Legislature(1999 - 2000)
04/15/1999 08:10 AM House CRA
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE COMMUNITY AND REGIONAL AFFAIRS
STANDING COMMITTEE
April 15, 1999
8:10 a.m.
MEMBERS PRESENT
Representative Andrew Halcro, Co-Chairman
Representative John Harris, Co-Chairman
Representative Carl Morgan
Representative Fred Dyson
Representative Reggie Joule
Representative Albert Kookesh
MEMBERS ABSENT
Representative Lisa Murkowski
COMMITTEE CALENDAR
*HOUSE BILL NO. 178
"An Act relating to removing solid waste collection and disposal
service from regulation by the Alaska Public Utilities Commission;
requiring certain municipalities, and permitting other
municipalities, to regulate solid waste collection and disposal
service within the municipal boundaries; and providing for an
effective date."
- HEARD AND HELD
(* First public hearing)
PREVIOUS ACTION
BILL: HB 178
SHORT TITLE: DEREGULATION OF GARBAGE UTILITIES
SPONSOR(S): REPRESENTATIVES(S) KOTT
Jrn-Date Jrn-Page Action
4/07/99 670 (H) READ THE FIRST TIME - REFERRAL(S)
4/07/99 671 (H) CRA, L&C, FIN
4/15/99 (H) CRA AT 8:00 AM CAPITOL 124
WITNESS REGISTER
REPRESENTATIVE KOTT
Alaska State Legislature
Capitol Building, Room 118
Juneau, Alaska 99801
Telephone: (907) 465-3777
POSITION STATEMENT: Testified as Sponsor of HB 178.
SAM COTTEN, Commissioner, Chairman
Alaska Public Utilities Commission
Department of Commerce & Economic Development
1016 West 6th Avenue
Anchorage, Alaska 99501-1963
Telephone: (907) 276-6222
POSITION STATEMENT: Testified on HB 178.
JIM ARNESEN, Owner, President
Commercial Refuse, Incorporated
750 East International Road
Anchorage, Alaska 99518
Telephone: (907) 562-3700
POSITION STATEMENT: Opposed HB 178.
BOBBY COX, Vice President
Alaska Division of Waste Management
6301 Rosewood
Anchorage, Alaska 99518
Telephone: (907) 563-3717
POSITION STATEMENT: Supported HB 178.
DONN WONNELL, Attorney
Municipality of Anchorage
410 West 37th Street
Vancouver, Washington 98660
Telephone not provided.
POSITION STATEMENT: Discussed problems with HB 178.
DOUGLAS NEELEY
Copper Basin Sanitation
PO Box 88
Glennallen, Alaska 99588
Telephone: (907) 822-3600
POSITION STATEMENT: Did not like HB 178.
PAM KRIEBER, Co-Owner
Valley Refuse
PO Box 879109
Wasilla, Alaska 99687
Telephone: (907) 376-8075
POSITION STATEMENT: Identified HB 178 as special interest
legislation.
PHIL HORTON, Co-Owner
Valley Refuse
PO Box 878877
Wasilla, Alaska 99687
Telephone: (907) 357-6000
POSITION STATEMENT: Opposed HB 178.
MARY HUGHES, Municipal Attorney
Municipality of Anchorage
PO Box 196650
Anchorage, Alaska 99519
Telephone: (907) 343-4467
POSITION STATEMENT: Opposed HB 178.
HEATHER GRAHAME, Outside Counsel
for Waste Management in Alaska
Attorney, Dorsey and Whitney LLP
1031 West 4th Avenue, Suite 600
Anchorage, Alaska
Telephone: (907) 257-7822
POSITION STATEMENT: Testified on HB 178.
ACTION NARRATIVE
TAPE 99-24, SIDE A
Number 0001
CO-CHAIRMAN HARRIS called the House Community and Regional Affairs
Standing Committee meeting to order at 8:10 a.m. Members present
at the call to order were Representatives Halcro, Harris, Morgan,
Joule and Kookesh. Representative Dyson arrived at 8:40 a.m.
Representative Murkowski was not present.
HB 178-DEREGULATION OF GARBAGE UTILITIES
CO-CHAIRMAN HARRIS announced that the only order of business before
the committee would be HOUSE BILL NO. 178, "An Act relating to
removing solid waste collection and disposal service from
regulation by the Alaska Public Utilities Commission; requiring
certain municipalities, and permitting other municipalities, to
regulate solid waste collection and disposal service within the
municipal boundaries; and providing for an effective date."
Number 0045
REPRESENTATIVE KOTT, Sponsor of HB 178, Alaska State Legislature,
clarified that the issue before the committee is one of
re-regulation not deregulation. The deregulation of the refuse
industry has been before the legislature for many years. He noted
that there is Senate legislation that would deregulate refuse
collection and disposal services. Representative Kott believed
that there should be some re-regulation of the refuse industry in
order to relax some of the regulatory control over the refuse
industry. Representative Kott explained that HB 178 would take the
regulation of garbage utilities from the state and the Alaska
Public Utilities Commission (APUC), and places it in the control of
the municipalities and second and third class cities. The local
governments merely have the option to take over garbage utilities.
The bill includes provisions protecting the current garbage utility
operators as well as consumers. Once this transition occurs and
the franchise agreements are agreed to by both parties, the bill
has a provision which calls for rate stabilization. However,
rates can be adjusted for unforeseen circumstances and inflation
costs which is basically what is followed today.
Number 0351
REPRESENTATIVE KOTT stated that HB 178 is not an unfunded mandate.
If cities decide to do their own refuse service, the cost can be
recovered through the collection of fees from the consumer. A
provision in HB 178 allows the collection of franchise fees between
.5 percent to 2.5 percent, from an operator which is not unusual.
For example, Anchorage residents receive a quarterly refuse bill
from the refuse operator which includes a regulatory charge. He
stated that with the implementation of HB 178, there will be
competition which generally lowers prices and increases quality.
