Legislature(2001 - 2002)
03/05/2002 01:38 PM Senate L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 324-PUBLIC UTILITIES EXEMPT FROM REGULATION
CHAIRMAN STEVENS then announced the committee would take up SB
324.
SENATOR ROBIN TAYLOR, District A, gave the following sponsor
statement.
SB 324 would ensure that the City of Ketchikan retains
the ability to set rates for its telephone utility in
the event it faces competition from another utility
company. Alaska law provides that where a municipality
owns and operates a public utility, the municipality
may regulate the terms and conditions governing the
provisions of that public utility and has the power to
set the terms and conditions for the utility services
that they offer. That is probably obvious to everyone
because that is how we all started in Alaska, was with
towns that set up a generating plant or built a little
dam, started building water lines, sewer lines, and
because they had an elected city council and they owned
the utility, there was no need for oversight or
regulation by some state entity.
Alaska law also provides that if a municipal utility
faces competition, all of the municipalities' utilities
become fully subject to economic regulation by the
Regulatory Commission of Alaska [RCA]. The RCA may
grant an exception to this rule. Principles of fairness
and regulatory parity provide that this statute should
be amended when a municipality faces competition from a
telecommunications company. New competitive providers
are subject to less regulation by the RCA. Under
federal law, some new telecommunications companies are
not regulated at all, cellular providers as an example.
By contrast, if the municipality owned a telephone
utility becomes subject to economic regulation by RCA,
it will be more heavily regulated than the new entrant
that is competing with it because we cannot regulate
those folks under federal law. So, a guy comes into
your town and wants to set up a cellular system - a
wireless system - he's not regulated because of federal
law but, because he's competing with the local
telephone company, he would now be subjected to
regulation by RCA. And we've all been here long enough
to go through various telephone wars and utility wars
and so on, that have been created and caused by
decisions made by the RCA or decisions that are pending
before the RCA or haven't been made by them, and then
we end up seeing - there's always an attempt it seems
like every year for the 18 I've been here - somebody
always wants to reach out and touch you. In the way
they draft their legislation, they're going to reach
out and all of a sudden, all of the municipalities that
had been running their own utilities for years get
pulled into this regulatory scheme. Well, the
regulatory scheme can cost hundreds and hundreds of
thousands of dollars for a utility to comply with, just
on a rate change. We've seen a lot of examples of that
even recently. I think many of us had hoped, when we
restructured the RCA, that we would not be running into
these huge costs for utility rate changes but they are
still ongoing and are still a major problem. It's a
tremendous burden to cast upon a small community merely
because somebody wants to show up and start cherry-
picking a telephone company on you.
By economically regulating the municipally-owned
utility, while allowing the new entrant to set prices
without regulatory oversight, the marketplace is unable
to provide the benefits of competition to the public.
The new entrant will be able to set its rates based on
market forces and competitive need while the
municipality which owns the utility will be required to
set its rates based on its costs through rate cases.
These cases could be expensive and time consuming, and
sometimes attract input from other interveners. The
unregulated entity has only to price its service
slightly under the regulated rates of its competitor to
gain market share. Such prices are not necessarily the
lowest possible rates and are not necessarily as low as
the rates that would be given during unfettered
competition. And that's in essence what we're facing
right now in Ketchikan. That's the only reason this
bill was brought is to make certain that not only
Ketchikan but other municipally-owned utilities that
may face some form of competition don't get drug into
this entire AKPIRG affected regulatory scheme that can
take months and months.
2:40 p.m.
SENATOR LEMAN said he agrees it doesn't make sense that because
one utility becomes regulated, all others should be unless the
concern is that funds are being shifted from one utility to
another in the case of common ownership. He said he also agrees
the rate cases are expensive. He then asked, since a utility is
not regulated until it has market power, if it would do a
disservice to the bill to insert the word "unregulated," on page
2, line 4, language so that it reads:
operated by a political subdivision that competes with an
unregulated telecommunications utility.
He asked if a circumstance might occur where a competing utility
would become regulated.
SENATOR TAYLOR said he believes that would take a change in
federal law.
SENATOR LEMAN said he is wondering if a company that is regulated
would come in to compete even though they may not be regulated in
that marketplace.
SENATOR TAYLOR said he did not know.
SENATOR TORGERSON asked why the phrase "electric company" is
included in the bill.
SENATOR TAYLOR said he believes that is what some utilities call
themselves. He said it does not include telecommunications and
speaks to not reaching out to cover all of the other utilities.
