Legislature(2003 - 2004)

03/08/2004 08:07 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
             HOUSE STATE AFFAIRS STANDING COMMITTEE                                                                           
                         March 8, 2004                                                                                          
                           8:07 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Bruce Weyhrauch, Chair                                                                                           
Representative John Coghill                                                                                                     
Representative Bob Lynn                                                                                                         
Representative Paul Seaton                                                                                                      
Representative Ethan Berkowitz                                                                                                  
Representative Max Gruenberg                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Jim Holm, Vice Chair                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 466                                                                                                              
"An Act relating to investments  of Alaska permanent fund assets;                                                               
and providing for an effective date."                                                                                           
                                                                                                                                
     - MOVED CSHB 466(STA) OUT OF COMMITTEE                                                                                     
                                                                                                                                
HOUSE BILL NO. 439                                                                                                              
"An Act  relating to the  authority to take  oaths, affirmations,                                                               
and acknowledgments  in the state;  relating to  notaries public;                                                               
relating to  fees for issuing  certificates with the seal  of the                                                               
state affixed; and providing for an effective date."                                                                            
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
HOUSE BILL NO. 520                                                                                                              
"An Act  relating to the  expenses of investigation,  hearing, or                                                               
public advocacy  before the Regulatory  Commission of  Alaska, to                                                               
calculation of  the regulatory cost  charge for  public utilities                                                               
and pipeline  carriers to include  the Department of  Law's costs                                                               
of its public  advocacy function, to inspection  of certain books                                                               
and  records by  the  attorney general  when  participating as  a                                                               
party in  a matter  before the  Regulatory Commission  of Alaska;                                                               
and providing for an effective date."                                                                                           
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 466                                                                                                                  
SHORT TITLE: PERMANENT FUND INVESTMENTS                                                                                         
SPONSOR(S): RULES BY REQUEST OF LEG BUDGET & AUDIT                                                                              
                                                                                                                                
02/16/04       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/16/04       (H)       STA, FIN                                                                                               
02/26/04       (H)       STA AT 8:00 AM CAPITOL 102                                                                             
02/26/04       (H)       Scheduled But Not Heard                                                                                
03/02/04       (H)       STA AT 8:00 AM CAPITOL 102                                                                             
03/02/04       (H)       Heard & Held                                                                                           
03/02/04       (H)       MINUTE(STA)                                                                                            
03/08/04       (H)       STA AT 8:00 AM CAPITOL 102                                                                             
                                                                                                                                
BILL: HB 439                                                                                                                  
SHORT TITLE: OATHS; NOTARIES PUBLIC; STATE SEAL                                                                                 
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
02/05/04       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/05/04       (H)       STA, JUD, FIN                                                                                          
03/04/04       (H)       STA AT 8:00 AM CAPITOL 102                                                                             
03/04/04       (H)       <Bill Hearing Postponed to Mon. 3/8/04>                                                                
03/08/04       (H)       STA AT 8:00 AM CAPITOL 102                                                                             
                                                                                                                                
BILL: HB 520                                                                                                                  
SHORT TITLE: REGULATORY COMMISSION OF ALASKA                                                                                    
SPONSOR(S): STATE AFFAIRS                                                                                                       
                                                                                                                                
02/23/04       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/23/04       (H)       STA, L&C, FIN                                                                                          
03/05/04       (H)       STA AT 8:00 AM CAPITOL 102                                                                             
03/05/04       (H)       <Bill Hearing Postponed to Mon. 3/8/04>                                                                
03/08/04       (H)       STA AT 8:00 AM CAPITOL 102                                                                             
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
ROBERT D. STORER, Executive Director                                                                                            
Alaska Permanent Fund Corporation (APFC)                                                                                        
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified on behalf of the department                                                                      
during the hearing on HB 466.                                                                                                   
                                                                                                                                
RONALD W. LORENSEN, Attorney at Law                                                                                             
Simpson, Tillinghast, Sorensen & Longenbaugh, P.C.                                                                              
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified during the hearing on HB 466.                                                                    
                                                                                                                                
ANNETTE KREITZER, Chief of Staff                                                                                                
Office of the Lieutenant Governor                                                                                               
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:   Outlined  the sectional  analysis and  its                                                               
relation to a committee substitute to HB 439.                                                                                   
                                                                                                                                
SCOTT CLARK, Notary Commission Administrator                                                                                    
Office of the Lieutenant Governor                                                                                               
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Discussed  changes to  HB 439  and answered                                                               
questions from the committee.                                                                                                   
                                                                                                                                
DANIEL PATRICK O'TIERNEY, Senior Assistant Attorney General                                                                     
Commercial/Fair Business Section                                                                                                
Civil Division (Anchorage)                                                                                                      
Department Of Law                                                                                                               
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Addressed changes  proposed in the committee                                                               
substitute during the hearing on HB 520.                                                                                        
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 04-31, SIDE A                                                                                                            
Number 0001                                                                                                                     
                                                                                                                                
CHAIR  BRUCE WEYHRAUCH  called the  House State  Affairs Standing                                                             
Committee meeting to order at  8:07 a.m.  Representatives Seaton,                                                               
Coghill, Lynn, Gruenberg, and Weyhrauch  were present at the call                                                               
to order.   Representative Berkowitz  arrived as the  meeting was                                                               
in progress.                                                                                                                    
                                                                                                                                
HB 466-PERMANENT FUND INVESTMENTS                                                                                             
                                                                                                                                
Number 0080                                                                                                                     
                                                                                                                                
CHAIR WEYHRAUCH  announced that the  first order of  business was                                                               
HOUSE BILL  NO. 466,  "An Act relating  to investments  of Alaska                                                               
permanent fund assets; and providing for an effective date."                                                                    
                                                                                                                                
CHAIR  WEYHRAUCH mentioned  an amendment  regarding allowing  the                                                               
[Alaska Permanent  Fund Corporation  (APFC)] board to  make loans                                                               
of fund assets  to the Alaska Natural  Gas Development Authority.                                                               
He asked Mr. Storer for his feedback.                                                                                           
                                                                                                                                
Number 0144                                                                                                                     
                                                                                                                                
ROBERT  D.  STORER,  Executive Director,  Alaska  Permanent  Fund                                                               
Corporation (APFC), Department of Revenue, responded as follows:                                                                
                                                                                                                                
