04/23/2003 03:28 PM House L&C
| Audio | Topic |
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+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
April 23, 2003
3:28 p.m.
MEMBERS PRESENT
Representative Tom Anderson, Chair
Representative Bob Lynn, Vice Chair
Representative Nancy Dahlstrom
Representative Carl Gatto
Representative Norman Rokeberg
Representative Harry Crawford
Representative David Guttenberg
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 47
"An Act prohibiting discrimination by credit rating or credit
scoring in certain insurance rates; and providing for an
effective date."
- HEARD AND HELD
HOUSE BILL NO. 111
"An Act extending the termination date of the Regulatory
Commission of Alaska; and providing for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 251
"An Act exempting certain foreign pleasure craft from the
mandatory pilotage requirement."
- MOVED CSHB 251(L&C) OUT OF COMMITTEE
PREVIOUS ACTION
BILL: HB 47
SHORT TITLE:INSURANCE DISCRIMINATION BY CREDIT RATING
SPONSOR(S): REPRESENTATIVE(S)CHENAULT
Jrn-Date Jrn-Page Action
01/21/03 0043 (H) PREFILE RELEASED (1/10/03)
01/21/03 0043 (H) READ THE FIRST TIME -
REFERRALS
01/21/03 0043 (H) STA, L&C
02/05/03 0135 (H) COSPONSOR(S): STEVENS
02/06/03 (H) STA AT 8:00 AM CAPITOL 102
02/06/03 (H) Heard & Held
02/06/03 (H) MINUTE(STA)
02/10/03 0173 (H) COSPONSOR(S): CRAWFORD
03/29/03 (H) STA AT 9:30 AM FAHRENKAMP 203
03/29/03 (H) Heard & Held
MINUTE(STA)
04/10/03 (H) STA AT 9:00 AM CAPITOL 102
04/10/03 (H) Moved CSHB 47(STA) Out of
Committee -- Time Change --
04/10/03 (H) MINUTE(STA)
04/11/03 0927 (H) STA RPT CS(STA) NT 1DP 4NR
04/11/03 0927 (H) DP: LYNN; NR: SEATON, HOLM,
04/11/03 0927 (H) DAHLSTROM, WEYHRAUCH
04/11/03 0927 (H) FN1: ZERO(CED)
04/11/03 0927 (H) REFERRED TO LABOR & COMMERCE
04/23/03 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 111
SHORT TITLE:RCA EXTENSION/ TELECOMMUNICATION POLICIES
SPONSOR(S): RLS BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
02/19/03 0250 (H) READ THE FIRST TIME -
REFERRALS
02/19/03 0250 (H) L&C, FIN
02/19/03 0250 (H) FN1: (CED)
02/19/03 0250 (H) GOVERNOR'S TRANSMITTAL LETTER
03/10/03 (H) L&C AT 3:15 PM CAPITOL 17
03/10/03 (H) Heard & Held
03/10/03 (H) MINUTE(L&C)
03/17/03 (H) L&C AT 3:15 PM CAPITOL 17
03/17/03 (H) <Bill Hearing Postponed to
3/19>
03/19/03 (H) L&C AT 3:15 PM CAPITOL 17
03/19/03 (H) Heard & Held <Subcommittee
Assigned>
03/19/03 (H) MINUTE(L&C)
03/27/03 (H) L&C AT 1:00 PM CAPITOL 120
03/27/03 (H) MINUTE(L&C)
04/10/03 (H) L&C AT 2:00 PM CAPITOL 120
04/10/03 (H) -- Meeting Canceled --
04/15/03 (H) L&C AT 1:00 PM CAPITOL 120
- Subcommittee Meeting -
04/23/03 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 251
SHORT TITLE:MARINE PILOT FOR FOREIGN PLEASURE CRAFT
SPONSOR(S): REPRESENTATIVE(S)DAHLSTROM
Jrn-Date Jrn-Page Action
04/07/03 0819 (H) READ THE FIRST TIME -
REFERRALS
04/07/03 0819 (H) L&C, FIN
04/16/03 (H) L&C AT 3:15 PM CAPITOL 17
04/16/03 (H) Heard & Held
MINUTE(L&C)
04/23/03 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
SAM SORICH,
Western Regional Office
National Association of Independent Insurers
Sacramento, CA
POSITION STATEMENT: Testified in support of the proposed
committee substitute for HB 47.
EDDY LO, Insurance Manager
Fair Isaac Corporation
San Rafael, CA
POSITION STATEMENT: During the hearing on HB 47, described how
Fair Isaac develops models using credit information.
DANA TINDELL, Senior Vice President
Legal, Regulatory and Governmental Affairs
GCI
Anchorage, Alaska
POSITION STATEMENT: Testified for the extension of the RCA in
HB 111 but against the proposed CS, which would be preempted by
a recent FCC ruling.
KRISTI CATLIN, Director
Government Relations
AT&T Alascom
Anchorage, Alaska
POSITION STATEMENT: Testified in support of the proposed CS to
HB 111.
LEONARD STEINBERG, Vice President and General Counsel
ACS (Alaska Communications Systems)
Anchorage, Alaska
POSITION STATEMENT: Spoke in favor of the proposed CS to HB
111.
JIM ROWE, Director
Alaska Telephone Association
Anchorage, Alaska
POSITION STATEMENT: Supported the proposed CS to HB 111.
ERIC YOULD, Executive Director
Alaska Rural Electric Cooperative Association
Anchorage, Alaska
POSITION STATEMENT: Supported HB 111 but opposed the CS unless
electric industry amendments are adopted.
ROSALEE WALKER
Older Persons Action Group (OPAG)
AARP, Local Chapter 865
Juneau, Alaska
POSITION STATEMENT: Provided comments during discussion of HB
111.
BOB LINQUIST
Waste Management of Alaska
Anchorage, Alaska
POSITION STATEMENT: During the hearing on HB 111, testified
about garbage collection in the Mat-Su Valley.
PAM KRIEBER, Owner
Valley Refuse, Inc.
Wasilla, Alaska
POSITION STATEMENT: During the hearing on HB 111, testified
against price deregulation for garbage collection utilities.
DAVE HARBOUR, Chairman
Regulatory Commission of Alaska (RCA)
Department of Community and Economic Development
Anchorage, Alaska
POSITION STATEMENT: Provided comments during discussion of HB
111
ASHLEY REED, Lobbyist
for Fraser Stryker
Anchorage, Alaska
POSITION STATEMENT: Testified in support of the proposed CS for
HB 251.
ACTION NARRATIVE
TAPE 03-38, SIDE A
Number 0001
CHAIR TOM ANDERSON called the House Labor and Commerce Standing
Committee meeting to order at 3:28 p.m. Representatives
Anderson, Lynn, Dahlstrom, Gatto, Rokeberg, Crawford, and
Guttenberg were present at the call to order.
HB 47-INSURANCE DISCRIMINATION BY CREDIT RATING
Number 0048
CHAIR ANDERSON announced that the first order of business would
be HOUSE BILL NO. 47, "An Act prohibiting discrimination by
credit rating or credit scoring in certain insurance rates; and
providing for an effective date."
Number 0118
SAM SORICH, Western Regional Office, National Association of
Independent Insurers, explained that his group is an association
of insurance companies. He testified that 100 of his member
businesses are doing business in Alaska, and they account for
about 60 percent of the car and homeowners' insurance written in
the state. He stated:
The business of insurance is a unique business. When
we sell our product, we don't really know the ultimate
price of that product; we don't know who is going to
file a claim, and when a claim is filed, what the
ultimate cost is. What we do is we estimate our costs
and charge premiums. One approach is to charge
everybody the same premium and just average things,
but that wouldn't be fair. So what the insurance
industry has done over the years is to identify
factors that are proven predictors of loss. So
insurance companies use the claims history of a
person, that type of car a person drives, how a person
uses a car, the type of home construction as factors
that are good predictors of whether or not a person is
going to have a loss.
