans the best
opportunity to achieve the following basic consumer protections:
the ability to make informed choices about utility services; the
security of safe and reliable energy and telecommunications
services; the assurance that sales practices and advertisements
are fair, so that they do not confuse, mislead or frighten the
public; and the reassurance that consumers receive accurate
information, communicated clearly and in plain language so we
understand our rights and our remedies. The RCA assures
consumers the right to affordable rates and access to such basic
necessary services as utilities and communications. I emphasize
reasonable, but I also emphasize access particularly for our
rural members. The RCA allows consumers an opportunity to
participate in the governmental decision-making process that
shapes the marketplace and ensures meaningful consumer input.
When wronged, the RCA offers consumers redress and complaint
resolution. We believe the RCA is necessary for our organization
and for our members. Without the RCA, we would be deprived of
any public oversight of energy and telecommunications services
and, when a complaint is warranted, we would not have the RCA
available and willing to listen to a consumer's side of an
argument. The RCA protects our rights as consumers. We ask that
your committee recommend the reauthorization of the Regulatory
Commission of Alaska. Our AARP families need it. And we believe
all Alaskans need it. Thank you.
CHAIRMAN TAYLOR: The reason I ask, Patrick, was that when Nan
Thompson replied to the committee's request for communication
that she had had with both lobbyists, or not lobbyists, but with
utilities and others, she voluntarily contributed the substance
of the same statement, only hers came from Marguerite Stetson of
the Alaska Executive Council member for advocacy of AARP and that
th
was dated June 17. And that's why the committee already had a
copy of that because we distributed all this stuff from Nan. At
the top it says that it was a sample being sent by email and U.S.
mail to AARP activists. Can you tell me who sent that out? Was
it Marguerite Stetson?
MR. LUBY: Marguerite and I work together. She's a retired
volunteer who lives here in Anchorage and she's appointed to the
executive council for AARP. Every state has an executive council
and the staff works with them to actually do the paperwork.
CHAIRMAN TAYLOR: When were you contacted by Nan on this?
MR. LUBY: We contacted her.
CHAIRMAN TAYLOR: Okay, you contacted her about when?
MR. LUBY: When we first found out there was going to be a special
session, I talked to our - we have a utilities section at our
headquarters, a couple of attorneys that split the states
basically. And our position is basically that we need an RCA or
a PUC or whatever you call it. They're the only place that
consumers can go and we'd like to see it reauthorized for as long
as possible to give as much stability as possible.
CHAIRMAN TAYLOR: But you don't remember when that was, it was
some time after you learned of the special session?
MR. LUBY: It was probably within the last two weeks. I think I
sent that to her two days ago.
CHAIRMAN TAYLOR: And you were not contacted by anybody? You just
voluntarily came up with this one on your own?
MR. LUBY: Well, our attorneys at our headquarters who work on
utility issues, I talked to them about it. They had heard about
it through some of the newsletters that they get about
telecommunications and other utility companies. We did not have
an office in Alaska until last October. And generally, AARP, you
know, we're not technicians, we don't get involved in a lot of
the battles that you've been hearing about over the last couple
of days in these hearings. But we are concerned because the PUC
and the RCA is the only place we can go as an organization or our
members can go if they have a complaint. I moved up here from
California, I worked for AARP down there. Over the last couple
of years because of the energy issue down there, our members were
being hurt extremely hard by high utility costs. The only place
that we could go to register any of our concerns was to the
California PUC and we feel that it's very vital that consumers
have some type of an organization that we can go to when there is
a problem.
CHAIRMAN TAYLOR: We feel that way too.
MR. LUBY: Thank you, sir.
1:47 p.m.
CHAIRMAN TAYLOR: Thank you. I guess there are no more questions.
Judy White already left, I guess she hasn't come back today. Is
it Dale Lehman? Oh it's Dr. Dale, excuse me. Could you raise
your right hand please, sir? Do you solemnly swear to tell the
truth, the whole truth, and nothing but the truth, so help you
God before this committee?
DR. DALE LEHMAN: I do.
CHAIRMAN TAYLOR: Thank you.
DR. DALE LEHMAN, Alaska Pacific University: I have one copy of
written comments.
CHAIRMAN TAYLOR: Yeah, if you'll just give that to our staff
person, she'll have copies made and distributed.
DR. DALE LEHMAN: I'm the director of the MBA program in
telecommunications management at the Alaska Pacific University.
I'm here representing my own views, not those of APU and I'm not
working for any company in Alaska. I have 25 years of experience
in teaching university level and publishing and consulting in the
telecommunications industry. The purpose of my testimony is to
urge you, to be perfectly clear, I'll use your own words, Senator
Taylor, to reauthorize the RCA for four years free and clear.
This is not to indicate that I endorse the RCA decisions. In
fact, I disagree with many, if not most, of the
telecommunications decisions they've made. The reason for…
SENATOR COWDERY: Could you spell your name for the record?
DR. LEHMAN: L-E-H-M-A-N.
SENATOR COWDERY: Thank you.
DR. LEHMAN: I reached my decision to urge you to reauthorize
mostly from what I've heard in these hearings. To begin with,
Dr. Furchtgott-Roth on the first day explained how he thinks the
FCC failed in implementing the telecommunications act. I
actually also am way out of the mainstream and I agree with his
conclusions on that. They were actually well documented in a
book I wrote that was published two years ago about
telecommunications. The biggest failure of the FCC was that it
moved the competition from the market place into a regulated
hearing room. That's largely the FCC's doing. And I think that
these hearings are an indication of moving, potentially moving
these out of the regulatory hearing room into the legislative
hearing room and I think that's a step in the wrong direction.
I'll explain that as we go along. The FCC's mistakes here, it's
important to realize that they are pretty much irrelevant to this
proceeding. The FCC, I think, was mistaken. They did bad policy
implementation. And your characterization of what the UNE rates
that were set I think is a correct characterization.
Essentially, the FCC has subsidized competitive entry. They are
asking incumbents to sell things at a loss. I think that is a
fair description of what the FCC rules have done. The Supreme
Court has recently heard this case and unfortunately I think for
policy, the Supreme Court has said it is perfectly legal what the
FCC did. In other words, they have the room to implement bad
policy if they so desire and I think that's what they did. The
RCA, whether it was there or not, would not change the fact that
the FCC has messed up the application of the act. None of that
would change in the absence of the RCA. We've heard a lot in
this hearing about interim rates. I actually don't like interim
rates. Interim rates that go on for a long time I think is a
very difficult environment to do business in. But I think we
should take into account, Illinois has had interim rates since
1996. Arizona set permanent rates, a very worthwhile goal. They
just lowered their permanent rates, cut them in half, last month.