He noted that he has not had any problems with his refuse service.
Representative Kott informed the committee that in almost every
state, the state government is not involved in garbage utilities.
He found it difficult to view garbage collection as a utility.
When the re-regulation of garbage utilities is decentralized to the
local level, each local government will be better able to determine
its needs. The APUC is under great scrutiny by this legislature.
The main complaint is that the APUC has such a backlog of issues.
Although the garbage utilities are a small part of the APUC's
duties, relieving APUC of that duty would reduce its workload and
help facilitate its essential operations to other utilities in a
more timely manner. There would be a transitional period of about
six months. He noted that an amendment has been offered to the
committee. Representative Kott requested that the technical
experts regarding this issue come before the committee.
Number 0830
CO-CHAIRMAN HALCRO asked if the House Special Committee on Utility
Restructuring received an oversight hearing on HB 178.
REPRESENTATIVE KOTT replied no. The House Special Committee on
Utility Restructuring has discussed the issues surrounding the
APUC. There will be some substantive changes to the administrative
side by providing the chairman of the APUC with some additional
duties. The House Special Committee on Utility Restructuring has
heard that the APUC has a backlog of about 500 cases. This bill
would remove approximately 2 percent of the APUC's workload. The
chairman of the APUC has indicated that reducing any of the APUC's
workload would be appreciated. Representative Kott pointed out
that HB 178 has support from the APUC with some caveats which are
addressed in the amendment.
CO-CHAIRMAN HALCRO referred to information in the committee packet
which states that 47 states have deregulated garbage utilities. He
also pointed out that the committee packet includes letters of
support for HB 178 from four Anchorage assembly members and a
letter in opposition to HB 178 from the Mayor of Anchorage.
REPRESENTATIVE KOTT believed that more Anchorage assembly members
than the four actually support HB 178. He expected written support
from four more Anchorage assembly members. Representative Kott
indicated that of major concern to the Anchorage administration is
their lack of expertise, which he did not believe was a valid
concern. Representative Kott suggested that the different
positions were developing from the desire to protect ones own turf.
CO-CHAIRMAN HARRIS inquired as to the differences that would result
under HB 178. What types of regulations would be changed?
REPRESENTATIVE KOTT deferred the question to someone involved in
the APUC. Representative Kott understood that once a certificate
is issued, there is not much oversight unless there are complaints
by the consumer. He did not envision much bureaucratic oversight
under HB 178.
Number 1244
SAM COTTEN, Commissioner, Chairman, Alaska Public Utilities
Commission, Department of Commerce & Economic Development,
testified via teleconference from Anchorage. He informed the
committee that the APUC met on this legislation yesterday and
unanimously supported the concept of HB 178. In addition to the
workload reductions under HB 178, the local knowledge and
preferences would be most appreciated by the local governing
bodies. The APUC recommends two amendments one of which Mr. Cotten
understood is being proposed by Representative Kott. The amendment
to page 3, line 19, offered by Representative Kott would provide a
third alternative which would allow municipalities the option of
competition. Currently, a utility may be the only one providing
service, but there is the possibility for another operator to
obtain a certificate. If the aforementioned amendment was adopted
and HB 178 passed, the same situation would exist. Mr. Cotten
recommended the deletion of the definition of "fair market value"
on page 4, line 18, because that definition is not being used now.
Other statutes and case law have been the guide for "fair market
value".
MR. COTTEN informed the committee that the APUC did an analysis of
HB 178 which it would provide to the committee. There are concerns
regarding page 3, lines 13-15 which in part states, "the franchise
must contain an agreement that will allow the carrier to charge
customers at the rates contained in the utility's tariff in effect
on June 1, 1999,". Just because those rates are in effect on June
1, 1999 does not mean that those rates are appropriate, just, or
reasonable. There is no provision for the reduction of rates as a
result of productivity gains or economies of scale. He noted that
there has been the consolidation of existing providers which
results in the utility acquiring a significant share of the refuse
market. Furthermore, HB 178 allows for a rate increase based on
inflation without showing that the utility's cost of service
increased. This legislation would provide for increased rates for
extraordinary increases in operating expenses without defining what
constitutes extraordinary.
Number 1495
CO-CHAIRMAN HARRIS inquired as to what refuse regulations the APUC
requires now that may or may not be imposed by the municipality.
MR. COTTEN explained that a utility must receive a certificate from
APUC after which, the utility applies to provide a certain type of
service in a certain area. A certificate is issued after the APUC
finds the utility "to be fit, willing, and able and ... in the
public interest to proceed." Mr. Cotten presumed that a
municipality would have similar ability. If the utility is
economically regulated, the APUC requires the utility to file a
tariff. If the utility is a monopoly, the APUC has typically made
the utility justify the tariff based on the utility's cost with an
allowance for a reasonable rate of return. Mr. Cotten noted that
there is less economic regulation in Anchorage now that there is
more competition in commercial refuse, although the tariffs must be
filed with the APUC.
CO-CHAIRMAN HALCRO asked if the APUC's work load would be
significantly reduced per the changes in HB 178.
MR. COTTEN informed the committee that typically an application,
tariff, or dispute is received by the APUC and unfortunately, it
may not be the highest priority. Mr. Cotten explained that the
APUC has a zero fiscal note because although the work load would be
reduced, the APUC would be able to deal with its other business
more quickly and efficiently. Mr. Cotten stated that the APUC's
work related to garbage utilities is in the single digit range.
Number 1687
JIM ARNESEN, Owner, President, Commercial Refuse, Incorporated,
testified via teleconference from Anchorage. Mr. Arnesen noted
that he had discussed HB 178 with other independent operators who
are also opposed to HB 178. He stated that there has been one
large company making purchases and consolidating which is turning
into a large monopoly. "To turn a statewide monopoly over to local
control is probably disingenuous." Mr. Arnesen did not see how
local communities can properly control a statewide concern. He
acknowledged the discussion of the workload at APUC being taken up
by refuse problems. Mr. Arnesen guessed that most of the refuse
workload for the APUC has been related to Waste Management,
Incorporated buying all the smaller operators in the state.