MR. SORICH said:
Some insurance companies have recently introduced the
use of credit information as a predictor of loss. As
Mr. Lo will show you, this factor is based on a solid,
scientific evidence. The Fair Isaac Company has
looked at millions of credit reports and millions of
insurance policies and the loss history on those
policies and have determined, have seen a clear
relationship between certain credit factors and the
likelihood that a person is going to have an insured
loss. And it's not just the Fair Isaac research that
has established this relationship. There's been a
body of research, most recently a report that was done
by the University of Texas Business School, not paid
for [by] the insurance industry, not paid for by the
insurance agents, but paid for by the Texas
legislature. This report came out a month ago from
the University of Texas and it confirms the
relationship between loss experience and credit
characteristics, specifically an insurance score. And
Mr. Lo will explain what an insurance score is.
Insurance companies have a responsibility to our
customers to consider this evidence. Because if we
are forced to reject this evidence, we are going to be
forced to charge people more than they should be
paying for their insurance based on proven cost
predictors ...
Number 0351
MR. SORICH continued:
First on the legal basis, the Federal Fair Credit
Reporting Act was enacted in 1970. It specifically
allows insurance companies to use credit information.
Now states can enact laws that restrict the use of
this information, but any state enactment cannot be
inconsistent with the federal law. No state has
absolutely prohibited the use of credit information.
There are many states, though, that have restricted
the use. In terms of the consumer benefits, the use
of credit information helps insurance companies make
decisions that are objective. An insurance score does
not consider a person's income, where a person lives.
What kind of car a person drives, a person's race, a
person's income, is not considered in an insurance
score. An insurance score is based on the objective
information in a credit report.
MR. SORICH testified:
Secondly, the use of credit ... gives insurance
companies more information about our policyholders so
we can make fairer decisions. We are a fact-based
industry. We make our decisions based on information.
The more information we make, the more well informed
our decisions are and the fairer our decisions will
be. Third, the use of this tool helps us to make our
decisions more quickly. When people apply for
insurance, we are able to make a decision more quickly
based on the insurance score of how much to charge a
person and whether or not the policy will be written.
That helps to lower the cost of insurance. Fourth,
the use of this information helps us to establish a
higher level of equity and fairness. Again, the body
of evidence that establishes this relationship does
show that this is a good predictor. If we are forced
to ignore this tool, our rates will be less fair.
Number 0497
MR. SORICH noted:
And finally, the use of this tool is helping insurance
companies to make insurance more available. We are in
the business of writing business. We're not in the
business of not writing business. Insurance companies
want to offer coverage. And providing them this
additional information gives insurance companies the
security of knowing ... the likelihood of whether or
not a person will file a claim is. ... There is some
controversy, no doubt about it. But I think there are
good reasonable answers to some of the controversy.
MR. SORICH stated:
The National Conference of Insurance Legislators
(NCOIL) last November adopted a model act, the NCOIL
model. The NCOIL model was adopted not by insurance
companies, not by insurance agents, but by
legislators, state legislators just like you. The
NCOIL model addresses many of the concerns that have
been raised, and the NCOIL model is reflected in the
committee substitute (CS) for HB 47. A number of
states have already passed the NCOIL model: North
Dakota, Nebraska, Kansas, Oklahoma. And just
yesterday, the Georgia legislature passed a bill
that's modeled on the NCOIL model, and that's on the
governor's desk. So I would encourage the committee
to consider adopting ... committee substitute HB 47
because it's based on NCOIL and it's got a solid body
of research behind it.
MR. SORICH continued:
...There has been some talk about what Hawaii's law is
or isn't. Hawaii's insurance code does not prohibit
insurance companies from using credit completely.
What the Hawaii law says, and it's only applicable to
auto insurance, there's no restriction on the use of
credit information for homeowners' insurance in
Hawaii. The Hawaii law does prohibit insurance
companies from using credit information to develop
rates. There is a question about whether the law also
applies to an underwriting decision, and that issue is
before the Hawaii Supreme Court. ... But again, no
state has completely prohibited the use.
Number 0671
EDDY LO, Insurance Manager, Fair Isaac Corporation, testified
about modeling that is based on credit information. He referred
to page 5 of the presentation package. Mr. Lo reiterated that
the Fair Credit Reporting Act allows the use of credit
information. His company, Fair Isaac, as a modeler, started
studying the use of credit over 30 years ago. But in the last
10-12 years, he said, the company has applied technology to the
use of credit information, predicting losses in personal, auto,
and homeowners' insurance. The company works on the individual
policy level, matching the premium and loss to credit
information on a one-to-one basis. Company officials examine
the set of credit characteristics that distinguish whether there
was a loss, and based on that likelihood, they predict the loss
potential for that same class of business with similar credit
characteristics. Those are the basics behind [the modeling], he
explained.
Number 0755
MR. LO emphasized several preliminary points. He explained that
Fair Isaac has built many kinds of predictors. One predictor is
the FICO (Fair, Isaac and Company) score that predicts the
likelihood of repayment of loans, auto loans, and mortgage
loans, but he emphasized that he was not talking about those
predictors today. Fair Isaac also has developed a different set
of credit-based predictors for personal, auto, and homeowners'
insurance, which are the subject of today's presentation. He
said that the key relationship from the credit data is that
whenever there is an increase in financial obligation as
reflected in a credit report, there is an increase in actual
losses and an increase in the prediction of future losses. He
stressed that all the issues that he will discuss are based on
this found relationship between increased financial obligation
and future losses.
Number 0830
MR. LO highlighted the graphic on page 5, upper left column,
which lists five credit characteristics that figure in insurance
losses. The middle box in the left hand column shows the number
of months since the most recent adverse public record, that is,
a bankruptcy, foreclosure, judgment, or lien. In this example,
when the losses happen within the last four years, the loss
ratio, relative to the group that has no such adverse public
record, is 68 percent higher. He said that very significant
difference would be useful to an underwriter. The first box on
the right hand side looks at the number of adverse public
records -- the number of bankruptcies, foreclosures, judgments,
and liens in the past. He explained that 96 percent of people
have no such adverse public record, so the majority of people
are not affected by this particular credit characteristic. But
for the remaining 3-4 percent, the loss ratio is simply a
measure of loss performance on a policy. So when loss ratio is
high, then either the actual loss is high or the expected loss
is high. On that basis, he said the company finds that anyone
with more than one adverse public record has a loss ratio of 64-
68 percent, a very significant number relative to the group that
has no such adverse public records.
Number 0970
MR. LO pointed to the middle box on the right hand column, the
number of trade lines that are delinquent. He explained that a
trade line is any entry on a credit report such as a credit
card, a mortgage loan, or an auto loan. The company looks at
how many of those were more than 60 days delinquent in the last
two years. Basically, 89 percent of the population does not
have such delinquencies on their credit reports. But of the
remaining 11 percent [of the population], 15 percent of the
time, the more delinquency there was in the past, the higher the
losses in the past. Therefore, [the losses] are expected to be
higher in the future.
MR. LO said that another credit characteristic is the number of
collections. He said that 97 percent of the people have no such
collections on their credit report. For those [people] that do,
the loss rate shown is again very high. He said there's a very
clear distinction.