Makes you wonder what permanent rates are when you're cutting
them in half after you've set permanent rates. Texas set
permanent rates. It took two years of proceedings with more
paperwork than probably has been processed in this entire state
in one proceeding. A week after they set permanent rates, they
opened a new docket to reexamine permanent rates. So, against a
benchmark of how the act has been played out nationally, I think
it's important to look at the RCA and say, this is not unusual,
this is the stage the FCC has set. And even though I think it's
the wrong stage, this is the way regulations have played out in
this industry. The point I'm making with those examples is that
these are complex multi-dimensional issues and I don't think the
legislative hearing room is really the right place to hear this.
I've heard a lot of…
SENATOR COWDERY: We're the lawmakers. You understand that. And
if you was setting here and you thought that there was a problem
out there and you had a lot of complaints, you don't think that
we should hear the complaints, or set any policy or anything?
DR. LEHMAN: No, I'm glad you're hearing them and I think that it
is perfectly appropriate for you to set policy. In fact, I've
noted that there are at least ten issues that I think that are
worthy of being looked at. My point is going to be, I don't
think you should tie it to the reauthorization. If you feel that
is politically necessary, I just, I mean, I have some problems
with that.
SENATOR COWDERY: I make decisions based on the merits that I
think is the best interest of this state, regardless of the
political, and I think most of us do here. But I think there's
some problems that's got to be corrected by the legislature,
legislation, whatever that takes, there's problems in there. I
don't think anybody wants to do away with it. I agree to
somewhat on what you said about the need for a regulatory
commission, but I think on this one we have problems. If we
could solve them I think that's our…
DR. LEHMAN: I've heard at least ten issues come up that I think
are worthy of attention. They are not all equal and they are not
in a prioritized order. There's an issue about how UNE prices
were set and what the level [indisc.]. There's an issue about
what type of arbitration was used in the proceedings. There are
issues about what the public advocacy section of the Commission
should or shouldn't do. There's issues about how ex parte rules
work. There are issues about perceived or actual conflicts of
interest that may have been present with commissioners. There
are issues about time factors in reaching decisions. There are
issues about the relevance of state and federal law. One thing
that I learned in these proceedings is that court of appeals
rulings are not applicable in Alaska which has presented a
particular problem for ACS I think in the rural exemption issue.
There are issues about public meetings, public meetings
[indisc.]. There are issues about how much regulatory deference
is given from the courts. And there are issues about burdensome
regulations. I mean, [indisc.] come up, but 36 states now use
price cap regulations because it, at least potentially offers a
reduced regulatory burden. That is [indisc.] of something
appropriate in terms of changing policy directions.
SENATOR DONLEY: Could you explain what that means, price cap?
DR. LEHMAN: Rate cases are very burdensome because there is an
awful lot of information has to be presented to justify how much
money is needed and what rates are set. Price caps was designed,
it originated in England but it has now pretty much spread around
the world, it was designed to say consumers need rate protection.
So as long as the rates aren't rates, basically, companies are
free to earn anything they want. They've [indisc.] to reduced
cost proceedings, while less protracted. I don't want to mislead
you, it's not a panacea and we've run into some problems and it's
not necessarily the way you'd want to go. But there is at least
a model out there that has reduced regulatory overhead that many
states have found appropriate.
SENATOR DONLEY: That's something that's done by statute or is
that something that the Commission can just do on their own?
DR. LEHMAN: That depends on the state. Some states the
legislature has actually passed statutes ordering that. Some
commissions have actually negotiated that within their purview to
be able to negotiate that with utilities. It varies. All of
these issues I think are valid issues. I'm glad that they have
gotten the attention you're looking at them. The problem I have
with tying them to reauthorization is the only sure effect that
will have, if you reauthorized for a very short period or you
allow the Commission to sunset, is this will politicize these
issues further. In the next year it will become legislative
hearing rooms that examine these particular issues. And I think
that's a step in the wrong direction, it's already too
politicized. So I would urge you, reauthorize the RCA, address
these issues on their own merits, pass whatever legislation you
think is appropriate. I would be happy to assist you in
identifying which of these issues might need attention, what
alternatives are available. I just see the only value of tying
them to reauthorization is to politicize this process further,
and that's what I object to. I think the FCC has made a
political process that shouldn't have been that political to
begin with.
CHAIRMAN TAYLOR: It was politicized when somebody decided to yank
us all back to Juneau. That wasn't a decision I made or this
legislature made. If in fact we're going to take the issue up.
I can only speak to you from my 18 years of experience in being
on the periphery most of the time of these utility and phone
wars. I can tell you that the only time that things come up is
during a review process or when somebody's trying to gain some
advantage over somebody else in passing a particular piece of
legislation. And none of it comes up because of some altruistic
motivation on the part of the legislature to do what's right with
the regulatory commission or APUC.
DR. LEHMAN: I think the legislature does not have the expertise,
the interest or the patience to properly deal with these very
complex issues. Which is why I would like to see it less
politicized. These issues can be taken up one by one. They can
be addressed, if they are serious enough and they warrant
legislative attention. To me, that's an ultimate test, is if
they are that serious then you should take them up. And if there
is not enough legislative interest out of the process of
reauthorization then that's a statement to me that the problems
may be there, but are not worth fixing.
CHAIRMAN TAYLOR: That's understood. Yes, John?
SENATOR COWDERY: Do you understand, you think that the
legislature in setting up here? Do you think that? Is that your
understanding of what we do? Or do we make the decisions based
on just what we know?
DR. LEHMAN: I think you get outside expertise just like even the
Commission gets outside expertise.
SENATOR COWDERY: And we hire that, too.
DR. LEHMAN: Yes.
SENATOR COWDERY: And we hire what we think is the best. To say
that, I mean, I'll be the first to admit, I don't know everything
about a lot of things. Some things I do, some things I don't.