MR. ARNESEN pointed out that in those 47 states with deregulated
refuse services there is vibrant competition. In Alaska that is
not the case; Waste Management, Incorporated has about 95 percent
of the business. Mr. Arnesen felt that now was the time to
recognize the need for statewide regulation. He found it difficult
to imagine how a consumer would receive a better result from a
complaint made to a municipality once the refuse industry has been
franchised.
CO-CHAIRMAN HARRIS inquired as to how the areas without
municipalities would be regulated under HB 178, if there is no
local government.
MR. ARNESEN did not know. For example, in Glennallen there is no
borough or governing agency. He acknowledged that there are other
areas in the state that are similarly situated.
CO-CHAIRMAN HALCRO noted that he did receive and read Mr. Arnesen's
letter. The letter stated, "Localized control would be ineffective
in regulating such a large statewide monopoly." Co-Chairman Halcro
felt that local control allowed local communities the ability to
respond to local needs.
MR. ARNESEN believed that currently there is a certain amount of
10local control available while there is statewide control through
the APUC. If HB 178 were to become law, the statewide aspect would
be lost leaving only minimal local control. Mr. Arnesen recognized
that in some instances local control is desirable, but this is a
statewide concern which necessitates statewide oversight.
CO-CHAIRMAN HALCRO said that giving administrative control of the
franchised areas to local governments would seem to be more
effective than going through a board or commission.
MR. ARNESEN pointed out that when there is one large company that
controls 95 percent of the market, that large company will underbid
everyone and receive all the franchises. Mr. Arnesen predicted
that if HB 178 becomes law, there will be no small operators within
five years. He further noted that in the garbage industry, unlike
the telecommunications industry, there are not multiple large
players that produce competition on equal footing. Mr. Arnesen
felt that it would be difficult for a consumer to have a complaint
addressed at the local level.
Number 2205
BOBBY COX, Vice President, Alaska Division of Waste Management,
supported HB 178. Mr. Cox informed the committee that Waste
Management is the largest waste company in the U.S. He explained
that Waste Management is the result of a merger between USA Waste
Services and the former Waste Management. The surviving management
of USA Waste took over the operation of Waste Management. In
Alaska, Waste Management has a number of operations in various
communities as well as applications pending in two communities in
Western Alaska. Currently, Waste Management has over 250 employees
in Alaska who live and work full-time in Alaska. This is an
Alaskan company which has maintained all of its Alaskan employees
that were brought in when the operations were acquired. Waste
Management has a decentralized approach which makes for a better
company and better community relations. He noted that the local
managers are empowered with much authority in the daily business.
Although it may seem as if Waste Management is a statewide
monopoly, it is actually many local companies working under one
umbrella. He said that the company has the ability to provide
employee benefits and purchasing power on a better scale than what
would be possible with a small company. Mr. Cox said that the
daily operations and management of the individual companies is
handled at the local level.
MR. COX stated that Waste Management believes that local regulation
is a better approach to managing a business. Historically, the
refuse industry in Alaska has been regulated as a utility service.
The refuse industry does not really fit the utility regulation
model. Typically, utilities have large capital investments and
infrastructure support to enter the business. Garbage service is
a local issue. He noted that many cities have taken over garbage
service and others have chosen to establish their own certificate
within the APUC and provide their own service. Mr. Cox believed
HB 178 would benefit all of Alaska.
Number 2372
MR. COX noted that existing statutes allow the cities and
municipalities to provide service if they so choose, but the city
would have to go to the APUC to receive a certificate of
convenience and public necessity. This legislation, HB 178, would
allow cities to do that directly. The legislation also provides
protection for current certificate holders in the community. Mr.
Cox stated that the amendments proposed by Representative Kott are
a reasonable compromise that would allow the following:
1) A city could take over and provide its own garbage
service with its own employees and facilities.
2) A city could continue to contract with a an existing
exclusive provider by establishing a franchise system.
3) A city could allow competition in its local market.
The ability to allow competition should address the concerns of
many of the smaller providers. Currently, Anchorage, Wasilla, and
Fairbanks are the only communities with active competition
sanctioned by the APUC. Mr. Cox reiterated that competition would
protect the rights of the smaller providers as well as providing
tremendous leverage to the local community.
MR. COX disputed the notion that HB 178 is an unfunded mandate
because of the provision for franchise fees. Currently, as a
utility, service providers pay a regulatory cost charge to the APUC
which is typically passed on to consumers in their garbage bills.
Those revenues could be redirected to communities in the form of
the franchise fee in order to cover administrative or regulatory
costs. For example, if the Municipality of Anchorage granted Waste
Management an exclusive franchise, a 2.5 percent franchise fee
would generate nearly 500,000 per year. With regards to the
comment that there is not enough local expertise to manage a
garbage utility, Mr. Cox pointed out that almost every major city
has a solid waste department or a public works department which is
handling solid waste. Furthermore, most of the disposal operations
are handled within the municipality, borough, and city structures.
In most localities, disposal is half of the cost of the refuse
service. Therefore, there is no need to establish a new
bureaucracy at the local level. Mr. Cox explained that typically,
a local government can issue an RFP for a franchise and take a
competitive bid which would delineate the conditions and terms of
service. Mr. Cox also identified the control of rate-making as a
concern for some. Representative Kott's amendment seems to address
that concern by providing the municipalities with the option to
establish competitive franchises which will serve as a rate
regulator without a formal rate-making process. He noted that one
of the difficulties in rate-making is that the refuse industry is
not structured similar to a typical utility. Therefore, the refuse
industry often has to go through a very expensive and intensive
rate process in order to justify rates.