     ...  The board  has not  discussed the  merits of  this                                                                    
     issue,  so I  would  just make  a couple  observations.                                                                    
     One  is [that],  if in  fact the  amendment were  to go                                                                    
     through,  it would  definably be  a less  liquid asset;                                                                    
     but how liquid or how  the instrument [would] look ...,                                                                    
     I couldn't speak  to right now.  But one  of the things                                                                    
     that we discussed,  Mr. Chair, was the fact  that as we                                                                    
     diversify portfolios, we  own a lot of stocks.   We had                                                                    
     discussion  weeks ago  about  ...  filling the  basket.                                                                    
     And  we own  over 4,000  stocks.   And  I mention  this                                                                    
     because,  in our  publicly  traded  equity portfolio  -                                                                    
     very  liquid,   large  company  names  -   our  largest                                                                    
     holding's   probably   Pfizer  or   [General   Electric                                                                    
     Company],  and it's  probably  around  $250 million  in                                                                    
     value; that's in  a $28 billion fund.  So,  you can see                                                                    
     the  less liquid  the  ...  investment instrument,  the                                                                    
     less  money one  would be  willing to  commit to.   So,                                                                    
     it's  a  practical  matter.   If  it  met  the  prudent                                                                    
     investor rule, if it  met our diversification criteria,                                                                    
     probably  the  most  we  would be  able  to  invest  in                                                                    
     passing those  hurdles would be $50  maybe $100 million                                                                    
     - tops.   We do  have other  ability to make  that type                                                                    
     [of] investment, if it's  appropriate for the permanent                                                                    
     fund,  but  that would,  of  course  -- the  difference                                                                    
     being  giving   us  explicit  direction  to   at  least                                                                    
     consider such an investment.                                                                                               
                                                                                                                                
Number 0290                                                                                                                     
                                                                                                                                
CHAIR  WEYHRAUCH  asked  if  the   [APFC]  makes  investments  in                                                               
mortgages.                                                                                                                      
                                                                                                                                
MR. STORER  responded that [APFC's]  only real  mortgage exposure                                                               
currently   is  through   the  publicly   traded  mortgage-backed                                                               
security market.   He noted that  in the 80s, the  permanent fund                                                               
did have a direct mortgage  program, perhaps exclusively, through                                                               
Alaska  banks for  Alaska mortgages.   However,  those securities                                                               
were packaged and sold to the  banking industry.  Mr. Storer said                                                               
there are some loans that are  made on Alaska property, where the                                                               
[APFC]  has  invested.    He   cited  the  Frontier  Building  in                                                               
Anchorage  as an  example.   He  concluded, "So,  there are  some                                                               
loans made to real estate assets here in Alaska."                                                                               
                                                                                                                                
Number 0359                                                                                                                     
                                                                                                                                
CHAIR  WEYHRAUCH [moved  to  adopt] Amendment  1,  which read  as                                                               
follows:                                                                                                                        
                                                                                                                                
     Page ____, line ____:                                                                                                      
          Insert new bill sections to read:                                                                                     
        "* Sec.____.   AS 37.13.120 is  amended by  adding a                                                                  
     new subsection to read:                                                                                                    
          (q)  In addition to investments made under (g) of                                                                     
     this section, the  board may make loans  of fund assets                                                                    
     to  the Alaska  Natural Gas  Development Authority  for                                                                    
     use  in developing  North Slope  natural gas  resources                                                                    
     and in  transporting the natural  gas.  The  amount and                                                                    
     terms of each loan made  under this subsection shall be                                                                    
     established by the board.                                                                                                  
        * Sec.____.   AS 41.41  is amended  by adding  a new                                                                  
     section to article 2 to read:                                                                                              
          Sec. 41.41.205.  Loans from permanent fund.  The                                                                    
     authority  may  enter  into loan  agreements  with  the                                                                    
     Alaska     Permanent     Fund     Corporation     under                                                                    
     AS 37.13.120(q).   Money from a  loan may be  used only                                                                    
     to  carry out  one or  more of  the purposes  listed in                                                                    
     AS 41.41.010(a)(1) - (4)."                                                                                                 
                                                                                                                                
Number 0363                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON objected for discussion purposes.                                                                         
                                                                                                                                
CHAIR WEYHRAUCH explained  that the first section  of Amendment 1                                                               
would allow the [APFC] board to  make loans of fund assets to the                                                               
Alaska  Natural  Gas  Development  Authority,  while  the  second                                                               
section of  Amendment 1  would allow the  authority to  have loan                                                               
agreements with the  [APFC] "only if money so loaned  by the fund                                                               
would meet the fund's fiduciary  duties and obligations currently                                                               
in statute."  He indicated  that the amendment would provide some                                                               
"legal comfort"  to the authority.   He interpreted  Mr. Storer's                                                               
testimony to mean that the [APFC]  board has not taken a position                                                               
for or against [Amendment 1].  He continued:                                                                                    
                                                                                                                                
     It may  be a  less ...  amount of  money that  could be                                                                    
     available to  the fund if  it needed those  liquid cash                                                                    
     assets,   but  it   still   would   subject  any   loan                                                                    
     application  to its  own fiduciary  needs  and its  own                                                                    
     investment criteria.                                                                                                       
                                                                                                                                
     And I  believe that,  in making  the amendment,  what I                                                                    
     wanted  to  do  is  simply  have  that  pool  of  funds                                                                    
     available  to   the  authority  if  it   can  meet  the                                                                    
     statutory  obligations that  the  fund  already has  to                                                                    
     obtain funds.  And that's what's behind the amendment.                                                                     
                                                                                                                                
Number 0558                                                                                                                     
                                                                                                                                
REPRESENTATIVE LYNN stated that  although he understands that the                                                               
investments  in the  fund need  diversification,  he thinks  that                                                               
investing in Alaska is really  "investing in ourselves."  He said                                                               
he thinks that  "needs to be included in the  list of things that                                                               
[are] possible where the permanent fund can invest in."                                                                         
                                                                                                                                
CHAIR WEYHRAUCH  responded that there's  no clear  prohibition on                                                               
the ability of  the Alaska Natural Gas  Development Authority "to                                                               
already  apply for  funds."   [Amendment 1]  simply clarifies  in                                                               
statute that the authority may apply  "as a source of funds."  He                                                               
explained  that  there  would be  no  obligation;  [Amendment  1]                                                               
provides "a legal path to do it."                                                                                               
                                                                                                                                
Number 0608                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG  asked if Amendment 1  would provide any                                                               
additional authority to [the APFC's existing authority].                                                                        
                                                                                                                                
MR. STORER stated  his assumption that any loan  to the authority                                                               
would be illiquid and below investment  grade.  He stated, "We do                                                               
have that authority now through  our 5-percent basket clause.  If                                                               
we were  given ... explicit  direction by statute, then  we would                                                               
not need to apply the basket clause to that investment."                                                                        
                                                                                                                                
REPRESENTATIVE GRUENBERG  directed Mr. Storer's attention  to the                                                               
first part  of Amendment 1.   He asked  Mr. Storer if  that would                                                               
"take this out of the basket clause."                                                                                           
                                                                                                                                
MR. STORER answered that's correct.                                                                                             
                                                                                                                                
REPRESENTATIVE  GRUENBERG noted  that [part  of AS  37.13.120(g)]                                                               
read as follows:                                                                                                                
                                                                                                                                
          (g) Subject to the limitations contained in this                                                                      
     section,  the  board  may invest  fund  assets  at  the                                                                    
     competitive national  market rates  or prices  that are                                                                    
     applicable to each investment only in                                                                                      
                                                                                                                                
REPRESENTATIVE GRUENBERG asked, "Would  this make this particular                                                               
loan an exception to that requirement?"                                                                                         
                                                                                                                                