And I don't understand this. I've had a better understanding in
the last four days. But this is not my expertise and field. I
do understand profit and motivation and survival in the real
world. And that's what I've had to do all my life. So…
DR. LEHMAN: Every one of the issues that you've heard come up in
this hearing have been subject of a lot of regulatory attention
in a lot of states in a lot of court rooms. And you've heard an
argument here and there and to fully hear these arguments you
have to basically sit in the chairs that the RCA has sat in and
hear an awful lot of information before you can reach an informed
decision. And that's what I think politicizing will make these
issues come before you - you don't have the time because you have
too many other things on your plate to be able to deal adequately
with these decisions. You should reauthorize the agency that has
been charged with doing that and then you should sit down and
say, have we set the right rules for the agency that's charged
with doing this. And if you don't think they're the right rules,
then you change the rules. All you will achieve by failing to
reauthorize is that you're all going to have to hear about the
level of UNE rate. And I can tell you, what you've heard in the
last few days is not nearly enough to know how you should set UNE
rates.
1:58 p.m.
CHAIRMAN TAYLOR: I don't think there's any assumption on anyone's
part around here that we as a legislature should be setting any
UNE rates. I think that would be foolhardy at the least. We do
surgery with a meat-axe. And much of this, I think, needs to be
done very delicately. But I really appreciate, Doctor, your
taking the time with this to come up with and consolidate if you
will the information that has been presented to us from your
perspective. And I agree with every one of your points, by the
way. I think every one of those points are matters of
legislative and policy setting concern and they avoid the detail
problems of getting into rate setting or getting into. But I
can't imagine that the RCA is the one that we should look to for
setting up it's own conflict of interest legislation. They're
not even in compliance with the conflict of interest legislation
we have on the books right now. And one of the major special
interest groups has indicated that they're going to go in and do
kind of mea culpas, that's their words, in front of the agency
that's supposed to look out for that. Public meetings was a
concern raised by the commissioners themselves as to whether or
not they could have certain discussions and when they could have
them. Public meetings has been a matter of legislative debate
for some time. I worked long and hard on the last public
meetings law. But I think each of these things that you've
brought up are excellent points and ones that I think you could
assist us a great deal in from your background in finding
legislative solutions for.
DR. LEHMAN: I would add that all of these issues are ones that in
themselves are more complex than they appear. Ex parte rules, I
mean the FCC, if you want to look to the FCC as a model of using
ex parte, I think it's a model of how this process could work at
its worst. The FCC routinely gets hundred-page submissions,
particularly from one company, on a weekly basis, ex parte,
substantive ex parte presentations, that are not in an open forum
where other parties can contest it. We're concerned with the RCA
being able to process things in a timely fashion. If you want to
make the ex parte process work better, more like the FCC, you're
going to see them slow down a great deal, they're going to be
sitting in their office hearing substantive detailed ex parte
presentations that are a side process. I mean, the FCC
themselves has had problems that it's almost [indisc.] the
regulatory process in an ex parte world. That is a complex
issue, there's a lot to be seen about that. That's where I think
the time pressure of doing this under a sunset proceeding will
not give these the adequate attention that they need. I think
you need to prioritize these issues and then sit down and pick
what the one or two most important ones are, work on them in the
next year, free of reauthorization. I really don't see any
constraint on you to act on any of these issues, even if the
Commission were reauthorized quote free and clear, you could act
on any of these at any time.
CHAIRMAN TAYLOR: Thank you very much, Doctor. Yes, Senator
Therriault?
SENATOR THERRIAULT: Thank you for your comments. I think it must
have been hard for you to sit in the audience and hear the one
side and then not that anybody comes up and just boldly lies to
us but they definitely tell their side of the story. And you're
sitting there and you know that there's a whole lot more to this.
And in the time that we're able to allocate to this right now,
we're maybe going to get two slanted stories, but that's probably
not even the whole story. So, I thank you for sitting through
that and then boiling it down to let's not politicize it more,
the reauthorization, while it has spurred the discussion on these
issues. The legislature should pick and choose. And I agree
with you, if it catches the attention of enough legislators,
either through expression of interest from their utilities,
water, sewer, whatever, then it probably should be something the
legislature tries to break that off and deal with a particular
policy issue. I wanted to ask your opinion though here on where
you just have sort of a condensation of, or a condensed version
of the different testimony. There are some bullets here that I'm
not sure is supposed to be a position paper by the Senate
Judiciary Committee…
CHAIRMAN TAYLOR: It's just a report done by staff off of
testimony.
SENATOR THERRIAULT: There appears to be no legal or practical
reason that would require the legislature to summarily
reauthorize the RCA. I don't necessarily disagree with the
legal, I mean we can reauthorize whenever we want. But the
practical, it seems to me like there's been lots of testimony
that there's lots of reasons, practically speaking, why the
legislature should reauthorize. I just wanted to get your
opinion on that.
DR. LEHMAN: I agree with that. I think the learning curve and
the knowledge that exists there is a practical reason not to let
the [indisc.]. The potential to lose especially the most
qualified staff [indisc.] in a sunset year is another practical
reason not to delay it. I think it's important you look at the
RCA in the context of what other state commissions have done.
And we've conferred a lot about UNE rates. You should also know
in Chicago, a loop, an unbundled loop costs $2.00 per month.
That's the rate that was set by the Illinois commission. There's
a lot of information out there. If you're appalled by the way
the act has been interpreted by the FCC, I'm more appalled. I
mean, I went on the record two years ago and published a book on
that fact. I think this commission has had a lot of experience
and a lot of contact with the rest of the industry and with other
regulators that it would be extremely damaging to disrupt and I
would, if you need to disrupt it because you need to go in a
different policy direction, I'd support you in that. But you
could do that with the existing commission and I think you would
do it more easily with the existing commission than in sense
rewriting the rules. I'm new to Alaska. It looks to me that
what happened in 1999 is that the problem built up to the point
that you essentially threw out what you had and put something
else in. I don't think you want to establish a precedent for
that. If you do that again and you continue a commission in some
form with new commissioners or new rules, it's like every new,
every time you get a new Administration or problems build up to
the point, you'll just get rid of what's there and replace it.
That doesn't seem to be the way of solving the problem. So as a
practical matter, I think you'll make more progress to take the
issues on their face and address the ones that are most important
and not disrupt what is functioning commission, even though I
think many of their decisions are wrong. I mean, what's to say,
where are you going to get a commission that is going to make all
the right decisions starting from scratch?
CHAIRMAN TAYLOR: Doctor, were you here in '94?
