Legislature(1995 - 1996)
03/06/1995 02:38 PM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
March 6, 1995
1:30 P.M.
TAPE HFC 95-40, Side 2, #000 - end.
TAPE HFC 95-41, Side 1, #000 - end.
CALL TO ORDER
Co-Chair Mark Hanley called the House Finance Committee
meeting to order at 2:38 p.m.
PRESENT
Co-Chair Hanley Representative Martin
Co-Chair Foster Representative Mulder
Representative Brown Representative Navarre
Representative Grussendorf Representative Parnell
Representative Kelly Representative Therriault
Representative Kohring
ALSO PRESENT
David Hutchens, Executive Director, Alaska Rural Electric
Cooperative Association; Joshua Fink, Staff, Senator Kelly;
Don Schoer, Commissioner, Alaska Public Utilities
Commission.
SUMMARY
HB 21 An Act relating to revocation of a driver's
license for illegal possession or use of a
controlled substance or illegal possession or
consumption of alcohol by a person at least 13 but
not yet 21 years of age; and providing for an
effective date.
HB 108 An Act relating to claims on permanent fund
dividends for defaulted public assistance
overpayments.
HB 108 was rescheduled to another time.
SB 47 An Act relating to the extent to which the Alaska
Public Utilities Commission may exercise its
powers when regulating utilities; establishing a
regulatory cost charge on public utilities and
pipeline carriers; relating to the allocation of
costs in hearings before the Alaska Public
Utilities Commission; relating to the method by
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which utilities are exempted from and made subject
to regulation by the Alaska Public Utilities
Commission; relating to the monetary threshold for
regulation of certain kinds of utilities by the
Alaska Public Utilities Commission; extending the
Alaska Public Utilities Commission; relating to
staggered terms for members of the Alaska Public
Utilities Commission; and providing for an
effective date.
SB 47 (efd fld) was reported out of Committee with
a "do pass" recommendation and with a fiscal
impact note by the House Finance Committee for the
Department of Commerce and Economic Development;
and with two zero fiscal notes by the Department
of Administration, dated 2/3/95; and the
Department of Revenue, dated 2/1/95.
HB 20 An Act relating to rights in certain tide and
submerged land.
HB 20 was rescheduled to another time.
SENATE BILL NO. 47
"An Act relating to the extent to which the Alaska
Public Utilities Commission may exercise its powers
when regulating utilities; establishing a regulatory
cost charge on public utilities and pipeline carriers;
relating to the allocation of costs in hearings before
the Alaska Public Utilities Commission; relating to the
method by which utilities are exempted from and made
subject to regulation by the Alaska Public Utilities
Commission; relating to the monetary threshold for
regulation of certain kinds of utilities by the Alaska
Public Utilities Commission; extending the Alaska
Public Utilities Commission; relating to staggered
terms for members of the Alaska Public Utilities
Commission; and providing for an effective date."
JOSHUA FINK, STAFF, SENATOR KELLY testified in support of SB
47. He noted that SB 47 is the re-introduction of SB 213
from the 18th Legislature. He noted that the legislation
accomplishes two primary objectives:
* 1) It extends the Alaska Public Utilities
Commission (APUC) which is currently winding down
in its sunset year; and
* 2) It re-enacts the Regulatory Cost Charge (RCC)
which expired on December 31, 1994.
Mr. Fink observed that the legislation was the product of
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numerous committee hearings held during the last
Legislature. He maintained that the legislation was
introduced to prevent unknown but potentially serious
ramifications of allowing the APUC to expire. He noted that
the current legislation is nearly identical to the final
version that would have reached the House floor last May
10th had that body not adjourned before it was taken up. He
explained that the RCC has since expired and is re-enacted
in SB 47.
Mr. Fink noted that another bill has been introduced by the
Senate Labor & Commerce Committee that will incorporate
further amendments affecting the APUC and/or RCC.
Mr. Fink referenced, throughout his statements, an audit
which was performed by the Division of Legislative Audit.
The audit report was submitted January 26, 1993, #081404-93
(copy on file). He reviewed the legislation by section:
* Section 1: Replaces language granting the
commission powers which shall be "liberally construed"
with language allowing the commission to do "all things
necessary or proper to carry out the purposes and
exercise the powers expressly granted or reasonably
implied".