MR. STORER  answered that the  prudent investor rule  would still                                                               
have to  be followed.   He  noted, "We  also have  other statutes                                                               
that  say  ...  invest  in  Alaska  if  the  rate  of  return  is                                                               
comparable  for that  same level  of risk  found elsewhere."   He                                                               
stated that  the [APFC] would  use those standards  in evaluating                                                               
any investment.   He  suggested, "The difficulty  in this  may or                                                               
may  not  be  to  find a  comparable  investment  opportunity  to                                                               
evaluate  it, but  we would  strive to  compare this  opportunity                                                               
against other alternatives in our analysis."                                                                                    
                                                                                                                                
CHAIR  WEYHRAUCH told  Representative Gruenberg  that it  was not                                                               
his  intent to  "force the  hand  of the  fund to  invest in  the                                                               
authority," but simply to provide legal clarity.                                                                                
                                                                                                                                
REPRESENTATIVE GRUENBERG  indicated that  the current limit  is 5                                                               
percent under the basket clause,  but [Amendment 1] would allow a                                                               
loan  to the  authority in  excess of  that.   He clarified,  "It                                                               
would be in addition to the 5 percent."                                                                                         
                                                                                                                                
MR. STORER said that's correct.                                                                                                 
                                                                                                                                
REPRESENTATIVE GRUENBERG asked how  that would affect the present                                                               
policies of the board, regarding the amount they loan out.                                                                      
                                                                                                                                
MR.  STORER  responded  that  that is  a  difficult  question  to                                                               
answer, because  he is not certain  what "the nature of  the loan                                                               
would look like."  He continued as follows:                                                                                     
                                                                                                                                
     Unless it fell within our  real estate policies in some                                                                    
     way, it  would probably be a  stand-alone policy, which                                                                    
     would  mean  that  we  would  have  to  develop  unique                                                                    
     criteria  and   ...  qualities  to  ...   identify  the                                                                    
     investment.                                                                                                                
                                                                                                                                
     If what I  stated was true, and ... it  was $50 million                                                                    
     to $100  million, my assumption  [is that] it  would be                                                                    
     significantly  less  liquid  than  other  alternatives,                                                                    
     perhaps, but  that it would  ... have a  nominal effect                                                                    
     on the return.  If it  was $50 million in a $28 billion                                                                    
     portfolio, it would have, probably,  a nominal affect -                                                                    
     good or bad - on the return for the fund.                                                                                  
                                                                                                                                
Number 0965                                                                                                                     
                                                                                                                                
REPRESENTATIVE  SEATON  noted  that  Mr.  Storer  had  previously                                                               
stated that "it would be below  investment grade."  He said he is                                                               
trying to figure out the basis for that.                                                                                        
                                                                                                                                
MR. STORER prefaced  his response by stating that it  is a little                                                               
difficult  [to explain],  without  evaluating  what the  specific                                                               
loan would  be.   He said  investment grade  securities typically                                                               
are publicly  traded securities, but  they receive a  rating from                                                               
the  nationally  recognized  rating   agencies.    He  gave  some                                                               
examples.   He  said the  [APFC] buys  "investment grade,"  which                                                               
must be  rated as such  from Moody's  or Standard &  Poor's [bond                                                               
rating agencies].   He stated his assumption that  "one would not                                                               
seek a rating  from Moody's or Standard &  Poor's, because you're                                                               
not taking it out  on the market."  He noted  that there's a cost                                                               
associated to  that rating.   He added, "You're simply  coming to                                                               
the permanent fund to make an evaluation on its own merit."                                                                     
                                                                                                                                
CHAIR WEYHRAUCH  stated his understanding  that "this is  not the                                                               
same kind  of a structural  investment the fund would  make; this                                                               
would  be  simply  the  ...  legal  ability  to  analyze  a  loan                                                               
agreement from  the authority to  develop whatever  the authority                                                               
believes it  needs to get developed,  and look to the  fund for a                                                               
potential source of  cash, and not obligate either  one to invest                                                               
in it."                                                                                                                         
                                                                                                                                
Number 1061                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON removed his objection [to Amendment 1].                                                                   
                                                                                                                                
CHAIR   WEYHRAUCH  announced   that,  there   being  no   further                                                               
objection, Amendment 1 was adopted.                                                                                             
                                                                                                                                
Number 1094                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GRUENBERG indicated  that  he had  sent a  letter                                                               
containing questions  to Mr. Storer.   He asked Mr. Storer  if he                                                               
would supply  the answers  to those questions  in writing  to the                                                               
members of the committee.                                                                                                       
                                                                                                                                
MR. STORER  answered yes.   In response  to a request  from Chair                                                               
Weyhrauch, he  agreed to also  supply those answers to  the House                                                               
Finance Committee.                                                                                                              
                                                                                                                                
Number 1151                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GRUENBERG pointed  to the  language beginning  on                                                               
[page 1, line 14] of the bill, which read as follows:                                                                           
                                                                                                                                
     Notwithstanding (g),  (h), and  (j) of this  section or                                                                
     the  percentage  investment  limitations under  (i)  of                                                                    
     this  section and  so long  as doing  so satisfies  the                                                                    
     prudent-investor rule  under (a)  of this  section, the                                                                    
     board may invest  up to 15 [FIVE] percent  of the total                                                                
     assets of  the fund in  either or a combination  of the                                                                    
     following:                                                                                                                 
                                                                                                                                
REPRESENTATIVE  GRUENBERG,  regarding  subsections (h)  and  (j),                                                               
asked  Mr. Storer  to  describe the  meaning  and implication  of                                                               
"that."                                                                                                                         
                                                                                                                                
MR. STORER paraphrased subsection (h), which read as follows:                                                                   
                                                                                                                                
                                                                                                                                
          (h) The board may enter into future contracts for                                                                     
     the  sale of  investments purchased  under (g)  of this                                                                    
     section,  or for  the sale  of nondomestic  currencies,                                                                    
     only for the purpose  of hedging an existing equivalent                                                                    
     ownership position  in these investments or  as a means                                                                    
     of implementing asset allocation strategies.                                                                               
                                                                                                                                
Number 1249                                                                                                                     
                                                                                                                                
MR.  STORER stated  that  there are  some  strategies within  the                                                               
hedge fund  investment arena, where  "you may enter  into futures                                                               
contracts or  forward contracts."   He  stated, "We  believe that                                                               
... cleaning it  up or acknowledging this is  consistent with the                                                               
original intent  of the basket  clause."  He qualified  that that                                                               
does  not mean  that the  [APFC] would  accept considerably  more                                                               
risk.  He explained, "In fact,  going before the board this week,                                                               
we're recommending  a policy that's very  conservative, that will                                                               
have the targeted risk of a bond portfolio, or less."                                                                           
                                                                                                                                
MR. STORER paraphrased subsection (j), which read as follows:                                                                   
                                                                                                                                
                                                                                                                                
          (j) The assets of the fund may not be used for                                                                        
     the purchase  of debt instruments  of a  corporation or                                                                    
     other entity  upon which  any regular  interest payment                                                                    
     has been  defaulted within five years  before purchase,                                                                    
     except  debt instruments  never  in  default but  which                                                                    
     have been outstanding for less than five years.                                                                            
                                                                                                                                