SENATOR TORGERSON pointed out the qualifier is "that competes
with telecommunications" and he said he is not aware of any
electric companies that do compete with them.
SENATOR TAYLOR hoped that answer would become clear in later
testimony.
MR. JIM VOETBERG, Assistant City Manager of the City of
Ketchikan, stated support for SB 324. He informed members that he
submitted written testimony and would touch on the main points.
The City of Ketchikan and the City of Ketchikan doing
business as Ketchikan Public Utilities owns and
operates several utilities including
telecommunications, electric, water, solid waste
collection and disposal, and wastewater collection and
treatment. This legislation is important to the city
because it allows the city to operate its utility in a
cost-effective manner and allows the city to utilize
its utilities to assist in the economic development of
Ketchikan. Should the city become regulated under the
RCA, the cost to the rate payers is estimated at around
$700,000 annually, which does not include the cost of a
rate study that, for each utility, could be in the
range of $250,000. These costs include annual fees paid
to the RCA plus additional staff to perform the
increased workload under a regulated utility. These
costs would be directly passed on to our customers
resulting in higher utility bills. Given the economic
situation in Ketchikan, this is not the time to
increase costs to its residents and businesses.
By transferring regulatory control from a local city
council to the state RCA eliminates the local decision
making process that has worked for over 50 years and it
takes away a tool to assist in economic development.
Finally, given the advancement of telecommunication
technology and the varying levels of regulation placed
on telecommunication companies, this proposed
legislation creates a level playing field. Under
current regulations, should a cable company such as GCI
use its cable plant to provide telephone service in
Ketchikan, GCI would not be regulated while Ketchikan
would be fully rate regulated. If a wireless company,
such as APT, were to compete in Ketchikan, APT would be
lightly regulated and, again, Ketchikan would be fully
rate regulated. And should a company compete as a
competitive local exchange carrier - a CLEC- again, the
CLEC would be lightly regulated while Ketchikan would
be fully regulated. In any case, under the current
regulation, the playing field would not be level.
In closing I want to stress the importance of this
relatively small change to AS 42.05.711(b)(2), to the
community of Ketchikan, and to point out that it only
affects the City of Ketchikan because we are the only
municipally owned telephone company in the state, and
actually we're only one of three, we think, nationwide.
The city looks to the state to allow it to preserve
local control as it has for over 50 years and to ensure
that local government has the tools it needs to better
serve our community and better assist in turning
Ketchikan's economy around. Thank you for allowing me
to testify and I'll address any questions you may have.
MR. VOETBERG said, in response to Senator Torgerson's question,
Section 1(b) follows the language in current [statute].
SENATOR LEMAN said he noticed that "electric operating entity"
was used everywhere else in the subsections and that perhaps the
drafters decided to use "electric company." He suggested making
the phrase consistent throughout. He then asked Mr. Voetberg
whether inserting the word "unregulated" before
"telecommunications company" would do any disservice to what he
is trying to accomplish. He commented that Mr. Voetberg expressed
concerned about an unregulated company coming in and competing
with the Ketchikan utility. However, once they get market share
they would become a regulated utility.
MR. VOETBERG said he was not certain about the market share
issue. He noted there are various levels of regulation, for
example, a wireless company is looking at providing telephone
service to Ketchikan customers through a wireless system. The
wireless company is regulated but not fully rate regulated. To
his understanding, "fully rate regulated" means that costs and
revenues have to match. If not fully rate regulated, one can set
and submit rates to the RCA, which does not make sure the costs
and revenues balance each other. He suggested inserting the word
"unregulated" will not address the issue in Ketchikan. He asked
that Heather Graham address this issue on the City of Ketchikan's
behalf.
SENATOR LEMAN said the goal is a level playing field and that
there might be a more artful way to get there.
MR. VOETBERG said the City of Ketchikan has considered several
versions of this and found SB 324 to be the closest to the level
playing field that it can come.
MS. HEATHER GRAHAM, legal counsel to the City of Ketchikan
telephone utilities division, said that when a new telecom
company seeks to provide service and market, it is never fully
rate regulated. Therefore, at most, it would be required to post
a tariff of its prices. It is not subject to full rate
regulation, which means the RCA would carefully evaluate and
review all of the new entrants and require them to charge a
certain rate based on their costs. The new entrant can charge
whatever it wishes and can raise and lower its rates at will. By
contrast, if the existing law is applied to Ketchikan without an
exemption, the City of Ketchikan would be required to go through
an exhaustive rate setting process that takes a lot of time and
is very expensive. The city would not be able to raise and lower
its rates at will. In effect, it would be hamstrung and would be
unable to compete effectively with a new entrant because the new
entrant will either be unregulated or lightly regulated. She
explained that lightly regulated means the new entrant would have
to get a certificate from the RCA, a minor matter, and agree to
post tariffs. She maintained that Mr. Voetberg has accurately
reflected why the City of Ketchikan supports SB 324.