Mr. Fink stressed that electric utilities felt that
"liberally construed" was too broad, and in questions where
the commission did not have express authority to act, the
legislature should make such policy calls. He asserted
that the new language strikes an acceptable balance.
* Sections 2 , 3, 10 and 11: Re-enacts the RCC for
utilities and pipelines without the sunset. This
language is identical to the former law with the
following exception: There are no sunset provisions
for the Regulatory Cost Charges.
Mr. Fink observed that this provision was proposed by the
Auditor and supported by the APUC. He stressed that both
asserted that the Commission's sunset review is adequate to
address any issues that arise with the Regulatory Cost
Charge.
* Page 3, lines 11- 13: Adjusts the allocation of the
Regulatory Cost Charge for electric utilities by
subtracting the cost of power from their gross
revenues.
Mr. Fink explained that the Auditor recommended the APUC
periodically adjust the RCC allocation among utility types
to reflect workload on an industry by industry basis
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utilizing a time-keeping system. However, the commission
argued such a change would be complicated and costly. He
stated that according to the Auditor electric utilities
overpaid approximately $190.0 thousand dollars in FY 93 and
telephone utilities underpaid $800.0 thousand dollars based
on APUC case time.
* Page 2, line 27 and Page 6, line 4: Increases the
Regulatory Cost Charge ceiling for public utilities and
pipeline carriers from .61 percent to .8 percent.
Mr. Fink explained that this change was added to offset the
subtraction of the cost of power from electric utilities'
gross revenues before application of the RCC. The RCC rate
would need to be increased roughly 30 percent to maintain
the same amount of revenue for the Commission's operating
costs. He emphasized that almost all RCC charges are passed
on through to consumer's utility bills. He stated that the
additional amount reflected on consumer's monthly bills will
be approximately $0.20 to $0.35 cents.
* Page 3, lines 20-24, and Page 6, lines 15-19:
Requires the Department of Administration to earmark
Regulatory Cost Charges over-collected for possible
appropriation by the Legislature for the commission's
next fiscal year.
Mr. Fink noted that this section implements recommendations
by the Auditor.
* Sections 4, 8 and 9: Provides that subscribers of
small utilities or utilities otherwise exempt from
regulation can petition for an election to place the
utility under regulation under the same procedures the
subscribers of a regulated utility can petition for an
election to remove the utility from regulation.
Mr. Fink noted that this provision implements
recommendations made by the Auditor and supported by the
commission. The Auditor recommended the procedures for
subscribers to opt-in or opt-out of economic regulation
should be easier. These sections provide that opt-in and
opt-out procedures are identical.
* Sections 5, 6, and 7: Gives more consumers the
option to deregulate by raising maximum amount of gross
revenues a utility may receive under which the
consumers may elect for deregulation.
Mr. Fink observed that no existing utilities would be
affected. These provisions were recommended by the Auditor
and supported by the commission. He maintained that they
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increase the consumer's options to deregulate.
* Section 12: Extends the sunset date of the APUC to
June 30, 1999.
Mr. Fink stressed that the Auditor recommended an extension
to the year 2003. It was felt a four year extension was
ample.
* Section 13: Staggers the terms of the members of the
commission.
Mr. Fink explained that the terms of the consumer seat and
the engineering seat currently expire at the same time.
This provision would stagger the terms. It would not affect
the terms of any of the current commissioners.
* Section 14 and 15: Provides that the change in the
commission's powers as amended in section 1 apply only
to proceedings begun on or after the effective date of
section 1, which is set in section 15 as July 1, 1996.
Mr. Fink noted that the effective date failed in the Senate.
DAVID HUTCHENS, EXECUTIVE DIRECTOR, ALASKA RURAL ELECTRIC
COOPERATIVE ASSOCIATION testified in support of SB 47 (efd
fld). He urged the continuation of the APUC. He observed
that border wars between adjacent utilities existed before
the creation of the APUC. He stressed that SB 47 (efd fld)
is a good compromise. He expressed support for section 1.
He maintained that "liberally construed" is too broad. He
suggested that the new language is adequate for the
Commission. He maintained that the new language instructs
the court that any decision to broaden the Commission's
powers should be made by the Legislature.
Mr. Hutchens spoke in support of changes made on page 3,
lines 13 - 15. He observed that electric utilities would be
allowed to deduct the cost of power from their revenues
before deducting the RCC. He observed that the prior
formula was based on the retail revenues of all utilities.