MR. STORER continued as follows:                                                                                                
                                                                                                                                
     This, actually, is a piece  of legislation that you saw                                                                    
     a lot in the 70s  when the permanent fund statutes were                                                                    
     created.  My prior employer in  the 70s and early 80s -                                                                    
     the [Los  Angeles] County Employees'  Retirement System                                                                    
     - had that same criteria.   Virtually everyone has gone                                                                    
     away from  that approach.   How ... a  corporation uses                                                                    
     debt is  different than how  corporations use  the bank                                                                    
     (indisc.),  because courts  are  a  lot different  than                                                                    
     they  were  25  years  ago.   But,  embedded  in  both,                                                                    
     perhaps,  hedge funds,  but more  likely  in a  private                                                                    
     equity portfolio  is a subclass called  "buyouts."  And                                                                    
     buyouts are where you go  in and invest in a distressed                                                                    
     company, and then you  financially engineer the company                                                                    
     to earn  significant returns  in the  future.   And so,                                                                    
     this is a case where  that would probably apply, within                                                                    
     a private equity discipline.                                                                                               
                                                                                                                                
Number 1468                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG asked, "But I don't think you're                                                                       
planning on doing that with the permanent fund, are you?"                                                                       
                                                                                                                                
MR. STORER replied as follows:                                                                                                  
                                                                                                                                
     We are  ... about to  implement a small  private equity                                                                    
     portfolio.    So,  embedded  in   that  policy  is  the                                                                    
     potential for investing in a  company that may have not                                                                    
     paid  debt in  the  last  five years.    But it's  very                                                                    
     possible  that there's  investment-grade debt,  that by                                                                    
     virtue of upgrades would meet  the fund's criteria, but                                                                    
     was in  some form of  distress and managed to  work its                                                                    
     way out  where we  could potentially take  advantage of                                                                    
     that, as well.   And there, you have a  bond that would                                                                    
     be  an  investment  grade   rated  by  national  rating                                                                    
     agencies and still not be applicable to our fund.                                                                          
                                                                                                                                
Number 1518                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG directed the committee's attention to                                                                  
page 2, line 3.  He mentioned that he and Representative Lynn                                                                   
had conversed regarding the percentage.                                                                                         
                                                                                                                                
CHAIR WEYHRAUCH questioned whether 15 percent would be an                                                                       
adequate amount.                                                                                                                
                                                                                                                                
MR. STORER responded that the [APFC] has held a number of                                                                       
discussions with the Department of Law regarding how much the                                                                   
basket clause  can be increased.   He said, "While not  seeking a                                                               
legal  opinion, we're  under the  impression they're  comfortable                                                               
with increasing  the basket  clause to 15  percent, but  any more                                                               
might  create  a  look  ...   at  the  constitution,  which  says                                                               
designated by law."  He said  the [APFC's] ultimate goal would be                                                               
to  "look  like  other  public funds"  and  follow  the  prudent-                                                               
investor rule.                                                                                                                  
                                                                                                                                
Number 1584                                                                                                                     
                                                                                                                                
REPRESENTATIVE  LYNN  suggested that  10  percent  would be  more                                                               
conservative than 15 percent, and he  asked Mr. Storer how the 15                                                               
percent was chosen.                                                                                                             
                                                                                                                                
MR. STORER responded as follows:                                                                                                
                                                                                                                                
     Even  with the  15 percent  constraint, ...  by statute                                                                    
     and constitution,  that would make  us one of  the most                                                                    
     conservatively public  funds in the country.   So, I've                                                                    
     suggested  even increasing  the  limits  of 15  percent                                                                    
     would still put limitations on the fund.                                                                                   
                                                                                                                                
     In  the [Senate  State Affairs  Standing Committee],  I                                                                    
     was asked a  question about 10 percent,  and the answer                                                                    
     is:   If  we remove  the 15  percent down  to 10,  that                                                                    
     would give  the fund the flexibility  probably over the                                                                    
     next  couple   years  to  manage  the   assets  in  the                                                                    
     direction that  we would  like to go;  but we  would be                                                                    
     back to ask for an extension beyond that point.                                                                            
                                                                                                                                
     Keep in  mind there's  two reasons for  this objective.                                                                    
     One is  the immediate  one, which  is ...  [that] there                                                                    
     are limits in  equities in using the  basket clause, so                                                                    
     if ... the strategies are  as successful as we hope, we                                                                    
     will  be forced  to  arbitrarily liquidate  securities,                                                                    
     not because of the  markets ... [or] asset allocations,                                                                    
     but because  of statute.   Increasing from  5 [percent]                                                                    
     to 10 [percent] would  expand that flexibility over the                                                                    
     next couple years.                                                                                                         
                                                                                                                                
     The other  reason to  go to 15  percent, or  even more,                                                                    
     ultimately, is  just to give future  administrators the                                                                    
     flexibility  to  address  [the]  ever-changing  dynamic                                                                    
     investment world.                                                                                                          
                                                                                                                                
Number 1700                                                                                                                     
                                                                                                                                
CHAIR WEYHRAUCH  asked how [the  legislature] would  know whether                                                               
15  percent  was  the appropriate  figure,  without  specifically                                                               
asking.   He asked  if the  public would  be advised  through the                                                               
[APFC's] annual reports.                                                                                                        
                                                                                                                                
MR.  STORER described  the [APFC's]  process as  a rigorous  one.                                                               
The  investment   process  begins   with  the   asset  allocation                                                               
decision.    There  are  investment  policies  that  develop  the                                                               
standard, which are actually tighter  than statutes, and ... they                                                               
are publicly passed  by resolutions, after public  debate.  Next,                                                               
the strategies are implemented.                                                                                                 
                                                                                                                                
MR. STORER indicated that the  APFC produces an annual report and                                                               
reports  to the  legislature  its  investment returns  quarterly.                                                               
There  is a  website listing  all [the  APFC's] policies  and its                                                               
minutes, once they're adopted.  He  noted that the APFC posts its                                                               
returns on a monthly basis, not  only by asset class, but also by                                                               
every  discipline and  every manager.    He added,  "And so,  one                                                               
could follow as closely as they wanted to."                                                                                     
                                                                                                                                
REPRESENTATIVE  LYNN suggested  examining  "that  figure" in  two                                                               
years.                                                                                                                          
                                                                                                                                
Number 1792                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON  noted that Mr.  Storer had said  that "you                                                               
would  be  having  to  get  out  of  investments,  not  by  asset                                                               
allocation, but by statute."   He said, "If we're increasing your                                                               
flexibility to add some to  your asset allocations, I'm not quite                                                               
understanding   how  that   allocation  isn't   causing  you   to                                                               
redistribute your funds."                                                                                                       
                                                                                                                                
MR. STORER explained:                                                                                                           
                                                                                                                                