MR. COX informed the committee that Waste Management has a number
of franchise situations in the Lower 48. He acknowledged that in
those areas there is active competition. The regulatory system in
Alaska is one of the reasons there is not much competition here.
Mr. Cox predicted that HB 178 would result in more active
competition. Mr. Cox discussed the situation in Kodiak in which
competitive bids were used. He stated that if competitive bidding
can occur in a community the size of Kodiak, it could probably
occur anywhere in Alaska. Mr. Cox hoped that the committee would
take favorable consideration of HB 178.
Number 2687
CO-CHAIRMAN HARRIS inquired as to what type of operation would
occur in areas that are not boroughs or cities with an APUC
certificate.
MR. COX noted that such areas today are below the regulatory
threshold and would not be filing rate-regulated tariffs with the
APUC. Such unincorporated areas would have a certificate to
provide service and there is no rate regulation. In further
response to Co-Chairman Harris, he explained that the original
certificate is obtained by making a proposal to the APUC that the
entity is fit, willing, and able to provide the service. In recent
years, the APUC has significantly reduced the standard of fit,
willing, and able. Under HB 178, Mr. Cox stated there would be no
need for a certificate to provide the service. Mr. Cox pointed out
that HB 178 does not transfer regulatory authority to any community
that is not at least a Class 2 city. Therefore, the markets in the
unincorporated areas would probably not be impacted.
CO-CHAIRMAN HALCRO inquired as to how competition would be helped,
if there are competitive bids and the company not receiving the
competitive bid would be locked out for say five years.
MR. COX said that the municipality or the borough would have the
choice of competition under HB 178. Currently, multiple
certificates in an area would be nonexclusive franchise areas. If
a municipality decided it did not want to continue a nonexclusive
franchise area, the municipality would be free to issue
nonexclusive franchises which, per the amendment, would deregulate
the rates. Therefore, open and free competition would be
available. He noted that most smaller markets have an exclusive
provider of service which would be continued for a period of time
unless the municipality chose to enter into competition.
Therefore, a rate-based market for the rate system would occur and
the ongoing regulation would not occur. A nonexclusive franchise
would be the result.
CO-CHAIRMAN HALCRO asked how HB 178 would effect those
municipalities or boroughs that provide their own solid waste
services.
MR. COX stated that such areas would not be effected; HB 178 would
merely reinforce the authority over their own service areas. In
the past there has been concern regarding whether the municipality
had an exclusive right to continue service in their areas which
HB 178 would eliminate.
Number 2916
REPRESENTATIVE JOULE noted that Mr. Cox had mentioned expansion in
Western Alaska, in Dillingham and Nome. Representative Joule
wondered if HB 178 ran the risk of putting small local businesses
out of business. In economies of small communities, a single job
is so important.
MR. COX explained that in Nome, Waste Management is acquiring the
existing operation with the existing employees. Under the
acquisition, those employees will receive a better benefit package.
Although the operation will be under a larger organization, the
operation would continue the same as before the acquisition.
TAPE 99-24, SIDE B
MR. COX stated that what is in the best interest of local
government should be the choice made.
CO-CHAIRMAN HALCRO asked if Waste Management controlled the
landfill in any of the Alaskan communities in which it operates.
MR. COX informed the committee that it owns the landfill in Juneau.
In further response to Co-Chairman Halcro, Mr. Cox stated that
approximately half of Waste Management's revenues come from
landfill operations in the Lower 48. He pointed out that Waste
Management has many contracts with municipalities to operate
landfills. Mr. Cox informed the committee that the Municipality of
Anchorage has one of the finest landfills in the country. In some
communities where there is a landfill problem, Waste Management
provides the community the opportunity to solve some of its
disposal problems. Many of the rural areas in the Lower 48 are
trying to consolidate into a regional landfill. Obviously, there
are logistical problems with that concept in Alaska and Waste
Management is trying to work on that.
CO-CHAIRMAN HALCRO inquired as to whether there is a vehicle in the
franchise agreement which would allow local governments to place
restrictions or requirements on the development of a disposal site.
MR. COX pointed out that disposal has typically been separate from
collection because the APUC does not regulate disposal which is
regulated through DEC. He did not envision that tying in with the
franchise. Mr. Cox noted that even under DEC, disposal must occur
in an approved DEC facility.
CO-CHAIRMAN HARRIS asked if Waste Management or other companies
would be looking to Ketchikan as an example which currently ships
its garbage to the Lower 48.
MR. COX informed the committee that Waste Management has a
collections operation in Ketchikan. The City of Ketchikan
contracts with Allied Waste to ship the refuse to a landfill
located in the State of Washington. He believed that is coming up
for bid in Ketchikan soon. Waste Management would certainly look
at that as a possible opportunity. In Southeast Alaska, there are
landfill issues because land is at a premium and there are not good
locations for landfills. Waste Management has a facility in Oregon
to which refuse from Southeast Alaska could be shipped. Mr. Cox
cited an alternative option to review keeping the refuse in the
state in order to create more jobs. Mr. Cox noted that Waste
Management is evaluated with regard to how it performs in Alaska
not overall. Therefore, keeping the refuse in Alaska and creating
jobs would be in the best interest of Waste Management.
Number 2735
DONN WONNELL, Attorney, Municipality of Anchorage, testified via
teleconference from Anchorage. He informed the committee that he
represents the Municipality of Anchorage primarily in matters of
telecommunications and electric matters. Upon the request of the
Municipality of Anchorage, Mr. Wonnell said that he would address
the regulatory and competitive implications of HB 178. He informed
the committee that he is a 20 year property owner in Paxton,
Alaska.
MR. WONNELL acknowledged that if competition could provide lower
prices there is an inclination to do so. Mr. Wonnell did not
believe that HB 178 is an effective vehicle to obtain competition.