Number 1039
MR. LO explained that the fifth characteristic is the number of
trade lines opened in the last 12 months, the bottom box in the
right hand column. These trade lines are not actual financial
obligations; they are indications that someone was seeking
obligations. The more a person seeks financial obligation or
the use of credit, the higher the losses were in the past, and
will be in the future.
MR. LO summarized that in using these five characteristics,
there is a clear distinction. He said there are more
characteristics, but he is only allowed to show five in a year
to the public. There are other models out there -- Fair Isaac
is only one model -- which are very creative in the use of
credit information as the model attempts to produce very
powerful results. He turned to the results of using five
characteristics. The bottom box, left hand column on page 7
[deals with] the number of adverse public records, using that
information to separate risk. Since the majority of the people
have no such adverse public record, they are assigned 30 points.
People with one or more adverse actions are assigned zero. This
one characteristic and the two attributes make it possible to
separate out risk. Focusing on the months since the most recent
adverse public record, points are assigned as follows: 30
points to people with no public records, zero points for less
than four years, and 10 points for more than four years. He
summarized how this very simple numeric scheme can separate out
the risk. With the characteristic of delinquent trade lines
[illustrated in the bottom box on the right side], he said it is
known that the more delinquency in a person's credit record, the
worse the person's risk [for an insurance loss]. Points for
delinquency are assigned as follow: 25 for no deliquency, 10 to
one delinquent trade line, and zero for two or more. For the
number of collections, 20 points are assigned to a person with
no collection history. The last characteristic, number of trade
lines opened on the last 12 months, is shown on page 8, [top
left-hand box]. On these five characteristics, this model
predicts a risk between the lowest score of zero and the highest
score of 125. On that basis, he said his company is able to
tell one risk from the other. If the company uses more than
five characteristics, the model is even more powerful with finer
[delineations of risk].
Number 1232
MR. LO turned to a commercial value model on page 2, the bottom
right hand corner. He pointed to the smooth, downward sloping
set of bars, each representing a group of policies in a certain
score range. The low scores are on the left side, and the high
scores are on the right side. He explained that when the score
value is low, the policy could generate 70 percent higher or
worse [losses] than the average. The score values on the right
are high and they predict that the policy will have future
losses 50 percent better than average. The swing from 70
percent worse to 50 percent better is a separation that really
helps an underwriter [decide whether to] accept, reject, or tier
the risk into the proper rating structures.
Number 1283
MR. LO concluded that FCRA gave the legal base to collect
information and statistics throughout the years, and models were
built, not just for insurance but for other businesses as well.
For insurance, the model was built, validated, proven, used, and
implemented in a number of states. The insurers can use [the
model] to underwrite on a selection basis or can assign a risk
into a certain tier by a score range.
CHAIR ANDERSON announced that HB 47 and questions pertaining to
it would be held until next week, when the sponsor can present
the bill. Witnesses will be able to testify then also.
HB 111-RCA EXTENSION/ TELECOMMUNICATION POLICIES
Number 1362
CHAIR ANDERSON announced that the next order of business would
be HOUSE BILL NO. 111, "An Act extending the termination date of
the Regulatory Commission of Alaska; and providing for an
effective date."
CHAIR ANDERSON noted that the subcommittee discussed this bill
over the last month and has a committee substitute (CS) that
should be adopted for discussion purpose.
Number 1399
REPRESENTATIVE ROKEBERG moved to adopt the proposed CS for HB
111, Version 23-GH1079\I, Craver, 4/23/03 as the working
document.
Number 1420
REPRESENTATIVE DAHLSTROM objected. She explained that there are
many serious issues in the CS that need to be discussed, and the
best policy is to separate the issues [out from the original
bill]. She said the RCA [Regulatory Commission of Alaska] bill
should be a clean bill with nothing attached. She noted that
she fully supports all the other issues being addressed, put on
the table, and discussed in the right forum with all the players
there. She does not agree with tying everything into this bill.
Number 1483
REPRESENTATIVE CRAWFORD said he just got the CS and has not had
a chance to review it. He said he opposes moving this bill out
because it has not been discussed sufficiently in the full
committee. If the committee is going to move a bill out of
committee today, he favors moving the original bill with its
sunset extension rather than a "Christmas tree."
Number 1524
REPRESENTATIVE GATTO said he, too, hasn't had time to review the
bill. He said he prefers to have a couple of days to review it.
He could probably support the CS but he's not versed in it.
CHAIR ANDERSON said the bill needs to be expedited and he asked
that the committee move the CS today.
REPRESENTATIVE DAHLSTROM clarified that she supports many of the
provisions in the CS, but every single issue in the CS needs to
be addressed [by the committee].
REPRESENTATIVE ROKEBERG asked whether there will be public
testimony.
CHAIR ANDERSON said he would allow a small amount of public
testimony, noting that some of the interested parties have
testified several times.
REPRESENTATIVE ROKEBERG recalled the fact that there is a motion
on the table.
Number 1610
REPRESENTATIVE LYNN explained that when he uses his phone, the
garbage service, natural gas, or electricity, he expects them to
work, and when they don't work, he wants them fixed quickly. He
said he wants the lowest possible price for these utilities
while providing a fair and reasonable return to the providers of
these utilities so that they can stay in business. The
aforementioned is most likely to occur when there's fair
competition on a level playing field. He said he has learned
that these issues are complex times a million. These phone wars
and utility wars will take a long time to resolve, which is why
the legislature instituted the RCA, he observed. The RCA is
supposed to have expert commissioners, expert staff, and the
resources to resolve the conflicts in a manner consistent with
the best interests of the consumers. If that can't happen, some
people ought to be replaced, he said. The legislature won't get
the results it wants with a Band-Aid approach, he remarked.
Number 1743
REPRESENTATIVE LYNN continued, saying the legislature ought to
stay out [of these conflicts] as much as possible, extend the
RCA, and let it do its work. He would like to see HB 111 go as
a clean bill [extending the sunset date only]. Some of the
[issues addressed] in the CS are very valid points, and it's
difficult not to agree with everybody. But when a legislator is
elected to office, he can't agree with everybody.
Representative Lynn said that his bottom line still is when he
turns on his utility, he wants it to work, and he wants to pay
as little as possible. He said he does not support the CS.
Number 1777
REPRESENTATIVE GUTTENBERG spoke on behalf of the CS. He said
the subcommittee had a huge learning curve, and it had an in
depth discussion with all [parties] of the regulated community.
Some competitive issues need to be addressed, he said. The
public has been touched by these problems, and the subcommittee
deals with some of them in the CS. The subcommittee spent a lot
of time working on this [subject], in some ways a lot less time
than necessary. He said he favors adopting the CS and hearing
public testimony.
REPRESENTATIVE ROKEBERG said he made a motion [only] to adopt
the CS as a working document, but the committee is debating the
merits of the bill. He prefers to hear from the public and to
hear more about the bill.
Number 1856
REPRESENTATIVE DAHLSTROM thanked Chair Anderson for pulling the
subcommittee together. The members of the subcommittee
acknowledged that these are critical issues that need to be
addressed; the disagreement is how to address those issues. She
said the legislature needs to give the RCA the opportunity to do
its job. There's been a major change [in the RCA], and she said
she is confident that if the RCA doesn't conduct itself
[appropriately], the governor will make changes.
The committee took an at-ease from 4:03 to 4:10 p.m.
Number 1920
A roll call vote was taken. Representatives Guttenberg, Gatto,
Rokeberg, and Anderson voted in favor of adopting CSHB 111 as a
working document. Representatives Crawford, Dahlstrom, and Lynn
voted against it. Therefore, Version I was before the committee
by a vote of 4-3.