DR. LEHMAN: No.
CHAIRMAN TAYLOR: In '94 this very same commission went through
the very same process. Not one staffer left, not one
commissioner dropped out and all business was done as usual. And
in the next year, the legislature took up their extension and
extended them.
DR. LEHMAN: In the area of telecommunications, there's one really
important difference. And that's that since the
Telecommunications Act, and since the amount of adversarial, I
mean it used to be the adversaries were the public, the
consumers, the ratepayers and the utilities. The environment is
a lot more complex and a lot more politicized today. And I think
that comparing it to pre-1996 in telecommunications is just a
mistake. The environment is very different now. And what you'll
find, it's hard to keep staff in regulatory commissions at all
these days. They end up going to the utility or the competitors
that have been created as a result of the act.
CHAIRMAN TAYLOR: That's competition in [indisc.] market.
DR. LEHMAN: I think that it may work out very differently this
year than it did in 1994.
CHAIRMAN TAYLOR: But do you have anything to base that on? I
mean, somehow is staff ready to all go out and leave immediately
just because they haven't had a four-year extension granted to
them? I mean…
DR. LEHMAN: I don't have evidence that ties to the extension. I
do have evidence that staff are leaving commissions. The
turnover rate has increased dramatically.
CHAIRMAN TAYLOR: Because of workload and so on. Not having a
damn thing to do with...
DR. LEHMAN: And because it's more profitable outside of the
public sector.
CHAIRMAN TAYLOR: Right, and not having anything to do with
whether or not they're extended or…
DR. LEHMAN: So it just follows that if you add in the question
about whether the job will be there, you certainly aren't going
to make it any easier.
CHAIRMAN TAYLOR: Well, it only follows if you make that
assumption. From the historical record of this state, we know
that that assumption is fallacious. Those people enjoyed that
job and that paycheck and they stuck right around for it. I can
only suggest to you that had you had the benefit of that
experience it might have modified your conclusion at this point,
but maybe not. I only offer that as an example of what actually
historically has happened in this state. I wish we could de-
politicize this whole question. But believe me, it is only
politics and special interest that brings us here today and have
an opportunity to discuss this with you.
DR. LEHMAN: I believe that.
CHAIRMAN TAYLOR: It hasn't got a thing to do with anybody's
altruistic motives on, oh let's protect the staff and let's be
kind and gentle with the RCA. That isn't why we're here.
DR. LEHMAN: This industry is too important to this state to have
an undue amount of special interest and politics judge these
issues.
CHAIRMAN TAYLOR: I agree with you. That's why I've been
resisting this entire process because I think it's too far
politicized and I think it ought to be taken up next year by a
new legislature and a new governor.
DR. LEHMAN: [Indisc.] It sounds to me like you are inviting
politicizing this further for another year.
CHAIRMAN TAYLOR: Whatever. Doctor, thank you. Go ahead.
SENATOR COWDERY: Your qualifications, have you ever worked for,
in the private sector for the utilities company?
DR. LEHMAN: [Indisc.]
SENATOR COWDERY: For who?
DR. LEHMAN: I was a senior economist for SPC (ph) for one year.
SENATOR COWDERY: One year.
DR. LEHMAN: And I worked for BellCorp (ph), a research
organization, a research arm for the RVOX (ph) for two years.
SENATOR COWDERY: But do you think, where was that located?
DR. LEHMAN: That was in New Jersey and SPC (ph) was in St. Louis.
2:08 p.m.
SENATOR COWDERY: Do you think that the environment of, Alaskan
environment and to do business in Alaska and the utility business
is the same as it is in New Jersey or someplace?
DR. LEHMAN: Not at all. And I think that what you heard from Dr.
Furchtgott-Roth is true. Not only is the FCC kind of alien to
rural interest in many ways, they are completely in the dark when
it comes to Alaskan issues. The act was not written with Alaska
in mind. It was not written to serve Alaskan interests. And
that's where I see your job as well. I mean, you can't, as a
legislature, urge the federal government to change policies or
interpret them differently as Alaska demands. And in fact, you
are the only ones really in a position to do that. So you should
look at the act very closely because a lot of the things you
characterize as…
TAPE 02-44, SIDE B
DR. LEHMAN: ...they don't work out particularly well here, things
like the rural exemption.
CHAIRMAN TAYLOR: And changing that, which we have apparently
done. Go ahead, Senator.
SENATOR THERRIAULT: Were you here yesterday for the testimony I
think it was from Dana Tindall, that the 1994 moving to the
sunset of the old APUC was a little bit different because the
legislature said at the end of the session, we didn't mean to
sunset you, rest assured, we'll take care of this first thing
next session. I would think that you'd agree that that's
completely different thing.
DR. LEHMAN: Based on second hand knowledge, yes. That definitely
sounded different to me than that even though I've heard repeated
statements that nobody has asked to shut down the RCA. I've also
heard, none of the reassurance statements are not quite as it's
portrayed from 1994.
CHAIRMAN TAYLOR: Doctor, thank you. Any further questions?
SENATOR DONLEY: Yeah, I do.
CHAIRMAN TAYLOR: David, go ahead.
SENATOR DONLEY: One of the fundamental principles behind the
sunset provisions that we have is that you get a review and you
get an opportunity, at least you get a shot, when something comes
to the floor every four years or whatever the particular period
is to make reforms. Frequently it's the only chance that you get
to make a reform on some of these. You know, I understand that
sitting from outside of the process, you may think that it's all
easy and fine to get reforms through any time you want, but it
isn't. And that is one of the fundamental principles behind
sunset is - that would give you an opportunity to at least get an
up and down vote on some reform issues on the floor of the bodies
because there would be a proposal before you and it's on that
subject and you'd be able to have a chance. So from the
political scientist point of view, not from an economist point of
view, I'm here to tell you that that sunset opportunity is a very
important opportunity. And from a reform - any change in the
status quo is very difficult to accomplish. From a reform point
of view, that sunset process is key and to just go ahead and
renew something for four years without taking advantage of that
opportunity to attempt reforms is… I don't accept your point of
view on this.
DR. LEHMAN: I don't say complimentary things about economists,
but I would say that I'm glad I'm not a political scientist.
Because I have to say I mean from a lay person's point of view,
sunset sounds to me like you really should address whether or not
an agency is needed.
SENATOR DONLEY: [Indisc.]