The principle problem is market power which is when one entity in
a market place extracts excessive profits because of the entity's
ability to affect prices contrary to competitive principles. For
example, if one owned 10 gasoline stations in a state, a competitor
in that state would have two choices and must recognize one of two
conditions. "If you try and enter against any one of my gas
stations, you must consider the possibility that I, in the exercise
of my market power, will use the profits from my other nine
stations to subsidize the pricing at that one gas station to a
level which, in effect, prevents you from entering. Or if you try
and enter, drives you out of the market after a period of time.
I'm secure in the knowledge that once you leave, I can resume my
pricing practices because there is nobody left. The alternative if
I am an entrant, is to consider entering against all 10 of your gas
stations simultaneously. That has the benefit of keeping you from
subsidizing any one of them, but on the other hand, it represents
a huge barrier to entry since I must fund and enter all 10 of those
locales." Mr. Wonnell believed that various provisions of HB 178
make such a scenario possible.
MR. WONNELL referred to Section 1(b)(1) which fracture the
jurisdictional oversight to be applied to the refuse industry. As
a result of moving the oversight from a unitary entity to various
local divisions, no one local entity can see the totality of the
operation of a large statewide company. He said, "Nobody has the
ability to see if the whole equals the sum of its parts." Such may
not be problematic in a truly competitive market, but in the
aforementioned scenario it would be a problem. The cross
subsidization and predatory pricing escapes detection and remedy.
Mr. Wonnell believed this problem is exacerbated because the
control to be exercised is not the same control that the APUC has
now. Although the legislation specifies that the local
jurisdiction will negotiate, the local entity has no knowledge of
what is going on in other negotiations.
Number 2476
MR. WONNELL referred to page 7, Section (2)(B) which he said was
perhaps, the most disturbing portion of HB 178. The language in
Section (2)(B) says that if sole source status is achieved, that
entity is then immune to the anti-trust laws. Mr. Wonnell
clarified that he did not want to equate the aforementioned example
to any company involved in refuse in Alaska, but wanted to point
out the potential of HB 178 to result in an unregulated monopoly.
An unregulated monopoly does not seem to be what Representative
Kott has in mind nor would it achieve the lower prices. Mr.
Wonnell emphasized that the amendments are essential and support
the Municipality of Anchorage's belief that HB 178 is flawed. The
amendment referring to Section 2(e)(2) which grants competing
franchises is a start, but does not address the fractured
oversight.
MR. WONNELL pointed out that there is no knowledge that the
existing rate levels do not contain excess profits. Those rates
can be increased for inflation and extraordinary events which is
not defined in HB 178. Mr. Wonnell cited such areas of additional
revenues as the reservoirs from which cross subsidization and
predatory pricing can arise. The municipality is not arguing
against local control, but rather that HB 178 is flawed in terms of
how that local control is influenced.
CO-CHAIRMAN HARRIS pointed out that some of the proposed amendments
may address some of Mr. Wonnell's concerns regarding exclusive
franchises.
MR. WONNELL commented that it would be an improvement to say that
competing franchises can be granted, but that provision does not
address the market power which arises from the fractured control.
Mr. Wonnell suggested that a more significant change would be to
reinstate anti-trust oversight. Furthermore, the local control
should be empowered to enforce the same type of powers the APUC
does now. Even with such changes to HB 178, the risk of escape and
evasion with regard to the ability to monitor the overall economic
effects of consolidated activity remain. Mr. Wonnell said, "The
industry is clearly consolidating now at a time when you are
disaggregating the regulatory oversight." Those seem to be
inconsistent and incompatible tendencies in terms of the public
interest.
Number 2212
DOUGLAS NEELEY, Copper Basin Sanitation, testified via
teleconference from Glennallen. He informed the committee that he
had faxed the committee some information and that he did not like
HB 178. Mr. Neeley informed the committee of the franchised area
to which he provides service as well as the landfill he maintained.
The committee should have information which reports that 85 percent
of Mr. Neeley's customers reside within 15 miles of Glennallen.
The remaining 15 percent of Mr. Neeley's customers reside on the
100 mile run in four directions. Mr. Neeley stated that if under
deregulation, someone wanted to 'cherry pick' his service area he
could lose 75 percent of his customers, those in Glennallen and
Tazlina. Therefore, Mr. Neeley would be left with 15 percent of
his customers and the balance of the cost of the operation, 85
percent. He said that in such a situation he could not afford to
serve the extended area garbage haul.
MR. NEELEY noted that he has operated Copper Basin Sanitation since
1963. Copper Basin Sanitation is part of a larger company owned by
Mr. Neeley. He acknowledged that the Anchorage landfill is of high
quality, but much of it is supported by tax revenue. Mr. Neeley
stressed the need for some statewide oversight for permitted areas.
The legislation before the committee does not take into
consideration those areas that are unorganized. Mr. Neeley
emphasized, "I think you need to get off your high horse down there
... worrying about Anchorage and Fairbanks and think about the rest
of the State of Alaska."
CO-CHAIRMAN HALCRO commented that he did not see any "high horses"
in the committee room.
MR. NEELEY stated that most everything coming out of Juneau deals
with the big cities and not much deals with the rural areas. He
indicated that every year deregulation seems to be an issue. Mr.
Neeley said that he did not have a problem with deregulation as
long as oversight to protect the operator as well as the customer
is provided for unincorporated areas which HB 178 does not address.
Will that be addressed?
CO-CHAIRMAN HARRIS said that he believed it would be addressed.
REPRESENTATIVE KOOKESH commented that four of the six committee
members represent rural Alaska.
MR. NEELEY said that he was glad to hear that.