He asserted that the prior method was not a good measure of
the regulatory responsibilities of the Commission. He
acknowledged that there is a "rough" correlation between the
number of consumers and the regulatory responsibility of the
Commission. He maintained that revenues vary dramatically
from one kind of utility to another. He stated that
telephone utilities' local service charges, subject to the
RCC, amount to less than $10 dollars a month per customer.
Electric utilities' average residential revenue is
approximately $70 dollars a month. He stressed that
electric utilities must generate the power that is then
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provided.
Representative Brown asked if the change in section 1
addresses a specific case or problem. Mr. Hutchens stated
that the Healy Clean Coal Project presented a difference of
opinion among the Commission in regards to the scope of
their authority.
Representative Brown pointed out that the Commission did not
do anything to expand their powers. Mr. Hutchens
maintained that the "liberally construed" standard has
allowed the Commission to do things that were not expressly
granted or reasonably implied in statute.
Representative Brown suggested that the change in section 1
is likely to result in additional litigation. Mr. Hutchens
doubted that litigation would be significant.
Representative Brown recalled that Mr. Lohr, Executive
Director, Alaska Public Utilities Commission (APUC) did not
agree with the Auditor's assessment on which the changes in
the RCC were based. She noted that Mr. Lohr estimated that
the reduction in Regulatory Cost Charge payments by electric
utilities would be approximately 45 percent.
Mr. Hutchens stated that the Auditor's report indicated that
the APUC workload for electric utilities had declined to
less than 30 percent. He maintained that the cost of the
RCC to electric utilities has steadily increased each year.
He asserted that electric utilities are paying 45 percent of
the total cost of operating the Commission.
Mr. Hutchens clarified that 45 percent of present revenues
earned by electric utilities would be deducted before the
RCC is calculated. The net change would be a reduction for
the electric utilities of 31 percent. The portion of the
RCC that electric utilities would pay is also 31 percent.
Representative Brown asked the rationale for establishing
different thresholds for different utilities. She asked if
the electric cooperatives would support a higher threshold
for exemptions of $500.0 or less unless petitioned.
Mr. Hutchens explained that the rationale for opt-out
provisions for the electric cooperatives is not a matter of
size, but is a matter of governance. The rationale is that
the consumers own the cooperatives and elect the board of
directors. Therefore, they have a direct say in the
policies pursued by the utilities. He stated that they
would oppose any amendment which would deprive telephone and
electric cooperatives of the right to have a vote if their
consumers decide if they should be regulated.
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Representative Brown did not feel her amendment would
deprive the electric utilities. She noted that electric
cooperatives under $50.0 thousand dollars are exempt. Mr.
Hutchens clarified that electric utilities whose retail
revenue is less than $50.0 thousand dollars a year do not
need a certificate to serve. He noted that there are no
electric cooperatives that small.
Mr. Hutchens noted that the certification requirement was
adopted in the early 1980's. He noted that an inflation
adjustment may be warranted. He stated that they would
oppose any major increase in the threshold for regulation.
Representative Brown provided members with Amendment 1
(Attachment 1). Amendment 1 would delete the new language
"all things necessary or proper to carry out the purposes
and exercise the powers expressly granted or reasonably
implied" and retain the current language, "liberally
construed" in section 1. She maintained that there are no
specific examples illustrating why the change should be
made. She suggested that the new language will cause legal
problems.
Co-Chair Hanley disclosed that his mother is on the Alaska
Public Utilities Commission.
Co-Chair Hanley stated his objection to Amendment 1. He
stressed that it is appropriate for the legislature to make
policy decisions.
Representative Brown MOVED to adopt Amendment 1. A roll
call vote was taken on the MOTION.
IN FAVOR: Brown
OPPOSED: Grussendorf, Kelly, Kohring, Martin, Mulder,
Parnell, Therriault, Foster, Hanley
Representative Navarre was absent for the vote.
Representative Brown MOVED to adopt Amendment 2 (Attachment
2). Representative Mulder OBJECTED. She noted that
Amendment 2 would delete (3), page 3, line 11, and insert
".61" and delete ".8" on page 2, line 27 and page 6, line 8.