Number 1962
CHAIR ANDERSON said that because of concerns by the committee,
he will not move HB 111 out today but will take public
testimony. He thanked Representatives Dahlstrom and Guttenberg
for their service on the subcommittee. He also thanked the
interested parties who gave input and recommendations, including
the RCA and the governor's office.
CHAIR ANDERSON stated that the subcommittee's mandate was the
analysis of potential revisions to the state's regulatory laws,
which was a daunting task, to say the least. The subcommittee's
mission has been to assess the efficacy of amending the RCA's
renewal bill, HB 111, using it to improve [the RCA's] current
process and procedure. He said he understands the argument from
the RCA that there needs to be a renewal without delay. In the
proposed CS, the RCA is renewed for four years, as recommended
by the governor. No one disagrees that a commission is
necessary. But he said that statutory deadlines have not been
met as suggested by [Chairman Dave Harbour] in his
correspondence [dated April 15, 2003]. The RCA has declared
that there are categories of cases not covered by recent
legislation. Some cases, which occurred before RCA Chair
Harbour's tenure, were addressed so late in the review cycle
that nonparticipation by commissioners resulted and a lack of
time of the hearing officer to recommend decisions occurred.
Ultimately, the final judgment appeared rushed. The commission
rolled old issues into new dockets, thus giving the appearance
that old dockets were not completed.
Number 2045
CHAIR ANDERSON referred to how the RCA noted in its
correspondence to the committee that it is "accountable through
the political process." However, Chair Anderson contended that
there is only indirect accountability. Commissioners are not
elected, they are appointed, he said. The only true measure of
a commissioner's performance is during the sunset review, which
the committee has before it, HB 111. That is the only time the
legislature can assess performance directly. The assertion in
the RCA correspondence that legislative mandates based on
lobbying efforts would dilute the commission, as an
"independent, objective, ex-parte-protected forum" isn't true,
he argued. The legislature sets the policy; that's why it's
here -- not to shirk responsibility -- but to work on these
problems. The commission's decision-making ability, should this
proposed CS pass the committee, would remain independent. While
there are concerns, the objectivity and ex parte aspects will
continue. The RCA letter referred to Senator [Drue] Pearce's
desire to allow the RCA to coalesce for four more years. Chair
Anderson asserted that this occurred four years ago, and the RCA
has had ample time to [accomplish] this. He stated, bear in
mind that this proposed legislation doesn't seek a restructure
of the RCA, either. The committee is not tinkering with the
RCA's structure. It is only offering substantive policy
guidance, the reason why legislators are elected.
Number 2122
CHAIR ANDERSON explained that on telephony issues, the
subcommittee has reached some significant remedial ground. He
said some people testifying today may testify that these
provisions may hurt them. That's not his intention, he said.
He said he has no favorites, but he must contend with the
consumer, the patron, the public, and the business market. The
RCA also stated [in its letter] that "it embraces ... change in
... statutes, regulations and administration" but experience
doesn't support this [claim] in telephony issues. That is why
the subcommittee has targeted just telephony issues.
CHAIR ANDERSON noted that Pam Krieber of Valley Refuse and Bob
Lindquist from Waste Management were signed up to testify. He
invited their testimony, but asked them to recognize that this
CS doesn't affect their issues.
Number 2143
CHAIR ANDERSON stated that he was confused by the RCA's
suggestion that the committee is performing "statutory
micromanagement," which results in a lower efficiency. This
proposed CS proposes policy guidance and de-tariffing proposals
that will lead to fewer proceedings and afford the RCA the
ability to handle its remaining caseload. He disagreed that the
RCA can administratively resolve all of the issues brought
before the committee over the last two months. If the proposed
CS passes, competitors will continue to have access to incumbent
facilities, at rates that will offer healthy margin
opportunities. A policy change promoting companies [that] are
competitors to [jointly] build their own facilities would
provide an incentive for investment. And most importantly, he
said, consumers would reap the benefit from this idea of free
flow marketing and this model of fairness. Legislators are the
policy makers, and their targets should be the consumer.
Legislators need to ensure fairness in the market place and
support the RCA to perform its duties for the benefit of the
public. He said he believes the proposed CS will achieve some
of these targets for telephony service.
Number 2225
DANA TINDELL, Senior Vice President, Legal, Regulatory and
Governmental Affairs, GCI, apologized that she was not fully up
to speed on the CS to HB 111 because she has only had it for an
hour. She said she has not had an opportunity to see any of the
proposed amendments nor work with the subcommittee on the CS.
She testified:
GCI is in support of a clean four-year extension of
the RCA. The amendments, ... looking at this
committee substitute to the original RCA bill, fall
into roughly three categories: deregulation, anti-
competition, and de-tariffing, which falls under
deregulation. Under the deregulation amendments, this
bill would essentially deregulate depreciation rates
for electric and telephone companies throughout the
state. Right now, depreciation is an issue in a rate
case [that] ACS has before the RCA where they asked
for a $60 million ... rate increase for all of their
telephone companies. The one issue in dispute that
determines whether or not they get that rate increase
is depreciation. ... We are a party to this
proceeding. It turns out that ACS has over-
depreciated the majority of its plant. Now, just by
mathematical calculation, because there is a lot of
lives left on the plant, they come out with a low
depreciation rate. They are seeking a higher
depreciation rate so they can increase rates. And the
RCA is standing in their way. This bill would
deregulate depreciation, and the RCA would not be able
to stand in ACS's way for rate increases nor
apparently [for] the electric companies.
Number 2331
MS. TINDALL continued:
This bill also deregulates incumbent monopoly
telephone providers upon the entrant of any
competition at all. So if a competitor enters a
service area and gets one customer, this bill would
deregulate service. Among other things, this bill
would deregulate, and the incumbent provider would no
longer have to comply with AS 42.05.291, which is
Standards of service, AS 42.05.301, which is
Discrimination in service. Under this bill, incumbent
providers with market power would be able to
discriminate in service. AS 42.05.306, which is
Discounted services and reduced rates for low-income
users, AS 42.05.361, Rates and rate schedules -- they
would no longer have to file them. AS 42.05.371,
Adherence to tariffs -- they would no longer have to
adhere to their tariffs, but I'm not sure why that
matters if they no longer have to file them. AS
42.05.381, the statutory requirement that rates be
just and reasonable -- utility providers would no
longer have to comply with. AS 42.05.391,
Discrimination in rates ... is a different issue than
discrimination in service. Under discrimination in
service, you can refuse to provide consumers with
service; under discrimination in rates, you can charge
them discriminatory rates. They are two different
things. [Tape ends mid-statement]
TAPE 03-38, SIDE B
Number 2366
MS. TINDALL stated:
...issues, and then of course once again, they get
deregulated from depreciation under that list. Those
are the deregulatory issues in this bill. The
incumbent carriers would no longer have to offer
tariffs; long distance rates would be deregulated such
that AT&T, who has by FCC regulation a monopoly in
some 150 communities throughout, would be able to
raise rates without getting commission approval.
Right now they can go in and go for a rate increase
through a rate case where they have to make a showing
to back up their proposed rate increase. But under
this committee substitute, they would not have to make
that showing and they could just go through with that
rate increase.
Number 2335
MS. TINDAll commented:
The anti-competitive issues are also of concern to
GCI. Much of the anti-competitive portions of this
committee substitute, however, are preempted by
federal law. The FCC establishes the way in which
pricing is done for GCI to lease portions of ACS's
network. They are very specific in what they require.
... Total element long run incremental cost is what it
has to be based on. And that means that there has to
be a model with the most advanced telecommunications
services, ... the lowest cost under competitive
pressure assumed. And the only thing that's fixed
would be where the existing wire centers are today.