DR. LEHMAN: Yeah, I know, what you're explaining...
SENATOR DONLEY: You go through an audit process, they make
recommendations, you agree with the audit, you know, sometimes
the audits are good, sometimes you don't agree with them. You
know, but part of that process, it's a lot more than just whether
the Commission, any given commission or whatever stays around.
It's reforms that are needed, too. And that's a specific part of
our legislative audit process. So although it may sound to you
like it's just an up or down decision, it is not. It's a crucial
opportunity for the legislature to take reformative action that,
in our American form of government, where change is not promoted,
where the status quo always has the advantage, it may be the only
opportunity that you get to even articulate and get a debate, or
a discussion, on some of these proposed reforms. So don't, I
encourage you to not think that this is a light opportunity and
oh you'll get another opportunity another time.
DR. LEHMAN: It's just that, during 1999, you did without a sunset
review make a dramatic change.
SENATOR DONLEY: With a situation in chaos - and you did
acknowledge that if critical mass builds up, yeah, you can do
any, you know the government can take action under our form of
government any time critical mass develops. But it's very very
hard to get there and it's especially hard to get there in a
state as diverse and as non-homogeneous as this state is. Where
you have interests from Barrow to Ketchikan, incredibly different
situations, incredibly different economic situations, incredibly
different political situations, cultural, you name it. This is a
very very diverse state. And it makes it very, very hard to
bring about change.
DR. LEHMAN: It seems to me, you have the obvious compromise
solutions available to you at renewal with the understanding that
certain issues are going to be addressed in that time frame.
CHAIRMAN TAYLOR: But they won't be.
DR. LEHMAN: Certainly something between the two extremes.
SENATOR THERRIAULT: You're the second person today that's brought
up the whole issue of don't get into a situation where you become
frustrated and you just lop off everybody's head, start again,
and just endlessly go through that loop. And I think the big
difference between now and '99, in '99 we had a situation where
the commissioners wouldn't talk to each other, they'd take
vacation time at inopportune times just to throw a wrench in the
works. They hated each other. So that was the decision, that's
why the decision was made, okay we'll get rid of you all. We
didn't really change the regulatory process that much. We just
decided that the people that we had there making decisions were
at, fighting so much that there was no way of curing that problem
without getting rid of them. And I've not heard anybody come, in
fact many of the people that have testified either written or
verbally have said, you know, these commissions are doing a good
job. I've not heard anybody say that they're fighting with each
other or refusing to come to work and things that we heard in
1999.
CHAIRMAN TAYLOR: No, but we did have direct testimony from three
of the five that they had drafted a letter calling for the
chairman's resignation or the rotation of the chair. They then
refused to convey that to the committee. I subpoenaed it. It
was provided yesterday and you now have it as a document in your
files. So, I'll guarantee you, this is not just some happy tea
party going on over there. There are problems, you've identified
ten of them for us on policy matters, Doctor. And I'll look
forward really to working with you on any suggestions that you
could give us on how to make these better in the legislative
process. Thank you very much. Out next, is there any further
questions? Doctor, thank you again, appreciate it. The next
witness is Don is it Reese?
MR. DON REED: Reed.
CHAIRMAN TAYLOR: Reed, should've put a D down there.
MR. REED: Well, it could have been my handwriting.
2:18 p.m.
CHAIRMAN TAYLOR: No, when they copied it, it kind of blurred
things. If you'll raise your right hand, please. Do you
solemnly swear the testimony you're about to give this committee
to be the truth, the whole truth and nothing but the truth and do
you so aver?
MR. REED: I do. Mr. Chairman, Senators, my name is Don Reed and
I represent Matanuska Telephone, I'm a vice president of that
company and it's director of regulatory affairs. I work with the
Commission, I've done that for approximately 20 years, not all
with MTA, formerly with ATU and with the Alaska Exchange Carriers
Association. I'm currently with ACA (ph) also, which came up
earlier here on the first point of switching the issue that ACS
brought before you. As you may know, MTA is the second largest
local telephone company in Alaska, next to ACS. We are very
small compared to them, relatively speaking, but we are the next
one up, if you will. We provide over 60,000 lines to customers
from Eagle River all the way past the Denali Park into Healy and
all the way from Skwentna/Tyonek to Glacier View in the east
along the Glenn Highway. We are a rural telephone company as
defined by the 1996 act. And we are also a cooperative. We are
owned by the customers that we serve. The purpose of my
testimony here today, I won't, in deference to the lateness of
the hour and the fact that I think I'm the last one here or close
to it, I won't repeat things that others have said, although that
we support, and primarily we do support the reauthorization
proposal that the ATA has put forth. We are a member of ATA and
we do support that testimony that Jim Rowe gave you. The
purpose, I'd like to add though, I think to the record, is at
least our experience in this commission relative to a complex
rate case proceeding that we recently completed with the RCA. I
contrast this somewhat with the experience that Chugach has had.
We're both cooperatives, we're both about the same size, although
they're an electric co-op and we're a telecommunications co-op.
We have a lot of similarities if you will. And the one similarity
too that I want to talk to you just a little bit about is that of
a complex rate case. We want to report here, I think that, to
balance the record that our experience with RCA and its
adjudication of our rate case was a satisfactory one. When I say
satisfactory, I'm talking primarily about the timeliness and the
professional manner it was handled in. When I say that, I don't
mean to say that we got all that we asked for or that there
wasn't controversy or that there weren't major differences of
opinion between ourselves, the public advocacy staff that was
assigned as an intervener here and even the Commission itself.
In fact, we expected that to happen. These are complex cases,
and in our view though, the public arena is one in which all
points of view should be heard. And it takes some time to do
that, but also the way in which we found the Commission handling
that schedule, handling that time was satisfactory from our point
of view. We did have occasion not only of a difference of
opinion with the Commission, but we found that even in some of
their resulting orders in our cases, we believe they were flat
wrong. But I will go on to say that once we filed a petition for
them to reconsider, they not only granted that petition, which
under the current regulations they operate under, these are state
regulations, they don't have to do that, they could simply sit on
it for 30 days and deny it by inaction. The previous commission
did that a lot. This commission, in every case, granted us a
review of that petition and in the majority of them, upon review
of the record, they even reversed their original decision. We
believe this is a mark of a panel that is concerned with the
fairness and the propriety and timeliness of its decisions and is
not afraid to admit when it's wrong. Our experience is that these
panelists are honorable persons. Now we have heard through the
last few days of testimony here that the intent of the
legislature is not to replace this panel or to sunset the
Commission out of existence. We find that encouraging and yet we
do question if that is the intent, why would we go through the
process of sunset and send those signals to consumers and to
investors that the state of regulations in Alaska is uncertain?