     If the board adopts  a recommended asset allocation, we                                                                    
     will be  very close to our  statutory constraint, which                                                                    
     means that  as the assets  appreciate, we will  have to                                                                    
     reduce  our   exposure  -  not  because   of  an  asset                                                                    
     allocation  [decision] ...  [or]  market decision,  but                                                                    
     simply  because, by  virtue of  success,  we will  have                                                                    
     reached  our  statutory  limitations, which  then  will                                                                    
     force us to rebalance.                                                                                                     
                                                                                                                                
Number 1871                                                                                                                     
                                                                                                                                
REPRESENTATIVE  SEATON asked  if  the current  fund allocation  -                                                               
which he said  he thinks has total equities of  "53 percent, plus                                                               
or minus 5 percent" - includes the 5 percent basket [clause].                                                                   
                                                                                                                                
MR. STORER responded,  "That's the target, and  ... our statutory                                                               
limit is  55 percent  on equities,  and we  are about  58 percent                                                               
right now,  so we are currently  using some of the  basket clause                                                               
that's remaining within our target."  He continued as follows:                                                                  
                                                                                                                                
     I don't  know if they  provided a  bar chart of  how we                                                                    
     propose to implement the use  of the basket clause, but                                                                    
     if you have that before  you, you'll see that right now                                                                    
     we're not using all of  the basket clause, and the only                                                                    
     degree  we  are  using  it,  it's  in  publicly  traded                                                                    
     equities.   Recommending that we start  investing ... 1                                                                    
     percent of  our assets in  a hedge-fund program  - that                                                                    
     can be a  bit controversial.  I'll note  that ... early                                                                    
     in this  presentation ... we're actually  going to make                                                                    
     it  very conservative  so  it has  a  targeted risk  of                                                                    
     below the  bond market.   And we  are in the  throes of                                                                    
     finalizing our  private equity policies; at  this board                                                                    
     meeting we'll  start implementing that strategy.   That                                                                    
     will take a few years to  put to work.  So, probably by                                                                    
     sometime  [in] the  next year  to year  and a  half, we                                                                    
     will  have  essentially  ... used  all  of  the  basket                                                                    
     clause,  with  some  cushion for  appreciation  of  the                                                                    
     assets.                                                                                                                    
                                                                                                                                
MR.  STORER,  in  response  to  a  question  from  Representative                                                               
Seaton, clarified  that "theoretically, one could  have a maximum                                                               
exposure to  70 percent  in the  publicly traded  equity market";                                                               
however, as  a practical matter, he  said that won't happen.   He                                                               
revealed  that  no  fund  that  he has  ever  overseen  has  ever                                                               
invested more than 60 percent in the U.S. equity market.                                                                        
                                                                                                                                
Number 1983                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GRUENBERG  offered  his  understanding  that  the                                                               
[Senate State Affairs  Standing Committee] "passed it  out with a                                                               
10 percent, rather than a 15 percent."                                                                                          
                                                                                                                                
MR. STORER said that's correct.                                                                                                 
                                                                                                                                
REPRESENTATIVE  GRUENBERG  offered  his  understanding  that  the                                                               
history of  AS 37.13.120 is that  over the last 20-25  years, the                                                               
legislature has slowly eased the restrictions incrementally.                                                                    
                                                                                                                                
MR.  STORER  concurred.    He mentioned  the  changes  that  have                                                               
occurred over  time to allow  more investment flexibility  to the                                                               
permanent fund.  He continued as follows:                                                                                       
                                                                                                                                
     In  ...  July  of  '83,  we  funded  our  first  equity                                                                    
     manager; that  was the product of  increased investment                                                                    
     flexibility   prior  to   that.     And  so,   the  ...                                                                    
     legislature has given  increased flexibility when we've                                                                    
     asked for  it, and  I believe  that the  permanent fund                                                                    
     has always used that  flexibility judiciously.  I would                                                                    
     note that  we were given  permission four years  ago to                                                                    
     use the basket  clause, and, in fact, we  are only just                                                                    
     now beginning  to use the  basket clause.  So,  when we                                                                    
     are  given permission,  the  history  of the  permanent                                                                    
     fund is that  you use that privilege  or that authority                                                                    
     very judiciously and make informed decisions.                                                                              
                                                                                                                                
Number 2056                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GRUENBERG  indicated  he  wanted  Mr.  Storer  to                                                               
confirm  that the  history  of  the fund  was  that  it had  been                                                               
"slowly loosened to provide you with flexibility."                                                                              
                                                                                                                                
MR. STORER answered that's correct.   He directed the committee's                                                               
attention to  page 4  of "that  initial presentation"  that shows                                                               
how the asset  allocation of the permanent fund  has changed over                                                               
time,  beginning with  the pure  bond fund  in the  late 70s  and                                                               
early 80s.   He offered his understanding that in  1980, the fund                                                               
didn't hold  a bond with  a maturity greater  than 2 years.   The                                                               
asset allocation  has been incrementally  increased over  time in                                                               
various asset classes.  He  stated, "The history of the permanent                                                               
fund is one of caution and conservatism."                                                                                       
                                                                                                                                
Number 2127                                                                                                                     
                                                                                                                                
REPRESENTATIVE LYNN [moved  to adopt] Amendment 2,  which read as                                                               
follows:                                                                                                                        
                                                                                                                                
     Page 2, line 3                                                                                                             
     Delete "15"                                                                                                            
     Insert "10"                                                                                                                
                                                                                                                                
CHAIR WEYHRAUCH objected.                                                                                                       
                                                                                                                                
REPRESENTATIVE LYNN reiterated his previous  comment that it is a                                                               
conservative fund  and he  thinks that  [changing to  10 percent]                                                               
follows the  history of incremental  changes.  He stated  that he                                                               
has no  problem with [the  idea of]  revisiting the issue  in the                                                               
future.  He  concluded, "So, I would recommend also,  to go along                                                               
with the other body, that we change it to 10 percent."                                                                          
                                                                                                                                
Number 2188                                                                                                                     
                                                                                                                                
REPRESENTATIVE  BERKOWITZ said,  "We revisit  this thing  all the                                                               
time."   He explained the reason  why is that putting  a specific                                                               
number  in statute  is inherently  not a  conservative method  of                                                               
investment, because any  specific number is a  deviation from the                                                               
reasonably prudent  investor rule; it takes  away the flexibility                                                               
that a reasonably  prudent investor would normally  exercise.  He                                                               
offered his  understanding that the statutes  that govern private                                                               
investments are in Title 13, and  he noted that in those statutes                                                               
there  are no  numerical restrictions  on the  amount or  type of                                                               
investment -  they just  outline the  prudent-investor rule.   He                                                               
stated  that it's  only in  Title  37 that  false conditions  are                                                               
imposed on  the [APFC] that are  restrictive in a way  that works                                                               
against reasonably prudent investment.                                                                                          
                                                                                                                                
Number 2200                                                                                                                     
                                                                                                                                
REPRESENTATIVE BERKOWITZ spoke against Amendment  2.  He said, "I                                                               
think the more we can do to  expand the basket, the more we allow                                                               
the  fund the  flexibility to  get closer  and closer  to what  a                                                               
reasonably   prudent  investor   would  truly   do,  instead   of                                                               
restricting, based on some arbitrary number."                                                                                   
                                                                                                                                