Otherwise, there is nothing fixed in that model. This
bill would be automatically pre-empted because it
directly flies in the face of that regulation. That
regulation has been upheld by the United State Supreme
Court as being fair and reasonable and has been fought
out pretty thoroughly in the Lower 48 so its pretty
clear. The amendment that would require that rates be
set on existing cost is ... totally pre-empted.
Number 2280
MS. TINDALL observed:
The RCA's purpose is to protect consumers from this
type of bold and bald market power, from rate
increases where there's no showing if there's not
competition, from discrimination from service, from
discrimination rates, that's what they're there for.
They're also there to ensure that carriers have an
opportunity to make a fair and reasonable rate of
return. If a carrier feels it's not making a fair and
reasonable rate of return and cannot get redress at
the Regulatory Commission of Alaska, they can go to
court and can make a confiscation claim. No carriers
to date have done that. None of them have gone to
court and tried to make their claim. ACS is free to
go to the FCC and get a petition from forbearance of
applying their regulations based on the fact that
somehow the pricing regulations are hurting them.
That would require a showing and require putting facts
on the record. ACS has not done that. ACS simply
goes to the legislature. The RCA is the expert body.
This is a very complicated issue. Things are not as
they seem. These things do require in-depth
discussion because the impact of this legislation if
it passed is anti-consumer. Rates across the state
would go up and ...parts of competition would be
eliminated. Thankfully, a lot of it is preempted by
the FCC.
Number 2219
MS. TINDALL concluded:
So I would urge you, because a bill has to pass ... to
pass out a clean bill and extend the RCA for four
years.
Number 2211
REPRESENTATIVE ROKEBERG confirmed that Ms. Tindall stated that
the bill would set rates at existing cost levels, which would be
preempted by federal law at the FCC. He asked how the FCC 's
ruling impacts the state's right to set rates.
MS. TINDALL reiterated that [the FCC] order has not been
released yet. She stated:
Based on what we can tell from the open discussion by
the commissioners ... that order dealt primarily with
whether or not unbundled element of switching had to
be continued to be available. Currently in Alaska,
... GCI is the only competitor that leases unbundled
elements. ... GCI, for the most part, doesn't lease
the switching element, except for some four percent of
our lines in Fairbanks where we had to because of the
way the network was configured. Essentially, the FCC
order, we believe, deals with the switching element
and with line sharing. And there is no line sharing
in Alaska, as well. It is our belief, and I think the
RCA has testified to this as well, that this order
will have little or no impact on Alaska. There may be
a provision in it for an incumbent carrier, such as
ACS, to make a filing or petition with the state
commission to show why somehow they shouldn't have to
offer an unbundled element.... There is a presumption
that that element will be offered for everything
except the switching element for business users.
Although there has been a lot of talk about what the
FCC [did], ... the order is not out, and to the best
of my knowledge and most others, and I urge you to
check it out with others, it will have little or no
impact on Alaska. And it certainly doesn't undo the
fact that total element long run incremental cost is
preempted by the FCC in the state law and upheld by
the United State Supreme Court.
Number 2089
REPRESENTATIVE ROKEBERG commented that some of the issues in the
CS are not addressed in the [FCC] ruling and asked how the
ruling effects the jurisdiction of the RCA.
MS. TINDALL said the prior to the FCC order, the method of
pricing and the availability of unbundled elements was
established by the federal government. Post that order, the
only unbundled element that is affected is the high-capacity
switching element, which is not an issue in this state. Prior
to the order, the states don't have the jurisdiction on this
issue, and after the order, they don't have the jurisdiction on
this issue; it is preempted.
REPRESENTATIVE ROKEBERG asked about line sharing and leasing ACS
lines.
MS. TINDALL replied that line sharing doesn't exist in Alaska.
GCI leases unbundled [network] elements (UNEs) from ACS.
Number 1998
KRISTI CATLIN, Director, Government Relations, AT&T Alascom,
testified:
The committee has on record my previous testimony and
Mike Felix's previous testimony outlining our position
on the responsibility of telephone providers and
regulators in the telecommunications market. Those
responsibilities are primarily to ensure [that] basic
telecom services remain affordable and to provide a
regulated environment that fosters investment. The
old monopoly-era regulations are no longer
accomplishing these goals. The inter-exchange carrier
market, as it stands today, is fully competitive.
Alascom's market share has gone from 100 percent in
1989 to 42 percent today, where GCI's percentage is
46-48 percent. Although we participated in a four-
year procedure at the RCA, Alascom is still the
dominant carrier. AT&T Alascom has submitted language
to amend HB 111 that is included as Section 6 of the
CS. It adds very simple and straightforward language
that defines a carrier as nondominant once its market
share hits 60 percent, the same percentage used in
defining AT&T nondominant in the federal jurisdiction.
AT&T Alascom reaffirms its support for this amendment.
Number 1925
MS. CATLIN continued:
The amendment is specifically intended to benefit
Alaska consumers by ensuring a healthy competitive
environment through equalizing regulatory requirements
for all players by reducing regulatory cost and by
increasing competitive flexibility. By eliminating
these additional costs and filing requirements, this
amendment will directly increase AT&T Alascom's
ability to more effectively compete. And, as has been
shown both nationally and in Alaska, we believe that
consumers will ultimately benefit by the increased
competition. Even-handed regulation yields downward
pressure on prices. It also results in parity on the
evaluation of new and more efficient technologies,
which provides incentive to bring Alaskan consumers
the additional products and services they desire.
Number 1889
MS. CATLIN commented:
I'd like to address just one comment made by Dana, and
it has to do with AT&T Alascom's 150 facilities-
restricted locations. They're restricted on the
federal side but not on the state side, just for the
record, and it is for toll service. It's for the per-
minute long distance calling you and I do everyday.
It's not for data services that we sell to businesses
or for any wholesale services; it's for the MTS
services. ...Those locales ... are well less than 10
percent of Alascom's traffic, no matter how you
measure it, whether its interstate, intrastate,... its
less than 10 percent, [but] we have over 70 percent of
our costs. It's a very small percent of our traffic,
and for all of those locations, in addition to our
other locations, we're held to geographic rate
averaging, and we cannot raise toll rates to those
areas. So we can't raise our prices. So I want to
make it really clear for the committee that we can't
do what you're being told we can do there.
Number 1840
REPRESENTATIVE ROKEBERG asked why AT&T Alascom can't raise its
rates in those areas. Is it because of FCC regulations, he
asked.
MS. CATLIN replied that it's a [matter of] state regulation.
She explained that AT&T could raise prices, but it would have to
raise those prices in Anchorage also, and Anchorage is a
competitive market. She said that AT&T would lose market share,
and no competitor in its right mind, for 10 percent of its
traffic, would [do that]. She said that AT&T would never do
that. She stated that AT&T hasn't had a residential rate
increase as long as she has worked in "regulatory," which is
eight years.
REPRESENTATIVE ROKEBERG asked if this bill will allow other
carriers to compete in those areas or are they restricted areas.
MS. CAITLIN answered that on the intrastate side, other carriers
can compete now. It's only a federal requirement for message
toll service, which is the regular telephone calling, that
[other carriers] are not allowed to bill facilities for that
purpose. For instance, GCI is already entering many of those
locations for private line service, which is the dedicated
business services for schools and libraries. So GCI is already
in many of these locations, she said.
REPRESENTATIVE ROKEBERG asked if GCI is prohibited from offering
service.
Number 1767
MS. CATLIN said that on the state side, GCI is not prohibited at
all. However, on the federal side, there is still a facilities
restriction in those 150 locations if GCI wants to provide
message toll service over those facilities. AT&T, GCI, and the
RCA have all told the FCC that they don't want that to continue.