She explained that the amendment would return the RCC to .61
percent and delete the adjustment for the cost of power for
electric utilities. She asserted that the bill, unamended,
would shift the tax burden to the oil industry. She
observed that the Auditor's findings have been contradicted
by Mr. Lohr in his previous testimony. During testimony
given to the House Finance Committee meeting on 2/2/95, Mr.
Lohr stated that he did not believe that there had been an
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overpayment by the electric utilities that justified the tax
shift. Representative Brown quoted from the 1993 audit
report: "In the absence of verifiable data such as utility
or industry codings on payroll sheets, we were forced to
approximate the workload by using rough estimates, which
were provided on an unofficial basis by commission staff."
She stressed the lack of substantiation of overpayment by
electric utilities.
Co-Chair Hanley suggested that testimony by Mr. Lohr
indicated that the electric utilities overpaid.
Representative Brown noted that the Auditor did not
recommend statute changes. He recommended that the
Commission institute a time-keeping system. She suggested
that the simple cut of gross revenues is a reasonably fair
way to access the tax.
(Tape Change, HFC 95-41, Side 1)
DON SCHOER, CHAIRMAN, ALASKA PUBLIC UTILITIES COMMISSION
responded to questions by Representative Brown. He
estimated that the percentage of time the Commission spends
on cases pertaining to the electric utilities is the same
now as when the audit was completed in 1993. He could not
say if electric utilities were over or under paying. He
maintained that all the costs are passed through to the
consumer. He estimated that there would be a 31 percent
shift between utilities. He stated that the Commission is
neutral in regards to the shift in RCC funding.
A roll call vote was taken on the MOTION to adopt Amendment
2.
IN FAVOR: Brown
OPPOSED: Grussendorf, Kelly, Kohring, Martin, Mulder,
Therriault, Foster, Hanley
Representatives Parnell and Navarre were absent for the
vote.
The MOTION FAILED (1-8).
Representative Brown MOVED to adopt Amendment 3 (Attachment
3). She explained that Amendment 3 would raise the
threshold for those exempt from regulation. The amendment
would deregulate the smaller utilities. The amendment would
also provide the same level between utility sectors.
Utilities with under $500.0 thousand dollars in gross
revenues would be exempt, unless the subscribers petitioned
under AS 42.05.712.
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In response to a question by Representative Brown, Mr.
Schoer did not think that any utilities would be affected by
the changes made in section 4. He explained that section 4
allows smaller utilities to opt out if they want to, based
on their gross revenues.
Representative Brown referred to section 5. Mr. Schoer
stated that very few utilities would be affected by section
5. He clarified that all utilities with over ten customers
that are being paid monthly must be certified.
Representative Brown asked how the opt-out procedures
differ. Mr. Schoer noted that 25 percent of the rate payers
must sign a petition to opt-in. He could not elaborate on
the different procedures for opting-out.
Representative Brown asked Mr. Schoer to respond to the
proposal to raise the threshold for regulation from $50.0
thousand dollars to $500.0 for electric and telephone
utilities. He stated that the Commission supports the
higher threshold to allow smaller utilities to opt-out. He
had no comment on raising the next category from $500.0
thousand dollars to $1.0 million dollars. He stressed that
it is expensive for small utilities to appear before the
Commission. He could not comment on the reason for
establishing different thresholds for different utilities.
Representative Brown WITHDREW Amendment 3. She stressed
that more consideration of the issue is warranted. She
asked for more information regarding who would be affected
by the bill. She suggested that it makes sense to have the
same rule apply across the board to all utilities.
Representative Martin expressed concern with the fiscal note
accompanying the legislation. He asserted that the fiscal
note is accelerated beyond the population of the state. He
noted that there is a $1.4 million dollar increase for
operation of the Commission over a five year period. He
referred to the use of software to reduce the Commission's
time-keeping costs. He stressed that there should be some
kind of monitoring when there is a monopoly utility.
Representative Brown MOVED to adopt Amendment 4 (Attachment
4). She noted that the legislation would set up a procedure
that would require a majority of those voting to approve
regulation, instead of allowing regulation upon request of
25 percent of the subscribers, as is in current law. She
noted that garbage utilities are treated differently in the
legislation. She observed that the largest subscribers are
being given total control through their ability to change
their status, on line 24, page 5. She questioned why
garbage utilities are being treated differently. She also
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asked why a shift is being instituted to give subscribers
controlling gross revenues as opposed to all subscribers,
the authority to make the change.