Number 1801
PAM KRIEBER, Co-Owner, Valley Refuse, testified via teleconference
from the Mat-Su Valley. She informed the committee that Valley
Refuse is one of the six certificated refuse haulers operating in
the Mat-Su Valley. The rates of Valley Refuse are regulated by the
APUC. Valley Refuse has been operating competitively for five
years. Ms. Krieber stated, "Waste Management's HB 178 is special
interest legislation at its finest. This bill achieves nothing
more than assuring a huge international company fixed rates for
five years with absolutely no scrutiny or rate justification and
allows municipalities the ability to enhance their revenue by cross
subsidization through their garbage rates." Ms. Krieber pointed
out that competition already exists under the jurisdiction of the
APUC. The APUC has supported and encouraged competition by issuing
overlapping certificates and service areas while retaining rate
setting oversight to ensure fairness among competitors.
"Competition exists where it works such as in the Mat-Su Valley and
Anchorage. Competition did exist in Fairbanks until Waste
Management bought both companies."
MS. KRIEBER stated that HB 178 was requested by Waste Management
for their own self-serving purposes. She inquired as to why HB 178
would remove Waste Management from APUC regulation as well as the
attorney general's anti-trust jurisdiction, if Waste Management
supports competition. Language in HB 178 would exempt solid waste
collection and disposal companies from the attorney general's
anti-trust jurisdiction. Section 8 of HB 178 would amend trade and
commerce law to extend the exemption of regulated public utilities.
She pointed out that in AS 45.50.562, "Every combination in the
form of trust or otherwise or conspiracy in restraint of trade or
commerce is unlawful. Currently, per AS 45.50.572(d) public
utilities holding a certificate of public convenience and necessity
are exempt from these statutes because they fall under the
jurisdiction of the APUC." However, HB 178 does not explicitly
provide the attorney general such jurisdiction. If APUC oversight
and the attorney general's power to prosecute anti-trust violations
is eliminated, who will protect Alaskan citizens from unfair and
unlawful business practices. Ms. Krieber emphasized that if HB 178
passes, competition will cease to exist and boroughs, second class
cities, and unincorporated areas will face an additional level of
administration. Regardless of its size or financial status, the
burden of regulation will be placed on local governments which will
result in citizens paying more for the same service.
MS. KRIEBER identified the rate freeze as of June 1, 1999 under HB
178 as another problem. Those rates were established under a
different set of circumstances than currently exist. "Small
private companies could justify rates to cover their overhead
expenses. A large international company with the ability to
consolidate and lower expenses now owns these companies." Ms.
Krieber noted that the APUC has several rate studies in progress
due to such concerns. Ms. Krieber pointed out that the 2.5 percent
franchise fee under HB 178 is much greater than the current
regulatory charge of .6663 percent. Furthermore, she noted that
the APUC currently mediates disputes among utilities. She inquired
as to who would take precedent in areas with no regulatory
oversight such as Fairbanks in which both the city and the borough
qualify as municipalities under Title 29. Ms. Krieber emphasized,
"This bill does nothing more than hand the Alaska refuse hauling
market to Waste Management." Ms. Krieber pointed out that many
Alaskans are concerned with the CARRS-Safeway merger and the
BP-ARCO merger which she indicated would be parallel to the way
that Waste Management has infiltrated the Alaskan refuse market.
CO-CHAIRMAN HALCRO inquired as to whether the Mat-Su Borough has
taken a position on HB 178.
MS. KRIEBER did not know.
Number 1510
REPRESENTATIVE DYSON inquired as to the basis the refuse operators
compete for the contracts in the Mat-Su Valley.
MS. KRIEBER stated that currently, residential refuse collection is
open to competition. Ms. Krieber noted that Valley Refuse competes
with Waste Management for the residential market. In further
response to Representative Dyson, Ms. Krieber said Valley Refuse
competes on the basis of price. Valley Refuse's price is much
lower than the competition.
REPRESENTATIVE DYSON asked if there are other factors for selection
of a contractor beyond price.
MS. KRIEBER identified price, quality of service, and service
options as the factors taken into consideration for the selection
of a contractor. Valley Refuse has multiple levels of residential
service.
REPRESENTATIVE DYSON asked what Ms. Krieber would foresee the
competition to be, if state oversight is eliminated and competition
for customers still exists.
MS. KRIEBER informed the committee that there is always the
possibility of predatory pricing with a large company whose
projected revenues for 1998 were $12.5 billion.
REPRESENTATIVE DYSON inquired as to what keeps Waste Management
from predatory pricing now.
MS. KRIEBER pointed out that Waste Management is regulated by the
APUC as is Valley Refuse. All refuse operators are subject to the
rate scrutiny provided by the APUC.
Number 1361
PHIL HORTON, Co-Owner, Valley Refuse, testified via teleconference
from the Mat-Su Valley. Mr. Horton opposed Waste Management's
HB 178. Waste Management's take over of the Alaska refuse hauling
market has been like a military operation. Under HB 178, the
removal of statewide oversight will assist Waste Management in
their divide and conquer strategy. Additionally, Section 5 would
allow Waste Management to acquire its own landfill. Mr. Horton
pointed out that the approval of only one person is required to
lease state owned land for a landfill at less than appraised value.
Mr. Horton said, "They [Waste Management] seek to achieve complete
vertical integration in this state as they have in other areas of
the country." When Waste Management owns landfills, transfer sites
and hauling companies, Waste Management will completely control the
market which would allow the elimination of all competition whether
it is private or municipal. Waste Management has the economic
advantage of size, pricing structure, and the ability to absorb
interim losses.
MR. HORTON informed the committee that he has been in the garbage
industry for five years and garbage companies are not easy to start
from scratch. Starting a garbage company requires a large
investment in equipment, working capital, and time to develop a
viable customer list large enough to pay the bills. He pointed out
that such is the reasoning behind larger companies buying smaller
companies. Mr. Horton noted that there was an attempt to
deregulate refuse hauling in 1997 which he did not support. Many
of the colleagues who testified against that bill in 1997 will not
be heard from today because those companies were purchased by Waste
Management. Mr. Horton concluded by saying, "What intelligent
business competitor will risk their assets by attempting to enter
such a restricted market? Who would dare play chess with an
opponent who owns the board, the chess pieces, and has deep pockets
in which to hide an extra King?"
