Legislature(2001 - 2002)

03/05/2002 01:38 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
         SB 324-PUBLIC UTILITIES EXEMPT FROM REGULATION                                                                     
CHAIRMAN STEVENS  then announced  the committee  would take  up SB                                                              
SENATOR  ROBIN  TAYLOR, District  A,  gave the  following  sponsor                                                              
     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                                                                    
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                                                              
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                                                              
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                                                              

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