Number 2220                                                                                                                     
                                                                                                                                
RONALD  W.  LORENSEN,  Attorney  at  Law,  Simpson,  Tillinghast,                                                               
Sorensen  &  Longenbaugh,  P.C.,   opined  that  Mr.  Storer  had                                                               
accurately  and  succinctly  described the  issue  regarding  the                                                               
basket  clause.   He  suggested  that there  may  be a  potential                                                               
maximum size that  the basket clause could not  exceed, but [that                                                               
size] is yet to be determined.   He indicated that the Department                                                               
of Law  seemed comfortable  with the notion  that the  15 percent                                                               
hasn't "pushed that limit."                                                                                                     
                                                                                                                                
MR.  LORENSEN referred  to the  aforementioned  comments made  by                                                               
Representative  Berkowitz  regarding the  prudent-investor  rule.                                                               
He said,  "Certainly it's the way  I know the board  ... and also                                                               
...  the  investment  staff  looks  at the  issue,  is  that  any                                                               
limitations  that  are  expressed   actually  operate  to  reduce                                                               
flexibility that  would otherwise be available  under the prudent                                                               
investor rule, as stated in subsection (a)."                                                                                    
                                                                                                                                
Number 2278                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON stated  his concern that "we"  are the gate                                                               
keepers of the fund, as well,  and, although Mr. Storer is saying                                                               
that he  wouldn't be at  70 percent of  equities for any  fund he                                                               
managed, that's  what would  be allowed  "with this."   Regarding                                                               
[Amendment 2], he stated the following:                                                                                         
                                                                                                                                
     If  they  haven't used  the  3  percent of  the  basket                                                                    
     clause to  this point in  time, after several  years, I                                                                    
     think  the 5  percent -  or  a doubling  of the  basket                                                                    
     clause  -  has been  ample  opportunity  to look  at  a                                                                    
     number of  different investment ways and  let's us come                                                                    
     back to the  ways.  I mean, we're  talking about future                                                                    
     markets here,  which are  ... a  little bit  outside of                                                                    
     what  we  normally  think   the  permanent  fund  would                                                                    
     normally be investing in and  what we historically said                                                                    
     we wanted to invest in.   And we are talking about $2.7                                                                    
     billion of available money in that 10 percent.                                                                             
                                                                                                                                
Number 2327                                                                                                                     
                                                                                                                                
REPRESENTATIVE  COGHILL noted  that  it had  already been  stated                                                               
that the  15 percent is  still a limit  on flexibility.   He said                                                               
the [APFC]  has shown  it has a  steady handed  management style.                                                               
He stated, "I think to be  fearful that they would step outside -                                                               
especially since they're still under  the auspice of the prudent-                                                               
investor  rule -  speaks  to giving  them the  15  percent."   He                                                               
concluded that he has no problem with the 15 percent.                                                                           
                                                                                                                                
Number 2366                                                                                                                     
                                                                                                                                
REPRESENTATIVE BERKOWITZ  stated that  when the  legislature puts                                                               
numbers into  statutes affecting  the permanent fund,  in essence                                                               
it's substituting  its judgment  for that  of the  fund managers,                                                               
which  is a  bad step  to take.   He  said he  realizes that  the                                                               
statutory restrictions already exist.                                                                                           
                                                                                                                                
TAPE 04-31, SIDE B                                                                                                            
Number 2381                                                                                                                     
                                                                                                                                
REPRESENTATIVE  BERKOWITZ [suggested]  stripping out  the numbers                                                               
and going straight  to the reasonable prudent-investor  rule.  He                                                               
said,  "We hire  professional  managers to  manage  the fund;  we                                                               
ought to let the professionals do  their job."  He expressed that                                                               
one of the government trends he finds problematic is the micro-                                                                 
management of  people hired.   He reiterated  that he  would take                                                               
all  the numbers  out; however,  notwithstanding that,  he opined                                                               
that 15 percent is far preferable to 5 or 10 [percent].                                                                         
                                                                                                                                
Number 2343                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GRUENBERG said  that most  Alaskans consider  the                                                               
permanent  fund to  be theirs  and  do not  want the  legislature                                                               
changing "anything with the fund"  unless it's done carefully and                                                               
conservatively.   He  indicated that  because of  the history  of                                                               
conservative management of  the fund, not only by  the [APFC] but                                                               
by  the elected  legislators as  well, the  public confidence  in                                                               
that  management remains  high.    Representative Gruenberg  said                                                               
that adopting  Amendment 1, and  thereby allowing  the investment                                                               
in the  gas pipeline, will  effect significant change in  the way                                                               
the  fund is  being managed.    He emphasized  the importance  of                                                               
keeping the public's confidence, which  he explained is why he is                                                               
in support of [Amendment 2].                                                                                                    
                                                                                                                                
Number 2234                                                                                                                     
                                                                                                                                
REPRESENTATIVE BERKOWITZ  said the question is,  in essence, "Who                                                               
do you want  making your investment decisions:   the legislature,                                                               
or the [APFC]?"   He reiterated that he would  choose the latter.                                                               
He posited  that including  Amendment 1 in  this discussion  is a                                                               
"red  herring,"  because the  decision  whether  or not  to  make                                                               
investments  in the  natural  gas  pipeline will  be  based on  a                                                               
reasonably  prudent investor  analysis.   He stated  that he  was                                                               
sorry he missed discussion regarding  Amendment 1, because if the                                                               
[APFC] is going  to make investments, it will do  so based on its                                                               
own  analysis  of  what's  in  the  fund's  best  interest.    He                                                               
reiterated  his   opinion  regarding  leaving  the   job  to  the                                                               
professionals.                                                                                                                  
                                                                                                                                
Number 2180                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON clarified:                                                                                                
                                                                                                                                
     Our investors didn't tell us  15 percent was where they                                                                    
     wanted to go; they wanted to  have all limits off.  And                                                                    
     they  say that  15  percent is  the  maximum that  they                                                                    
     think   they   could    go,   without   violating   the                                                                    
     constitution.   ...   In  a prudent-investor  rule, ...                                                                    
     there  are  funds  all  around  that  are  100  percent                                                                    
     invested  in   equities,  and   that  can   be  prudent                                                                    
     investing,  depending on  the type  of fund.   So,  the                                                                    
     [prudent-investor  rule]  doesn't necessarily  fix  the                                                                    
     diversification you  have; you can have  a very diverse                                                                    
     stock portfolio and it is  fully managed for stocks and                                                                    
     equities.  So, the idea  that we're fixed at 55 percent                                                                    
     or that a  prudent investor is only going to  be 55- or                                                                    
     only  going  to  be  60-percent invested  in  stocks  -                                                                    
     that's not the case.                                                                                                       
                                                                                                                                
Number 2142                                                                                                                     
                                                                                                                                
REPRESENTATIVE LYNN  stated, "One of  our principal jobs  here is                                                               
to oversee  what is  going on in  departments and  functions that                                                               
professionals manage."                                                                                                          
                                                                                                                                
