Legislature(2001 - 2002)
03/05/2002 01:38 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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.