And that [issue] is pending at the FCC, she said.
Number 1731
LEONARD STEINBERG, Vice President and General Counsel for ACS
(Alaska Communications Systems), spoke in support of CSHB 111.
He testified:
We endorse the committee substitute in part for some
of the reasons articulated by the chairman in his
comments a few minutes ago. Fundamentally, we believe
that these are issues of very important state policy.
... Elected representatives of the state ... are best
suited to establish state policy, and we are concerned
that a great deal of state policy is being set by
unelected, appointed regulators, and we do not feel
that is in the best interests of the state. There has
been some discussion ... about whether these issues
could be better addressed by the RCA. ... These issues
have been brought before the RCA for years, and they
have not been resolved.
Number 1669
MR. STEINBERG commented:
There are severe problems in the local exchange
business in Alaska. These problems are a result of
... shortsighted and one-sided policies and pro-
regulatory policies. ... It is true that ACS has been
harmed; its shareholders have been harmed; more
importantly, Alaska's consumers have been harmed.
What has occurred is a result of the way competition
has been brought into the state... ACS is not opposed
to competition whatsoever. We simply want competition
on a fair and level playing field. ACS has been
harmed, both in terms of its revenues and in terms,
even more importantly, of its return on its
investment. Currently, its return on investment in
its competitive markets is approaching unsustainable
levels. What this has done is to choke off investment
in the infrastructure that Alaskans would benefit from
in the future. It's also choked off our ability to
serve customers.... Well, when you don't have the
money, you can't do that. The way competition has
been promoted in Alaska through misguided policies ...
has contributed to a very difficult situation for
Alaska's consumers.
Number 1620
MR. STEINBERG observed:
The specific issues ... to address are to obtain a
fair price for the leasing of our facilities to
whatever competitor is around, and we also believe
that when you get into competitive market places, such
as Anchorage, where ACS only has about 50 percent of
the market, that it probably is time to look at
deregulatory alternatives.... The purpose of
regulation is largely to substitute for market
controls, for market forces. Once you have a
competitive market place, then there is no further
need to have government regulators substituting their
judgment for that of the market, and therefore we
believe in a competitive market place, it is
appropriate to deregulate.
Number 1567
MR. TINDALL continued:
Briefly, I would like to address a few of the points
that were made by Ms. Tindall. Not surprisingly, we
have a different perspective on some of those points.
First of all, Ms. Tindall raised the issue of
depreciation rates. ... Yes, depreciation rates have
been an issue before the RCA. One of the reasons it's
an issue here before this committee is because ... the
RCA has made misguided policy judgments ... When a
company is allowed to recover its investment when you
are a monopoly, basically, you are guaranteed a
recovery over a period of time. When you are in a
competitive situation, those guarantees don't exist
really any longer. ... Despite references that I've
heard to the RCA ensuring that utilities have an
opportunity to earn a fair return, that simply is not
the case in a competitive marketplace. ...The
economists that I've talked to ... have supported
shorter depreciation lives. In fact, [in] the ...
order ... that we're waiting for, the FCC has
indicated in its press release on that order that it
believes shorter depreciation lives and higher
depreciation rates are appropriate in competitive
environments.
Number 1493
MR. STEINBERG pointed out:
Just as example of ... the unfairness, in a recent
order we have from the RCA, certain assets of ACS such
as our metallic cable, that is the basic copper wire
that most of your service runs over, we were ordered
to depreciate that on a 30-year basis, whereas we have
learned that GCI depreciates that very same asset on a
12-year basis. That's the kind of fundamental
unfairness that we think the committee substitute is
intended to fix.
Going to the notion of anticompetitive and this notion
of preemption, ... we disagree vehemently with Ms.
Tindall on this issue. We do not believe the
committee substitute ... would be preempted by federal
law. As a very brief overview, the FCC does establish
the so-called TELRIC, total element long run
incremental cost pricing methodology, and delegates to
the states a great deal of discretion about how to
implement those guidelines and how to set prices. ...
We believe [it] is appropriate for the legislature to
establish what the state policy ought to be. ... We do
not believe any of this involves preemption of federal
law.
MR. STEINBERG concluded:
Finally, I was quite surprised to hear Ms. Tindall
note that we shouldn't be here at the legislature
because we could always go to court or always go to
the FCC. As Ms. Tindall well knows, ACS has attempted
to do both of those things and has been opposed in
every effort by GCI in seeking redress in those
alternative forms. ... That is one of the reasons we
believe that it is appropriate for this legislature to
help establish the policy.
Number 1407
REPRESENTATIVE GATTO asked Mr. Steinberg to comment on the
statement that ACS paid too much for the utility and now simply
wants to get its money back.
MR. STEINBERG replied that there's an amount ACS paid in excess
of the book value; that amount is not depreciated. Depreciation
is on the net investment in plant. Every company depreciates
its assets. The question here is over what period of time are
companies allowed [by the RCA] to depreciate those assets. He
said that it's fundamentally unfair to impose a 30-year
timetable on ACS, when GCI depreciates the very same asset in 12
years. Upon further questioning by Representative Gatto, he
said it is fundamentally unfair that the RCA requires ACS, as
the incumbent carrier, to file rate cases. ACS was required by
the old APUC (Alaska Public Utility Commission), at the time of
the acquisition of the ATU (Anchorage Telephone Utility), to
file a rate case and justify its costs. He pointed out that GCI
does not have those obligations; GCI does not have to go through
the same process as ACS of justifying its costs for its rates
and having the RCA order a depreciation rate for ratemaking
purposes.
Number 1318
REPRESENTATIVE ROKEBERG asked how the FCC and the RCA each
handle the depreciation issue.
MR. STEINBERG replied that the FCC does have guidelines for
depreciation, which apply to a certain class of carriers known
as price cap carriers. In fact, there are no guidelines that
apply to rate-of-return carriers like ACS. When you compare the
depreciation rates that the RCA has imposed on ACS with the
depreciation rates it has imposed on other telephone utilities
in Alaska, ACS has the lowest depreciation rates. He said his
company compared rates with peer group companies in the Lower 48
and found that the depreciation rates imposed by the RCA are
simply out of "sync."
REPRESENTATIVE ROKEBERG asked if depreciation is governed by
GAAP (generally accepted accounting principles).
Number 1233
MR. STEINBERG replied the GAAP rules key off of the regulated
ratemaking rules. He commented about the forthcoming order by
the FCC. [The FCC has issued] a four-page press release, which
precedes a 400-500-page order, which has not been seen yet. The
biggest part of the debate before the FCC was how to determine
whether there was sufficient impairment to require these network
facilities to be leased to another carrier. He said there was a
great deal of debate from companies all across the country on
this question. The FCC essentially decided that it wasn't going
to decide the issue; it was going to delegate the decision to
the states. [This decision] essentially puts even more power in
the hands of the states, and it is very important for the
legislature to provide appropriate policy guidance when the
state regulators have so much power.
REPRESENTATIVE ROKEBERG asked if the order will define network.
MR. STEINBERG replied that the FCC considered the question about
whether competitors were impaired such that they couldn't
sufficiently compete [and thus needed] to have access to network
facilities.
Number 1071
JIM ROWE, Director, Alaska Telephone Association, testified in
support of the proposed CSHB 111. He thanked the subcommittee
for its work. He said he has had several weeks to review the
pieces that have been incorporated into the CS. He said he
appreciated that the language submitted by AT&T has been
included in Section 2 of the CS. "It's very important," he
said. It's somewhat similar to Section 6, he said.
MR. ROWE pointed out that these sections deal with dominance.