REPRESENTATIVE  BERKOWITZ  brought  attention  to  AS  13.36.235,                                                               
which read as follows:                                                                                                          
                                                                                                                                
     Sec. 13.36.235.  Diversification.                                                                                          
     A trustee shall diversify  the investments of the trust                                                                    
     unless the trustee  reasonably determines that, because                                                                    
     of  special circumstances,  the purposes  of the  trust                                                                    
     are better served without diversifying.                                                                                    
                                                                                                                                
REPRESENTATIVE  BERKOWITZ said  the  idea that  the [APFC]  would                                                               
want to  invest 100 percent  in equities, real estate,  bonds, or                                                               
any  other  type  of  asset,  flies in  the  face  of  the  legal                                                               
description of what  a reasonably prudent investor would  do.  He                                                               
listed some of the other  components of what a reasonably prudent                                                               
investor is  required to take  into account as follows:   general                                                               
economic  conditions, expected  tax consequences,  the role  that                                                               
each investment plays with the  overall trust portfolio, expected                                                               
total return,  other resources of  the beneficiary, the  need for                                                               
liquidity, and the  special relationship or special  value to the                                                               
beneficiary.   Representative Berkowitz stated that  the prudent-                                                               
investor rule guards strongly against  the notion that the fund's                                                               
monies  could  or would  be  inducted  in  a  single place.    He                                                               
concluded,  "To the  extent that  this committee  might have  any                                                               
concerns that  we might wind up  with 100 percent in  equities, I                                                               
think  that that  would  not be  ... the  course  that a  prudent                                                               
investor would follow.   And I think that, again,  it's sort of a                                                               
phantom concern."                                                                                                               
                                                                                                                                
Number 2025                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG  noted that the  [prudent-investor rule]                                                               
for the fund  is in subsections (a) through (c)  of AS 37.13.120.                                                               
He  said it  largely mirrors  what Representative  Berkowitz just                                                               
said, but  "they have their own  mini prudent-investment standard                                                               
right in this statute."                                                                                                         
                                                                                                                                
Number 2009                                                                                                                     
                                                                                                                                
CHAIR  WEYHRAUCH reminded  the committee  that earlier  testimony                                                               
had revealed  that 15 percent  would still  make the fund  one of                                                               
the  most  conservatively managed  in  the  country.   The  other                                                               
reason to go  to 15 percent is because it  gives more ability [to                                                               
the  APFC] to  invest to  benefit the  fund.   He said  he hasn't                                                               
heard  any  reason   for  the  10  percent,  other   than  to  go                                                               
incrementally up to  the 15 percent.  He explained  that's why he                                                               
will vote against [Amendment 2].                                                                                                
                                                                                                                                
Number 1970                                                                                                                     
                                                                                                                                
A roll  call vote was  taken.  Representatives Seaton,  Lynn, and                                                               
Gruenberg  voted  in  favor  of  Amendment  2.    Representatives                                                               
Coghill, Berkowitz,  and Weyhrauch voted against  it.  Therefore,                                                               
Amendment 2 failed by a vote of 3-3.                                                                                            
                                                                                                                                
Number 1934                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GRUENBERG moved  [to report  HB 466,  as amended,                                                               
out  of   committee  with  individual  recommendations   and  the                                                               
accompanying  fiscal  note.]   There  being  no  objection,  CSHB                                                               
466(STA) was  reported out  of the  House State  Affairs Standing                                                               
Committee.                                                                                                                      
                                                                                                                                
HB 439-OATHS; NOTARIES PUBLIC; STATE SEAL                                                                                     
                                                                                                                                
Number 1900                                                                                                                     
                                                                                                                                
CHAIR WEYHRAUCH  announced that  the next  order of  business was                                                               
HOUSE BILL  NO. 439, "An  Act relating  to the authority  to take                                                               
oaths, affirmations,  and acknowledgments in the  state; relating                                                               
to  notaries public;  relating to  fees for  issuing certificates                                                               
with  the  seal  of  the  state affixed;  and  providing  for  an                                                               
effective date."                                                                                                                
                                                                                                                                
Number 1873                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG moved to  adopt the committee substitute                                                               
(CS) [for HB  439, Version 23-GH2022\D, Bannister,  3/6/04], as a                                                               
work draft.  There being no objection, it was so ordered.                                                                       
                                                                                                                                
Number 1850                                                                                                                     
                                                                                                                                
ANNETTE  KREITZER,  Chief  of Staff,  Office  of  the  Lieutenant                                                               
Governor, noted  that Version D is  the CS that was  requested to                                                               
put the  bill in  the form  of legislative  drafting.   She noted                                                               
that there are  many small changes that resulted;  the first most                                                               
notable change is the title change.                                                                                             
                                                                                                                                
MS. KREITZER read  the description of Section 1  in the sectional                                                               
analysis [see analysis included in  committee packet].  She said,                                                               
"When  Lieutenant   Governor  Leman  came  into   the  lieutenant                                                               
governor's office,  this was a surprise  to us the first  time we                                                               
went through the business of  administering the oath to folks who                                                               
are new to  the legislature [and] returning members.   So, that's                                                               
been added."                                                                                                                    
                                                                                                                                
MS. KREITZER  noted that Sections 2,  3, 4, and 5  are conforming                                                               
sections of the Alaska Civil  Procedure concerning notarial acts.                                                               
She  noted  that  this  is  where  the  sectional  deviates  from                                                               
[Version D].   She stated  that there is  a new Section  4, which                                                               
was  added  by  attorneys  in  [Legislative  Legal  and  Research                                                               
Services]  as a  necessary measure  to make  the bill  conform to                                                               
legislative drafting standards.  She  said an explanation of that                                                               
can be found in the  Legislative Legal and Research Services memo                                                               
dated March  6, 2004, written  by Theresa Bannister  [included in                                                               
the committee packet].                                                                                                          
                                                                                                                                
Number 1773                                                                                                                     
                                                                                                                                
CHAIR WEYHRAUCH asked  when the last time  "this statutory scheme                                                               
was amended."                                                                                                                   
                                                                                                                                
MS. KREITZER answered 1961.                                                                                                     
                                                                                                                                
CHAIR WEYHRAUCH asked, "So, is  this sort of an omnibus amendment                                                               
bill to notary statute?"                                                                                                        
                                                                                                                                
MS. KREITZER answered yes.                                                                                                      
                                                                                                                                
CHAIR WEYHRAUCH said he would like to get "a bigger picture."                                                                   
                                                                                                                                
Number 1748                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GRUENBERG  noted  that  when he  served  [in  the                                                               
legislature] before,  he "tried to amend  this."  He said  he had                                                               
introduced HB  394 in the  Seventeenth Alaska  State Legislature.                                                               
He said that because of one  senator, "we couldn't get this thing                                                               
updated."   He  commented  that  this has  been  a  long time  in                                                               
coming.                                                                                                                         
                                                                                                                                