SENATOR LEMAN asked at what stage a new entrant would become rate
regulated and whether it is related to market share.
MS. GRAHAM said there is no threshold at which point a new
entrant would become fully rate regulated. She noted the best
example in Anchorage is GCI. GCI has acquired 40 percent or more
of the local exchange market in Anchorage but is not fully rate
regulated. The incumbent, ACS, is fully rate regulated.
SENATOR LEMAN asked Ms. Graham if she could suggest language that
would provide a level playing field.
MS. GRAHAM said she does not believe a change is necessary.
MR. HOWARD GARNER, Executive Vice President of Alaska Power and
Telephone (APT) Company, and an officer of the Alaska Telephone
Company, a subsidiary, informed members that APT owns the
wireless company in Ketchikan. APT has been a member of the
Ketchikan community for a substantial amount of time and has a
large investment there. APT opposes SB 324 for several reasons,
the primary one being that there is a ready solution available to
the City of Ketchikan. A mechanism is available to the City to
apply for an exemption from the RCA. He has worked with the RCA
for over 10 years as APT has extensive regulated operations on
both the electric and telephone side. He does not believe the
process to be as difficult as earlier testimony indicated. The
RCA does a reasonable job of protecting the public interest. He
maintained that some of the previous comments made were "quite
out of line" with his actual experience. APT's second concern is
that SB 324 would place the State of Alaska in a difficult
position regarding the federal Telecom Act of 1996, specifically
under Section 254(k), which is entitled, "Subsidy of Competitive
Services Prohibited." He read a paragraph from that section:
A telecommunication carrier may not use services that
are not competitive to subsidize services that are
subject to competition. The commission [Federal
Communications Commission] with respect to interstate
services, and the states, with respect to intrastate
services, shall establish any necessary cause [indisc.]
allocation rules, accounting safeguards, and guidelines
to ensure that services included in the definition of
universal service bear no more than a reasonable share
of the joint and common cost of facilities used to
provide those services.
MR. GARNER requested that the commission thoroughly investigate
the Telecommunication Act of 1996 and compliance with it. APT's
application has been made to the RCA for a certificate to provide
service and APT believes that process contains adequate
safeguards.
SENATOR LEMAN asked if the City of Ketchikan would be subject to
those same conditions in the federal law, and "they couldn't
cross subsidize or else they would be in violation."
MR. GARNER said that is correct.
SENATOR LEMAN said in the setting of rates, they would have to
demonstrate that they are not cross subsidizing but the City of
Ketchikan, as a utility company, would have to meet the same law
and would probably have to make a statement to that effect.
MR. GARNER said they would have to make that statement. He said
to his understanding, the RCA can consider Ketchikan's request
that they not be required to be fully regulated because that
would not be in the public's interest.
SENATOR TORGERSON asked if APT would oppose or support a waiver
if the City of Ketchikan was to include one.
MR. GARDINER said APT would oppose that. During the history of
municipally owned telephone companies in Alaska, there was
one-time substantial ownership in Anchorage and Fairbanks and
those communities got along without that requirement. He sees no
reason for special treatment.
MR. REED STOOPS informed members that Dana Tindall was called to
an RCA hearing so he would ask her to submit written testimony.
There being no further testimony, SENATOR TORGERSON moved to
delete the word "company" on page 2, line 3, and insert the
words, "operating entity" to make that language consistent with
the rest of the bill [Amendment 1].
There being no objection to the motion, CHAIRMAN STEVENS
announced that Amendment 1 was adopted.
CHAIRMAN DAVIS asked for the will of the committee.
SENATOR DAVIS asked that the committee wait for testimony from
the individual who was unable to testify today [Ms. Tindall].
MR. STOOPS said he assumes Ms. Tindall would have some of the
same concerns as the APT but since this is a relatively new
issue, they are still trying to learn from the RCA.
CHAIRMAN STEVENS said the bill could be moved to the Senate
Judiciary Committee where more public testimony will be taken.
SENATOR TORGERSON moved CSSB 324(L&C) from committee with
individual recommendations and its accompanying fiscal notes.
CHAIRMAN STEVENS announced that with no objection, the motion
carried.
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