CO-CHAIRMAN HARRIS noted that municipalities or other areas control
the landfills and DEC regulates all landfills. Why would the
refuse industry be any different than any other industry in which
competition would be beneficial to the consumer.
MR. HORTON said that he believed competition is good. If Waste
Management, who does 95 percent of the refuse hauling in Alaska,
was to obtain a landfill or develop their own, that revenue would
be diverted into that landfill. Therefore, those landfills with
fixed costs will have to charge more in fees in order to continue
operating. This would result in Waste Management squeezing out the
municipal and the private carriers.
CO-CHAIRMAN HARRIS indicated that the municipality or the borough
would be able to dictate the location of the landfill and could
require the use of an existing landfill.
MR. HORTON replied no. In HB 178 there is a provision that would
allow the purchase of state land.
CO-CHAIRMAN HARRIS noted that the company would have to abide by
zoning regulation, et cetera.
MR. HORTON pointed out that there is no zoning in the Mat-Su
Borough.
Number 0997
MARY HUGHES, Municipal Attorney, Municipality of Anchorage,
testified via teleconference from Anchorage. She referred the
committee to the March 24, 1999 letter from Mayor Mystrom to
Representative Hudson. Ms. Hughes acknowledged the comments
regarding whether the Municipality of Anchorage is united in its
position on HB 178. Each year the Municipality of Anchorage
formulates a legislative policy for the municipality. Within that
legislative policy, the second priority of the municipality is
refuse collection issues. The assembly passed that document by a
vote of 11-0. Ms. Hughes indicated that the difference in position
between the municipality and the assembly could be from inadequate
knowledge of the issue. Ms. Hughes pointed out that the assembly
acts by resolution not by individual letters.
MS. HUGHES stated that the Municipality of Anchorage is the largest
local government in Alaska. The Municipality of Anchorage agrees
with the rural providers of refuse collection; HB 178 is not good
for the consumer in rural Alaska or Anchorage. Ms. Hughes noted
that there are no complaints with respect to any aspect of refuse
service. The Municipality of Anchorage, as an owner of a refuse
entity, has millions invested in solid waste services which is tax
payer money to which the mayor and the assembly have a fiduciary
duty. She emphasized that when there are no complaints from
consumers that would indicate a good situation.
Number 0688
MS. HUGHES informed the committee that the Alaska Municipal League
(AML) was contacted upon the receipt of HB 178. In the past, AML
has expressed concern regarding the regulation of refuse primarily
because it costs the smaller providers so much. Now that Waste
Management has purchased approximately 90 percent of the refuse
market in Alaska, AML's position has substantially changed. That
should be considered. Ms. Hughes emphasized, "There is no ground
swell from the local government to do what Waste Management would
like us to do." State regulation is the only way in which market
power can be controlled. She acknowledged that the municipality
could garner the expertise to control the municipality's portion of
Waste Management's empire in Alaska if that is required. However,
that is not good public policy; a statewide entity cannot be
controlled through local government. The Municipality of Anchorage
does not want this control. Ms. Hughes commented that it is odd
that a monopoly, the company with the market power in Alaska, is
before the legislature requesting a change in the structure of the
refuse industry in Alaska. "What happens when the entities to whom
you wish to give the power do not wish it and would prefer not to
have it."
MS. HUGHES indicated that the House Community & Regional Affairs
Standing Committee could learn from the House Special Committee on
Utility Restructuring which commissioned a study to review electric
utility restructuring. If the refuse collection in Alaska is to be
changed, then the AML, the large and small municipalities and
boroughs should be involved. She suggested that HB 178 be studied
and a legal opinion sought. When a system that has been working
effectively is changed, that change is not done on the basis of a
bill provided by the group having the market power. The
Municipality of Anchorage would be happy to work with any
legislative committee on the issue in a studied approach. Ms.
Hughes commented that local government may be willing to take on
refuse regulation, if the local government was able to effect the
provisions of AS 42.05. Under HB 178, a local government does not
receive the provisions of AS 42.05. Ms. Hughes stressed that the
local governments' power is specifically determined by the company
whom the local government must regulate.
MS. HUGHES informed the committee that in the end of April the
Assembly of the Municipality of Anchorage will be in Juneau. She
predicted that the assembly will express the same sentiments as the
March 24, 1999 letter from Mayor Mystrom which relayed that the
Municipality of Anchorage is very concerned with HB 178, that the
municipality is opposed to HB 178, and the municipality is
available to work on this legislation. Ms. Hughes said that HB 178
is not an appropriate vehicle to benefit all Alaskans. "This bill
is very, very poor public policy."
Number 0187
CO-CHAIRMAN HALCRO asked if the assembly members have had
discussions with the mayor since providing the committee with their
letters.
MS. HUGHES was not sure if those assembly members have had
subsequent discussions with the mayor, but she noted that they have
had discussions with her. In further response to Co-Chairman
Halcro, Ms. Hughes acknowledged that the assembly letters do
contradict the municipality's position. From Ms. Hughes'
perspective, there is communication between the assembly and the
mayor. There is also discussion at the AML level.
TAPE 99-25, SIDE A
Number 0047
REPRESENTATIVE DYSON asked if Ms. Hughes was inferring that the
assembly members sent out their letters before they had full
knowledge of HB 178 and would those assembly members have perhaps,
changed their mind since.
MS. HUGHES stated that the assembly members sent out their letters
before the bill was in the municipality's possession. Those
letters were already in Juneau while the municipality's and the
mayor's position was being developed. Ms. Hughes said that she
had not spoken to each individually with regard to whether a change
of position has occurred. Upon discussions with some of the
assembly members who sent the letters, Ms. Hughes said that those
assembly members were not aware of the ramifications of HB 178.