And we think, and we do advocate the position that Jim had
expressed to you that we extend the Commission for some period.
He had talked in terms of two years, possibly even one year that
we could live with, while we work on some of these issues that
Dr. Lehman and others, particularly ACS folks, brought to your
attention. We concur in most of those that some, that these are
valid things to consider, particularly the relative roles of
staff, between advisory and advocacy. That's a big one to MTA.
The time limits guidelines that the ARECA amendment addressed in
some of the legislation this year are ones that we've looked at
and tend to think that we can support. We also, in deference to
Dr. Lehman, I believe that the FCC model at least to some extent
for ex parte is a good one, at least an improvement over what we
have today. I agree with ACS on that. That is something I think
the committee should put out and the legislature take up. And
lastly, some of those issues related to UNE policies, rural
exemption policy, quite honestly are very dear and near to the
heart of the next local exchange company that's likely to be teed
up for unbundled interconnection. So with that, we would offer
the help of MTA, the staff, myself, we have a good staff in this
regard, we've been looking at these issues for some time now,
knowing what the horizon looks like for us, in addressing those
issues, though we would strongly advocate not sending the signals
through the actual implementation of the sunset of uncertainty
and insecurity in the regulatory arena of the state. So with
that, I close my comments.
SENATOR COWDERY: We had testimony, I was trying to find it here,
about decisions that were postponed for cause. And there was
some who indicated they thought that terminology or whatever was
being abused. Do you think there's any abuse in not making a
decision? We had people in here that said that it was difficult
for them to be here because they got to go up, but they were big
people, big boys, I think was the term, and I think they could
take a bad decision, but they just wanted a decision.
MR. REED: If what you're asking is that language, my answer is it
cuts both ways. It's the old Oscar Wilde admonition, be careful
what you ask for in this regard. Because I found, in my own
case, there were times I wanted an extension to better prepare my
case or my response. The burden of proof in any rate case
adheres on the incumbent company asking for a rate increase to
charge more to their customers, essentially. And in order to
make that case and present it well, you know, we do all the
things that everyone does, we get the experts, we do the numbers,
whatever it takes. That does take some time. It does take time
to also structure that appropriately so you can convince a panel,
you can instruct, you can inform. That takes some time. So I
think having that language there for just cause or adequate cause
is a necessary addition. Now, how it's used again, is one that I
think you have to address by asking all the various parties how
they feel, the very same question you asked me. I don't think it
was abused in the cases that we've had before the Commission at
MTA or through the ACA (ph).
CHAIRMAN TAYLOR: Thank you. Yeah, we had testimony that there
were 58 such cases, so you fortunately didn't get put off or
didn't ask for any delays and didn't end up getting delayed by
good cause. I want to thank you for coming forward, appreciate
your testimony. If you have it in written form, submit it to the
secretary and we'll have it distributed. And I appreciate that
very much. We have one other witness who wished to testify. Did
you wish to come forward, Paula? Raise your right, please. Do
you solemnly swear that the testimony that you're about to give
this committee to be the truth, the whole truth and nothing but
the truth and do you so swear?
2:28 p.m.
MS. PAULA ELLER: My name is Paula Eller and I have a [indisc.]
Telephone, Tanana Power and [indisc.] Cable TV. It's a family-
owned business. We've been, had the telephone company since 1960
when we started this. And we've had Power since 1966 and the
cable since 1986. We serve in Tanana, where we have the power.
Ruby, we have phone and, excuse me, in Tanana we have power,
telephone, and cable. In Ruby we have the telephone. In
Whittier we have, which we purchased in 1984, we have the
telephone and we have cable TV. We provide high-speed Internet
in Tanana and Whittier by cable modem. And we're planning on
providing high-speed in Ruby. I guess what I would like to
address at this time is my concern about the small utilities that
have to go through a rate case. In 1999, Tanana Power filed for
rate case. It had not had one since 1985. And my PC (ph) was to
the place where it was much lower than the customers should have.
I had lost money for 10 out of 15 years. So, my accountant
talked me into going for a rate case in 1999. And I hired Joe
Franco (ph) and our accountant to do the rate case. And we filed
th
that in August 24 of 1999. And we got an interim, which after
6 weeks, was given to us on October 8th. And that was interim
refundable. Well, that was fine, because it did give us a little
more money to operate with. But we did not get a permanent rate
increase until February of 2001. So those were interim rates all
that time, which would be refundable, which was a real concern
because you're not only, on the power, you've got your rates but
then you've got your surcharge which varies according to your
[indisc.] costs and then you have PCE which could all of these
things could have been refundable. And for a small staff, we
have six people that run all of this in the various areas, and it
was really frightening to think that maybe we would have to go
back, not just the money refund, but the process of getting that
done. And I'm not saying that it had anything to, I don't know,
we had some letters come in from our, I guess a number of letters
from our people of Tanana saying, rate increases of 30 percent
increase. Well, in 15 years, 30 percent really isn't that much.
But they were upset over that. Well, instead of what could have
been done, even though we said, you'll in the end pay less per kw
because PCE will come up to where it's supposed to be. Well, us
telling them that doesn't work. But a letter could have come
from the staff person at the Commission and explained to them
because it was a revenue requirement there that that could be
justified. And so, hence, that went on for almost a year and a
half that we were in interim and we were not getting what we
should have to keep our business going. So what I'm asking is
that at this time if you would consider looking at maybe
economically deregulating smaller companies. We have 170
customers, and at that time it was $500,000 gross revenue. And
to go through that period of time for that, it seems like there's
a lot bigger fish out there that could be taken. So there is a
statute that Bob Blodgett put in when he was in the Senate and it
was regarding economically deregulating utilities with less that
$100,000 in revenue. And that was many more years ago, I don't
know if any of you were around when Bob Blodgett was down there.
I guess I'm that old and I've been around for all of these years.