He said it is noteworthy that only a single [telephone company]
has testified in support of a clean bill. That suggests that
the status quo at the RCA is not satisfactory to the many other
very disparate members of the telecommunications industry -- the
long distance industry, the rural local exchange industry, and
the urban local exchange industry. He warned that dependable,
low-cost telecommunications service will not always be readily
available because something is already happening. As Mr.
Steinberg mentioned, that problem is a lack of investment. The
rural companies are not yet in the wire line competitive arena.
They are preparing for competition, and fiduciary responsibility
warns against making an investment where the cost of that
investment cannot be recovered. Infrastructure investments have
been deferred. The public has not experienced phone problems
yet, but this will happen in the future.
Number 0990
MR. ROWE explained that the status quo [at the RCA] is not
sufficient at this time, and [members of the telephone industry]
are concerned. He spoke in deference of [RCA] Chairman [Dave]
Harbour and Commissioner Mark Johnson, who are recently
appointed, and has faith that things will get better. But that
faith is not sufficient, he remarked. Members of the industry
have been disadvantaged. He pointed out that AT&T Alascom is
not asking for a level playing field nor is the company asking
for GCI to be [named] the dominant carrier. It is asking not to
be [named] the dominant carrier, even though it's smaller.
Number 0901
MR. ROWE referred to Section 2, and used the example of a
competitor coming into the area of a rural local exchange
company. If the RCA decided that a competitor and the public
would be served by competition in that area, he warned against
[the RCA] making the small rural local exchange company the
dominant carrier. Why, he asked. There's a cost to being a
dominant carrier, just as there is to Alascom. [The dominant
carrier] has to file reports that the other carrier doesn't. He
pointed out that GCI officials recently noted that the company
has 1,200 employees, and he contrasted that with the Summit
Telephone Company that has 20 employees in its rural area. He
asked if GCI came into the area, would the RCA consider the
dominant carrier to be the Summit Telephone Company. That's
absurd, he warned, but that's the status quo. The RCA might
rule in Summit's favor 18 months later, but Summit would
probably be gone before then. He said that ATA is not asking
that GCI or any other competitor be made the dominant carrier;
the group is asking to be made nondominant. He advised against
holding one telephone company to a higher standard than another.
He clarified that he's not advocating giving up the carrier of
last resort [provision in state law]. The cooperatives, the
for-profit companies, and the Native-owned companies are serving
their customers because a bell operating company didn't go to
that area. They're there because AT&T didn't see it as a
profitable business. The ATA members are already spending money
in fear of a competitive environment where there is no business
case for being there. [The ATA companies have] universal
service funding.
MR. ROWE advised the committee to listen to the preponderance of
concern by members of the industry; there is dissatisfaction
with the history, not necessarily the future, of the RCA. The
industry has concerns, which are already impacting it.
Number 0795
REPRESENTATIVE GATTO asked what would happen if the RCA was
disbanded rather than extended.
MR. ROWE replied that it would be a disadvantage to the public
to disband the RCA. Telecommunications is a regulated industry,
and it should be regulated in noncompetitive areas. It is a
public utility, serving the public. His group has never
testified against a public utility commission in the state; it's
necessary. That's the concept of universal service; it's
affordable access to telecommunications. In a purely
competitive environment, companies go where they can make money,
and pull out of those places they can't make money. He noted
that GCI may not be happy when they can serve all the little
places where AT&T is losing money.
Number 0680
REPRESENTATIVE GUTTENBERG asked about ATA.
MR. ROWE explained that the Alaska Telephone Association was
created in 1949. It is open to regular members who are
incumbent local exchange carriers in Alaska. At this time, ACS
is not a member, and Circle Utilities is not a member. There
are 14 members but 22 companies. There are 150-160 associate
members including AT&T Alascom and GCI.
Number 0606
REPRESENTATIVE ROKEBERG asked if anything in this CS threatens
the concepts of carrier of last resort or mandatory service to
the rural areas of the state.
MR. ROWE replied no. The companies he represents are there
because they want to be the carriers of last resort; many of the
company officials live in the communities.
Number 0558
REPRESENTATIVE ROKEBERG asked if Anchorage is the only community
in the state that doesn't receive some universal service
subsidy.
MR. ROWE responded that he didn't know about Anchorage. He
confirmed that all other lines outside of Anchorage are
subsidized, including Juneau and Fairbanks.
Number 0471
ERIC YOULD, Executive Director, Alaska Rural Electric
Cooperative Association (ARECA), mentioned that he has a similar
role as Jim Rowe, although he represents the electrical utility
industry. His members, both large and small, generate about 90
percent of the electricity in Alaska.
MR. YOULD testified:
The bill that you have before you, the committee
substitute, does not have anything in it for the
electric utility industry. Interestingly enough, the
electric utility industry has worked very hard all
last year throughout the summer and this year as well
to craft some amendments [that] we feel would
streamline the regulatory commission, make their
decision process more timely, and actually lessen the
cost to the State of Alaska. I have submitted these
amendments to the subcommittee and then individually
... to each of the other members of this committee
.... Nevertheless, Mr. Chairman, we want to go on
record as saying that we could support this committee
substitute if our amendments were adopted as well, and
we hope that this committee will adopt those
amendments.
Number 0387
MR. YOULD stated:
My board of directors has basically taken the position
that we could accept a three-year extension of the RCA
if we could get our amendments passed. If, on the
other hand, this committee does not chose to adopt the
amendments we have proposed, we'd find ourselves in
the court with Dana [Tindall of GCI]. We would
actually rather see a clean bill, however, we would
also only like to see it extended for one or two years
because we feel without streamlining amendments, we
would like to hold the RCA's feet to the fire and make
sure that the assertions that Mr. Harbour has made
before this committee and others that he can get the
job done is in fact the case.
Number 0324
REPRESENTATIVE GATTO confirmed Mr. Yould's opinion that there's
nothing in the CS for the electrical utilities. Representative
Gatto pointed to the language "An electric or telephone
utility's" on page 4, line 10.
CHAIR ANDERSON pointed out that committee members received the
CS at noon today. He noted that because of time limitations and
because the bill is being held, he suggested that Mr. Yould
review this provision in the CS.
Number 0213
ROSALEE WALKER, Older Persons Action Group (OPAG), AARP, Local
Chapter 865, noted that committee members have a copy of the
[March 9, 2003] AARP [Alaska] letter, supporting HB 111. She
said she advocates for the RCA, an agency to look after the
interests of consumers. She could not offer any comments on the
CS. She pointed out that consumers need a process for resolving
their complaints and reasonable prices for utilities.
Number 0045
BOB LINQUIST, Waste Management of Alaska, referred to a letter
in regards to Valley Refuse and his company's response to it.
He commented to Ms. Walker that his company has proposed a
senior discount but the state would not allow it. He said he
wished to clarify two points with regard to the letter [of April
17, 2003 from Valley Refuse, Inc]. Price deregulation is not
deregulation, he explained. In a price-deregulated market, a
company would still have to file a certificate, tariffs, be the
carrier of last resort, couldn't price below cost, and could not
discriminate among similar customers.
TAPE 03-39, SIDE A
Number 0030
MR. LINDQUIST said that if this issue is not a part of the CS to
HB 111, he said he hopes it is addressed in other legislation.
All the state would be primed for this type of competition,
where there are three or more competitors in a service area,
this type of competition would be appropriate. In the case of
Mat-Su Valley, there are 9 certificated haulers, it's definitely
appropriate. He said he's a resident of the Mat-Su Valley. He
said his company has introduced services in the area, its very
exciting to go through a neighborhood and not see trash piling
up alongside the road anymore. He said he looks forward to
working with the RCA for positive changes.