CO-CHAIRMAN HARRIS commented on his frustration with the lack of
presence from the AML on issues such as this.
MS. HUGHES noted that as Mayor Mystrom's letter indicates, the
municipality has been in touch with the AML. She said that the
AML's position is similar to that of the Municipality of
Anchorage's position. The AML is focused on the decrease in the
state budget for local governments. She informed the committee
that Mayor Mystrom would be testifying today, but he is working on
restoring revenue sharing and safe communities. Ms. Hughes
believed that refuse deregulation would be addressed by the AML's
legislative committees in April in Juneau.
CO-CHAIRMAN HARRIS asked if the millions of dollars that Ms. Hughes
commented Anchorage has in its solid waste system was spent on
trucks and dumpsters.
MS. HUGHES said that each of the Municipality of Anchorage's
utilities operates independently. The Municipality of Anchorage
has approximately $30-$40 million of equity in its solid waste
system. That equity is in rolling stock and facilities. That
number includes the unregulated and regulated refuse collection.
She offered to provide the committee with the specific numbers.
Number 0486
HEATHER GRAHAME, Outside Counsel for Waste Management in Alaska,
informed the committee that she is an attorney for Dorsey and
Whitney LLP in Anchorage, Alaska. With regard to predatory
pricing, there was a comment that under HB 178 Waste Management
would be excluded from predatory pricing provisions. Currently,
any carrier with a certificate from the APUC is exempt from the
anti-trust laws and therefore the carrier cannot be sued for
anti-trust. Under "our proposed bill", HB 178, Waste Management
loses that protection and therefore, Waste Management can be sued
for anti-trust and predatory pricing. Ms. Grahame noted that there
is one exception in HB 178. In an area where a local government
desires service from a single provider, there is anti-trust
protection as is the case currently for a monopoly carrier. Ms.
Grahame reiterated that Waste Management would lose that shield
under HB 178. If there is language that could clarify this, Ms.
Grahame said that would be supported because Waste Management's
position is that it should not be exempt from anti-trust
legislation.
REPRESENTATIVE KOOKESH noted that Ms. Graham had used the phrase,
"our proposed bill". He asked if Waste Management is the author of
HB 178.
MS. GRAHAME stated that Waste Management has had a heavy hand in
drafting HB 178 as have many others. She said that she referred to
HB 178 as "our proposed bill" because Waste Management is
supporting the legislation.
Number 0719
MS. GRAHAME continued with discussion regarding rates. A carrier's
rates which are subject to tariffs, such as the case with Waste
Management and other carriers, are presumptively just and
reasonable. If a rate has been approved by the APUC, that rate is
considered to be just and reasonable. Therefore, Waste
Management's rates are just and reasonable. With respect to the
suggestion that refuse regulation should be the subject of a study,
Ms. Grahame stated that this issue has been "studied to death."
She pointed out that the committee should have attachments to the
APUC staff analysis regarding three different legislative audits
going back as far as 1973. Each audit recommended taking away
refuse regulation from the APUC. This issue has been around for
some time.
MS. GRAHAME noted that other than the Municipality of Anchorage
there is no other community testifying in opposition to HB 178
today. Many communities already provide refuse service on a RFP or
bid basis. Waste Management supports HB 178 because it believes
HB 178 to be a responsible approach to refuse management. The
Senate has legislation that would call for complete deregulation.
Number 0910
REPRESENTATIVE DYSON inquired as to the intention of the Chair.
CO-CHAIRMAN HARRIS informed the committee that initially he had
intended to move HB 178 from committee, but there are some
questions that need addressing. Co-Chairman Harris announced that
HB 178 would be held to next Tuesday.
CO-CHAIRMAN HALCRO offered to chair a subcommittee in order to work
on this issue and provide the committee with recommendations.
REPRESENTATIVE KOOKESH indicated the need for a position on HB 178
from the AML as well as a legal analysis from the Department of Law
regarding the anti-trust issue. He further suggested that a
position from the administration would be helpful.
CO-CHAIRMAN HARRIS appointed Representative Joule to be on the
subcommittee with Co-Chairman Halcro.
REPRESENTATIVE KOTT informed the committee that HB 178 has two
additional referrals. He reiterated that the Senate has
legislation calling for complete deregulation. Representative Kott
stated that many of the small operators that testified today do not
seem to understand the consequence of the Senate legislation.
Under the Senate legislation, the Municipality of Anchorage could
lose its operation. This legislation, HB 178, provides some local
control. As mentioned, AML has not taken a position on HB 178.
The AML representative in Juneau indicated that AML would likely
not take a position on HB 178. Representative Kott commented that
HB 178 may receive an additional committee of referral to address
a legal issue.
Number 1132
CO-CHAIRMAN HALCRO stated that the House Community & Regional
Affairs Standing Committee is entrusted with community and regional
affairs. This legislation, HB 178, would have an impact on
communities throughout the state therefore before HB 178 leaves
this committee, all of the community concerns need to be addressed.
REPRESENTATIVE KOTT pointed out that the committee had not heard
from any consumer or municipality besides Anchorage that was
opposed to HB 178. The communities have not been bolting forward
in opposition to HB 178. Representative Kott stated that he has
contacted AML and Ms. Hughes regarding the introduction of HB 178.
He commented that if he were one of the assembly members who had
sent a letter of support and had subsequently received new
information, he would have sent a letter withdrawing that support
until clarification of the issues. Representative Kott said that
he had not received any such letter, in fact one additional letter
of support has been received.
CO-CHAIRMAN HARRIS stated that if this committee could address some
of the issues that have been discussed, the process could be
expedited for the House Labor & Commerce Standing Committee.
ADJOURNMENT
There being no further business before the committee, the House
Community & Regional Affairs Standing Committee meeting was
adjourned at 10:04 a.m.
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