I wish you would consider that and this might be a good time to
do that. I don't think changing the Commission would make any
difference because they have procedures they follow. But I think
that deregulation of the smaller utilities might be something
that would take the workload off of the Commission as well. I
think, by the way, they still have oversight because we have to
file our [indisc.] cost change, we have to file with the
Commission, the staff person looks at that, any changes in our
surcharges to the customers, as well as our PCE. And also, on
the telephone side of things, we have to file state access with
the Commission [indisc.] two years. So they do have oversight
and perhaps maybe you'd consider that. And I'm speaking for
myself. I haven't talk to any [indisc.] person with a small
utility that I know of.
CHAIRMAN TAYLOR: Senator Cowdery.
2:32 p.m.
SENATOR COWDERY: I've been approached and talked to and I'd just
like to get a respect to your thoughts on this and everything
that maybe the workload on RCA is too large, they have too many
things to deal with. And some suggested say the pipeline and the
oil industry, that should be one commission on the regulation.
Maybe one for telephone utilities, and one for water and sewer,
and this and that. Do you think that we'd get quicker decisions?
Do you think that would be a good or a bad idea? Or should, do
you think their workload is too big for what they've got to do?
MS. ELLER: I think they have a heavy workload. And actually,
didn't pipeline, wasn't pipeline separate at one point?
CHAIRMAN TAYLOR: Yeah, it was added in '99.
MS. ELLER: It was added, yeah. And so that, there's another, and
all of these things are handled, each utility is unique. You
know, and telephone probably is the most unique of all in
particular. But, you know, changing the subject just a bit, like
when ACS and GCI they're in competition now and it that
competition is sufficient, ACS should be deregulated. That's
just a thought to say at some point. And I don't know if that's
the Commission's responsibility to deregulate them or how it is.
But at some point, maybe that's something that you might consider
too. I feel too that, by the way, that my customers do need
someone to go to and I would like to still see the service and
safety regulated. I don't have a problem with that. And if
there is something that I'm doing wrong, then they have to have a
place to go to make sure that it's corrected. I feel responsible
for these people. I lived with them for twenty years, so you
know they're, I know them quite well.
SENATOR COWDERY: Thank you.
CHAIRMAN TAYLOR: Any further questions? Yes, Senator Therriault.
SENATOR THERRIAULT: In regards to complete deregulation of the
small utilities - one of the things that the audit that was done
by Budget and Audit pointed out is that the current statutory
requirement that water and sewer systems in rural Alaska, small
ones, be certified was not being followed through on. And that
is a problem that the RCA inherited from the APUC. Somebody
suggested, the auditor if I remember correctly, was that we
should either decide to completely exempt them and give the RCA
some statutory guidelines on how to do that or move them into
compliance with the [indisc.] statute. And of course we're
putting incredible amounts of state money and federal money into
water and sewer systems out there. And part of what RCA is
supposed to be doing is certifying that they're ready to get up
and running. Part of that is looking at are they charging a
reasonable rate and not just not gouging the customers, are they
charging a rate to amortize equipment and replace and keep up
with stuff. And that's a concern at the congressional level
because of the amount of federal money going into the system,
it's a concern at the state level. So I don't know that we
should just lift that certification requirement and just
deregulate all those small water and sewers. Because we get
handed the bill when the system freezes up, when it's not been
maintained. Then there's no source of potable water, there's no
sanitary system and it's a crisis. So I think there is a need
for the continuation of some kind of oversight to make sure that
they're operating somewhat in a sensible business.
MS. ELLER: I understand what you're saying. The thing is that
though - that people don't have anything to appreciate, it's been
grants given to them. So they really haven't. And that's the
problem on the electric side as well. A lot of these communities
had their power lines built for them, they had their generators
put in for them. That is not the case in the private enterprise.
It's a totally different situation. I mean, we have put our own
sweat and tears and money into that. And we are going to take
care. We have to be allowed to make at least some profit. It
may not be what is authorized and oftentimes isn't, as I've said.
In ten of the fifteen years, I actually lost money. And if I
paid myself, we would lose more money. So, Mom and Pop
operations run a lot different than most situations and there's
not many of us left, by the way.
CHAIRMAN TAYLOR: Any idea what it cost you to do your rate case
for your 170 people?
MS. ELLER: In, for this last one, I can't tell you exactly. We
tried to do as much in-house as we could. I worked, I was not on
the payroll, but I did as much as I could on it, and then Joe
Franco and he was very reasonable. I did not have an attorney
represent us. Because when I was asked what attorney was
representing us, and this was not this time, this was in the
past, they said to me, 'Who's your attorney that represents you?'
And I said, 'I don't have one, my customers can't afford it.'
You know, and they said, 'You can't do that.' And I said, 'Well,
I'm sorry, that's the way it is.' We never did go to a hearing.
We stipulated with the staff on that, on what our rates were.
You know, if you have to bring an attorney in to get involved in
it, you have an accountant. You know, it just, all of these
things, my one that I did in '85 was actually $30,000. It takes
a long time.
CHAIRMAN TAYLOR: That was for Nenana?
MS. ELLER: Tanana.
CHAIRMAN TAYLOR: Tanana.
MS. ELLER: And I have not [had] a rate increase on my telephone
company since '85 either.
CHAIRMAN TAYLOR: You're still operating at the same rate you were
in '85?
MS. ELLER: Yeah, my customers, residential pay $17. But that's
about as far as [indisc.].
CHAIRMAN TAYLOR: It's too bad that you're not a small water or
sewer system because your odds are 50 percent that you wouldn't
be regulated by this commission. Of course, if you were unlucky,
you would be regulated.
MS. ELLER: Well, you know, there's, I believe the customer does
have to have some place to go to if there is a problem and people
aren't you know taking care of business and making electric safe
and doing the right things for the customer. You know, I do.
But anyway, thank you for letting me speak to you. I hope you
think about perhaps small utilities that are not state funded or
federally funded [indisc.].
CHAIRMAN TAYLOR: That's all the witnesses we had signed up. I
had promised we'd try to get out of here about 2:30, 3 o'clock.
SENTOR DONLEY: Can we just take like a two-minute break?
SENATOR THERRIAULT: Mr. Chairman, before we do that, could we
just see with Buki Wright with Aurora Energy was going to try and
be online at 2:30. Could we just…
CHAIRMAN TAYLOR: Buki, are you there? Buki Wright, Fairbanks,
are you there? I guess not. Could he submit it to the…
SENATOR THERRIAULT: Yeah, I asked him to also try to, if he
wasn't going to be able to testify to submit something in
writing. He had submitted a letter to you that is, I believe, in
the packet. He was going to just clarify that they did wish to
see an extension being made and that if it was just for a shorter
period, that would be fine.