CHAIR ANDERSON confirmed that the committee has his letter.
Number 0108
PAM KRIEBER, Owner, Valley Refuse, Inc., testified that she
supports extending the RCA. She explained that she supports the
continued regulation of refuse service by the RCA. She referred
to her letter [of April 17, 2003 to the committee]. Valley
Refuse is a small refuse utility in the Mat-Su Valley. She and
her partner are 20-year Alaskans, have been in business for over
9 years, and have over 3,000 customers, mostly residential
households. She disagreed with Mr. Linquist's reference to nine
certificated haulers in the area. She identified three
companies that provide the basic hauling service: Waste
Management, Valley Refuse, and Raymond Refuse.
MS. KREIBER noted that Waste Management owns the largest refuse
hauling utility in each geographic region of Alaska. Waste
Management is a Houston, Texas, based company, and is the
largest refuse hauler in the United States. When comparing the
refuse companies operating in Alaska, Waste Management has no
peer in terms of gross operating revenues, net income, value of
assets available in this state, purchasing power for new
equipment, and availability of expert legal counsel. Valley
Refuse competes against Waste Management in the Matanuska-
Susitna Borough through economically regulated competition. The
regulatory commission reviews the rates charged by both Valley
Refuse and Waste Management to assure that these rates are based
on the cost incurred by providing the service. She asked the
committee not to allow language [in HB 111] for the blanket
deregulation of utilities in areas where competition is
currently managed by the regulatory commission. The RCA rate
review prevents predatory pricing, she noted.
Number 0370
MS. KRIEBER testified that Waste Management has tried repeatedly
for the past five years to deregulate refuse hauling. In her
letter of April 17, she outlined these repeated attempts and can
provide documentation. She opined that it would certainly be in
Waste Management's best interest to be exempt from the scrutiny
of the RCA and the State of Alaska attorney general. If there
were no state oversight, Waste Management could price its
service well below the cost of providing that service, operating
at a loss long enough to drive a competitor out of business, at
the most, 12-18 months. Then with competition eliminated and
potential competitors intimidated, the company would be free to
increase their rates to levels high enough to make up for the
losses sustained and maximize their profits. And it could do
this legitimately through the regulatory process. The end
result of this would be Alaskan citizens paying inflated rates
for the refuse service and bankruptcy for small Alaskan
businesses. Ms. Krieber urged the committee not to deregulate
the refuse collection industry.
Number 0497
DAVE HARBOUR, Chairman, Regulatory Commission of Alaska, said
[today's testimony] helps the committee understand his [role] as
a commissioner. He listens to these advocates in a formal
hearing process, accompanied by some of the best attorneys in
the United States.
MR. HARBOUR commented:
The regulatory system is alive and well. Our
objective is to be fair to the consumers and also to
be fair to the utilities to be sure that they have the
opportunity to make a fair rate of return. In my
brief two-month analysis of the commission, I am here
to assure you that that is being done. The statements
I made in my letter I stand by. If this forum wants
to take me to task for any of the statements I have
made, I would be happy to discuss them in more detail
with you. Those are important for you to understand
as being the way it is at the Regulatory Commission
now. We support a clean bill. That's why we're here.
You've got to have a regulatory commission; I say
you've got to. I know you want to have a regulatory
commission because you don't want to adjudicate all
these complicated issues yourself. You don't have the
time, even if you had the desire to do so ....
Number 0635
MR. HARBOUR commented:
If I were with you as you were deliberating on whether
to include [some of those amendments] in a CS, I would
have suggested to you, "Shouldn't we ask really what
that dominance means?" To us, ... there is a legal
definition and implication of the word. If we say 60
percent dominance statewide, what about the situation
where that very company has 100 percent monopoly in a
village. Is [the company] off the hook of the 60
percent rule statewide? Does that mean [it's] off the
hook with regard to dominant regulation in the
village? I would have said to you, ..."I hope that
without the due consideration that the commission puts
into all these weighty issues, we don't produce a bill
that ends up being known as the 2003 Consumer Cost
Increase Act." I'm very concerned that that may well
be the outcome of this.
Number 0685
MR. HARBOUR continued:
We're all after healthy, vibrant companies, utilities,
and competition. And I assure you that I'm after
that; it's at the top of my list. Because that's how
you take care of consumers. But on the other hand,
you need to take care [of the companies]. You have
heard from several companies of the 300 roughly that
we regulate throughout the state. You have heard in
my correspondence that we've issued over 2,000
important orders since 1999. And only 16 have been
appealed. Mr. Chairman, I think the report card is
very good. Your own [Legislative Audit Division] has
done two audits that has supported the RCA, has made
suggestions for improvement. We've agreed to those
improvements, and have either undertaken or completed
those improvements. ... You should have confidence
that the RCA is acting on your behalf to do the work
that you would do if you had the time and desire to do
[it] yourself.
Number 0742
REPRESENTATIVE LYNN said he agreed with Mr. Harbour's comments
and is focused on the future of the RCA.
CHAIR ANDERSON said he would hold the bill over and will keep
public testimony open.
HB 251-MARINE PILOT FOR FOREIGN PLEASURE CRAFT
[Contains discussion of SB 20]
Number 0820
CHAIR ANDERSON announced that the final order of business would
be HOUSE BILL NO. 251, "An Act exempting certain foreign
pleasure craft from the mandatory pilotage requirement."
REPRESENTATIVE GATTO moved to adopt the proposed committee
substitute (CS) to HB 251, Version 23-LS0865\U, Utermohle,
4/22/03, as the working document. There being no objections,
Version U was before the committee.
Number 0870
REPRESENTATIVE DAHLSTROM stated that the bill was discussed in
committee last week. The interested parties agreed to changes
and decided to wait to put those agreements into written form
rather than conceptual amendments. These changes are
incorporated into Version U before the committee. Language on
page 2, line 12, exempts small foreign pleasure craft less than
20 meters from all pilotage requirements. On page 2, line 17, a
new section directs the Board of Marine Pilots to establish
procedures for vessels leaving state waters. This allows the
state to keep better track of the position of yachts. The
paragraph also deals with the timely payment of pilots. The
vessels must employ an agent who holds an Alaska license.
CHAIR ANDERSON asked whether the marine pilots are satisfied
with this language.
REPRESENTATIVE DAHLSTROM said she believes the marine pilots'
concerns have been met, but a representative is here to answer
any questions.
Number 0943
REPRESENTATIVE LYNN asked about the position of the marine
pilots on this CS.
Number 0978
ASHLEY REED, Lobbyist for Fraser Stryker, described his
involvement with this issue. He explained that early on, he
thought this amendment could be included in the [sunset
extension] of the Board of Marine Pilots [in SB 20]. The marine
pilots and the sponsors said they would work with him and
another lobbyist if they didn't use their [reauthorization bill]
as a vehicle for this legislation. He explained that last week,
Senator Therriault assembled the interested parties: the marine
pilots, their lobbyists, several marine pilots in town for a
board meeting, lobbyists for the yacht industry, and legislative
staff. Both sides reached agreement and the proposed CS is the
result. He noted that there has been some question about the
Coast Guard's position [about pilotage on foreign pleasure
craft]. Senator Therriault has put together another meeting
next week with the Coast Guard, he added.
Number 1106
REPRESENTATIVE DAHLSTROM moved to report the proposed CS for HB
251, Version 23-LS0865\U, Utermohle, 4/22/03, out of committee
with individual recommendations and the attached zero fiscal
note. There being no objection, CSHB 251(L&C) was passed out of
the House Labor and Commerce Standing Committee.
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
5:30 p.m.
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