Mr. Fink noted that the language in section 7 is a re-
enactment of current statute, which was requested by the
Revisor. He stated that the statute was adopted in response
to the refuge situation on the North Slope. He noted that
some of the oil companies represent over 50 percent of the
gross revenues but only have one vote in the case of a
deregulation election.
Mr. Fink noted that currently 10 percent of the first 5,000
subscribers of a regulated utility and 3 percent of the
remaining subscribers may petition for an election to remove
a utility within certain revenue parameters from regulation.
However, for subscribers to petition for an election to
place an unregulated utility under regulation they must
gather the signatures of 25 percent of the subscribers. He
stated that the legislation would apply the provisions of AS
42.05.712 which allows for a deregulation election with 10
percent of the subscribers. He maintained that the
legislation would make the process for deregulation and
regulating the same.
Mr. Fink reiterated that the legislation states that "unless
the subscribers petition the Commission for regulation under
AS 42.05.712(h)." He observed that AS 42.05.712(h) allows
for 10 percent of the first 5,000 subscribers of a regulated
utility and 3 percent of the remaining subscribers to
petition for an election. He stressed that the Auditor
recommended the change.
Representative Martin questioned if one group that has at
least 25 percent of the use of the utility could petition
for an election.
Mr. Fink restated that there are two ways that a call for an
election can be made. The second method allows a subscriber
that represents 25 percent of the gross revenue to call for
an election. The first method is under AS 42.05.712. He
reiterated that the second method is current law.
Co-Chair Hanley clarified that this portion of the
legislation was based on the Auditor's Recommendation Number
2, page 9. Discussion ensued in regards to the drafting
language contained on page 5, lines 22 -26.
Mr. Fink observed that the Auditor did not recommend the
deletion of the provision to allow an entity with 25 percent
of the utility's gross revenues to petition for an election.
Representative Brown pointed out that previously 25 percent
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of the subscribers could opt for regulation. A petition of
25 percent of the subscribers would result in regulation.
Under the provisions of SB 47 (efd fld) 10 percent of the
subscribers would be needed for a petition, which would then
require an election in which 50 percent would need to
approve. She maintained that SB 47 (efd fld) would make it
more difficult to opt in.
Representative Martin restated his concern with the
accompanying fiscal note. He maintained that the cost of
the Commission can be decreased through the use of time-
keeping technology.
Mr. Schoer observed that the fiscal note is based on
projections for increases in population by the Department of
Commerce and Economic Development. He pointed out that the
Commission's tariffs have increased 74 percent and dockets
64 percent over five years while the Commission's budget has
been decreased by $250.0 thousand dollars.
Representative Brown emphasized that the legislation changes
the requirement for regulation from 25 percent of the
subscribers to a majority of the subscribers.
Mr. Schoer agreed that current law allows a petition of 25
percent of the subscribers to opt for regulation without an
election.
Representative Brown noted that the fiscal note estimates
that $60.7 thousand dollars will be needed to pay the
Department of Law to handle legal analysis and increased
litigation concerning the new powers and duties language in
section 1 of the bill.
In response to concerns by Representative Martin, Co-Chair
Hanley noted that the fiscal note could be amended to delete
increases due to population.
Representative Brown MOVED to adopt Amendment 4. A roll
call vote was taken on the MOTION.
IN FAVOR: Martin, Brown
OPPOSED: Kelly, Kohring, Mulder, Parnell, Therriault,
Hanley
Representative Foster, Grussendorf and Navarre were absent
for the vote.
The MOTION FAILED (2-6).
Representative Mulder MOVED to report SB 47 (efd fld) out of
Committee with individual recommendations and with an
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amended fiscal note for the Department of Commerce and
Economic Development, reflecting a flatline of $3.789.7 for
FY 96 - 2001; and the other accompanying zero fiscal notes.
Co-Chair Hanley explained that funding in the amended fiscal
note will be at the same level for FY 96 - FY 2001. There
being NO OBJECTION, it was so ordered.
SB 47 (efd fld) was reported out of Committee with a "do
pass" recommendation and with a fiscal impact note by the
House Finance Committee for the Department of Commerce and
Economic Development; and with two zero fiscal notes by the
Department of Administration, dated 2/3/95; and the
Department of Revenue, dated 2/1/95.
ADJOURNMENT
The meeting adjourned at 4:17 p.m.
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