CHAIRMAN TAYLOR: That would be fine. I remember in writing, I
thought I had put the letter in the packet. I tried to get every
single email that came into either my office in Wrangell or up
here in John's office, John, Senator Cowdery's office to you in
the packets. Plus, anybody that wished to, has submitted stuff
to us now. And I wanted to let everybody know that between now
and the time we convene in Juneau, we're going to keep the record
open. I'm assuming that we will probably end up with the bill
being referred to this committee. And as a consequence, I'm
going to post a notice at this time and as when we arrive in
Juneau and the session is convened, that we will have our first
Judiciary Committee hearing on Tuesday at 10:00 a.m. And we're
th
to convene on Monday, that'd be the 25, at 10 a.m. Anyone
wishing to, and actually, I've requested of almost every witness
any ideas or thoughts that they had about how to improve this
commission, to submit them to us and try to submit that in some
sort of legislative form. In other words, amending title
whatever [indisc.] If they could do that, that would be great
and I'm sure many people are going to. And it's my intent that
we're going to try to come up with some type of committee
substitute to take care of these matters that rise to a certain
level of concern. And I want to thank everybody for their very
candid testimony I think before the committee. And in a lot of
ways, I want to thank the people that had courage enough to come
forward and testify. Because I honestly believe there's a great
deal of difficulty when you step up in front of the person who's
going to act as your judge and then criticize them.
SENATOR THERRIAULT: Mr. Chairman, to be clear with your intent.
You plan to mark up, hold hearings and plan to mark up a bill
that is a reauthorization bill with some reforms? Or simply a
reform, some of these suggested changes, timelines and other
things?
CHAIRMAN TAYLOR: If we're going to take this thing up, as I've
been saying from day one, if we're going to be forced to take it
up, then let's hold the hearings, find out what the concerns are
and let's take the whole thing up. It looks to me like even if
you just took the Doctor's good recommendations, you've got ten.
If you throw in Paula's recommendation, that takes you to eleven.
If you get concerned about some of the other things, I predict
you're probably looking at a bill that's probably 20 or 30 pages
long. But if somebody wants to pay the price to have this, if
it's so important that we reauthorize this year, then we'd better
reauthorize something that has some good faith effort put into it
and not just a rubber stamp.
SENATOR THERRIAULT: Mr. Chairman, of course we can reauthorize a
shorter period and the next legislature could take up that
[indisc.].
CHAIRMAN TAYLOR: Well, we tried that, this session.
SENATOR THERRIAULT: But if I remember correctly, it was one of my
amendments in Judiciary Committee that even took the electric
structure from the House and amended it to the bill that you
presented to us.
CHAIRMAN TAYLOR: Yeah, along with the task force and along with
the three-month extension, remember? I had no objection to that.
SENATOR COWDERY: We've had a lot of questions, too. And some of
them have been very timely answered to. And I think that our,
hopefully our staff is, we're a little bit short staffed here,
but has got a list of all the questions that…
CHAIRMAN TAYLOR: We have a tremendous amount of material yet to
come in from Dana who promised to supply us with a whole bunch of
answers and documentation and so on. And the committee should
have the benefit of that. Apparently, the committee is not
interested or at least nobody has been interested yet to testify
very succinctly about the $300,000 study that we as a legislature
are trying to do on the telecommunications industry and RCA.
Former Senator Jim Duncan just let that, gave public notice of
his intent to let that bid about a week or ten days ago. I
personally would like to see that study and see it concluded. I
think that people ought to have, the public ought to have the
benefit of that before we make these changes in a political
atmosphere as the Doctor has indicated. But others don't wish to
do that.
DR. LEHMAN: Would you take another minute of additional testimony
then about that study?
CHAIRMAN TAYLOR: Yeah, we might as well. We've kind of fouled up
now on time anyhow.
DR. LEHMAN: The first day, you handed out a package with the full
60-odd pages of the RFP. You should have attached the winning
proposal.
CHAIRMAN TAYLOR: I don't think I had it at that time. The
packets were made up before…
DR. LEHMAN: It was available.
CHAIRMAN TAYLOR: Was it?
DR. LEHMAN: And you should take into account, I was an
unsuccessful bidder on this. That should be taken into account.
But it says, 'It is KPMG Consulting's understanding that the
State of Alaska seeks to evaluate options for a statewide
telecommunications network from a public policy perspective. It
will be important for the State of Alaska to examine all possible
options, from fiber landlines to cable to fixed broadband
wireless, as well as mobile wireless, including emerging
technology standards such as 3G and satellite.' Now, I don't
know what you think that you're going to get out of that, but I
don't see anything in that that's going to be particularly
relevant to the issues that have come up here.
CHAIRMAN TAYLOR: Well, that's part of our frustration, Doctor, is
that there was a letter explaining to Mr. Duncan exactly what was
intended that came from the Senate President last year. There
has now been a second, as I understand it, supplemental letter,
to the people awarded the contract of what was intended by that
$300,000. And I agree with you that it is a far cry from what
the legislature asked for. But again this is the
politicalization, if you will, of the process.
SENATOR ELLIS: Mr. Chairman, I know you're just one in the
process, but an important person in this whole procedure. Do you
have any prediction of how long the bill that you anticipate
working on and the hearings you plan to hold, do you have any
prediction for the rest of us trying to plan our lives of how
long this, how long would you anticipate taking on in the
legislature? Any idea?
CHAIRMAN TAYLOR: I really don't know. I just don't intend to do
the best job we can within the limited time period we're probably
going to have. I don't foresee us being given the opportunity,
John, to have much more than a day or two. And I think at that
point, somebody reaches critical mass and says, that's enough.
And that's the way the process works. It's intended to work
that way. And I'm sure it will continue. It's not my intent to
obstruct that in any way. I'm just holding the hearing. I'm
going to continue to until we have a resolve, at least in this
committee, as to what we're going to do. And I'd like to get
home much sooner too. I didn't want to go back to Juneau in the
first place. Is that it? I want to thank in particular the
committee members for taking the time out of their lives too to
be there with us. I appreciate that very much. We are
adjourned. [2:49 p.m.]
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