Number 1733                                                                                                                     
                                                                                                                                
MS. KREITZER stated that [the  proposed legislation] is important                                                               
to the 12,000 notaries in the state,  as well as to the banks and                                                               
insurance companies.  She said [HB 439] will fix statutes.                                                                      
                                                                                                                                
MS.  KREITZER  returned  to  outlining  the  sectional  analysis.                                                               
Regarding [Section 5 of the  sectional analysis, which is Section                                                               
6 in Version  D], she said the fee per  notarial certificate will                                                               
be  increased and  the outdated  term "folio"  will not  be used.                                                               
Ms. Kreitzer  noted that  [Section 6  of the  sectional analysis,                                                               
which is  Section 7  in Version  D] specifies  there will  be two                                                               
categories of notaries:   a notary public  without limitation and                                                               
a limited governmental notary public.   She noted that [Section 7                                                               
of the sectional analysis, which is  Section 8 in Version D] will                                                               
make changes  to qualifications.   She reviewed the  changes [see                                                               
Section 7 of the sectional analysis].                                                                                           
                                                                                                                                
Number 1617                                                                                                                     
                                                                                                                                
REPRESENTATIVE  BERKOWITZ asked  how  many  [felons] with  notary                                                               
certificates would lose them due to that provision.                                                                             
                                                                                                                                
MS. KREITZER answered, "We don't know; we don't track that."                                                                    
                                                                                                                                
REPRESENTATIVE BERKOWITZ  added, "But there's been  no indication                                                               
that there are felons out there  who are doing things as notaries                                                               
that are inappropriate."                                                                                                        
                                                                                                                                
Number 1570                                                                                                                     
                                                                                                                                
SCOTT  CLARK,  Notary  Commission Administrator,  Office  of  the                                                               
Lieutenant Governor, proffered  that he has received  a few phone                                                               
calls  from  people who  indicated  that  there might  be  felons                                                               
serving as  notaries.  He  said "But  since it's not  against the                                                               
law right now, we don't follow up on it."                                                                                       
                                                                                                                                
Number 1536                                                                                                                     
                                                                                                                                
REPRESENTATIVE LYNN turned to [page  5, line 8, paragraph (4), of                                                               
Version D] where the language  states that a notary "shall reside                                                               
legally in  the United States;".   He said, "I wonder  if anybody                                                               
on this committee  would have any objection  to that, considering                                                               
some  of  the  other  legislation  that's  pending,  ...  how  we                                                               
determine  who is  and  is  not residing  legally  in the  United                                                               
States,  and if  we  could  possibly be  putting  anybody out  of                                                               
work."                                                                                                                          
                                                                                                                                
Number 1528                                                                                                                     
                                                                                                                                
CHAIR WEYHRAUCH asked Representative  Lynn to "hold that thought"                                                               
for later.                                                                                                                      
                                                                                                                                
Number 1523                                                                                                                     
                                                                                                                                
REPRESENTATIVE   GRUENBERG  said   this  would   be  a   lifetime                                                               
disqualification [for a  convicted felon].  He said  a person may                                                               
have been fully  restored to his/her civil liberties  and "not to                                                               
be able to even be a notary public seems pretty harsh."                                                                         
                                                                                                                                
CHAIR WEYHRAUCH  said, "Yet another  example why I think  we need                                                               
an expungement statute."                                                                                                        
                                                                                                                                
Number 1500                                                                                                                     
                                                                                                                                
MS.  KREITZER  named several  felony  charges.   She  said,  "The                                                               
question is:   These  folks who  commit these,  do you  want them                                                               
being  notaries?"    She  said  that's the  policy  call  of  the                                                               
legislature.                                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG  responded, "Those  are the  easy cases,                                                               
let's look  at the  harder cases."   He  offered to  explore [the                                                               
issue] with Ms. Kreitzer.                                                                                                       
                                                                                                                                
Number 1479                                                                                                                     
                                                                                                                                
MS. KREITZER returned to her  overview of the sectional analysis.                                                               
She stated  that [Section 9  of the sectional analysis,  which is                                                               
Section 10  in Version D]  deals with antiquated  language, while                                                               
[Section 10  of the  sectional analysis, which  is Section  11 in                                                               
Version D] sets out what a  notary public cannot do and specifies                                                               
the  elements  that  must  be  present for  a  notary  public  to                                                               
notarize a document.  She  indicated that new sections in statute                                                               
[Secs.  44.50.067-.068] would  give the  lieutenant governor  the                                                               
ability  to  address  the  issues   regarding  complaints.    She                                                               
indicated there  was concern that  people not be  taken advantage                                                               
of by a notary public.                                                                                                          
                                                                                                                                
Number 1411                                                                                                                     
                                                                                                                                
REPRESENTATIVE  BERKOWITZ stated  that  he is  not  sure why  the                                                               
state  even has  notary publics.   He  said, "If  people sign  or                                                               
affirm things independently,  that ought to suffice.   Am I wrong                                                               
in that?"                                                                                                                       
                                                                                                                                
Number 1396                                                                                                                     
                                                                                                                                
CHAIR WEYHRAUCH revealed that he  is currently involved in a case                                                               
where the notary [public's] signature  is the critical element of                                                               
the case.  He  added that the case has to  do with the government                                                               
accepting an application and transferring rights.                                                                               
                                                                                                                                
REPRESENTATIVE BERKOWITZ responded as follows:                                                                                  
                                                                                                                                
     It  just strikes  me as  a very  paternalistic type  of                                                                    
     government, where  government says your  signature's no                                                                    
     good unless it gets an  official stamp of approval from                                                                    
     somebody, who has a bear  minimum of qualification, you                                                                    
     paid  a fee  to.   It just  seems like  another one  of                                                                    
     these bureaucratic  hurdles that government sets  up to                                                                    
     cause consternation  for those  of us  who have  to run                                                                    
     around and get notary signatures.                                                                                          
                                                                                                                                
CHAIR  WEYHRAUCH  responded that  in  the  case  in which  he  is                                                               
involved,  there  would  have been  far  less  consternation  and                                                               
expense if  there had been  an original  notary.  He  stated that                                                               
it's  the  abhorrent cases  that  perhaps  make it  necessary  to                                                               
continue the system.                                                                                                            
                                                                                                                                
REPRESENTATIVE BERKOWITZ  suggested that  the focus should  be on                                                               
the  jurisdiction of  notaries, instead  of "making  it uniform."                                                               
In response to  Chair Weyhrauch's suggestion that  a person could                                                               
simply  go  to  the  post   office  to  "just  get  it  stamped,"                                                               
Representative Berkowitz  remarked that that would  still require                                                               
a person to go somewhere to  get somebody else to approve his/her                                                               
signature.   He said he  knows his signature  is good.   He said,                                                               
"There's  this  presumption  that  somehow I'm  not  telling  the                                                               
truth."                                                                                                                         
                                                                                                                                
CHAIR  WEYHRAUCH  said, "It's  not  a  matter  of veracity  of  a                                                               
statement, it's that you're saying who you say you are."                                                                        
                                                                                                                                
Number 1283                                                                                                                     
                                                                                                                                
REPRESENTATIVE LYNN  echoed the chair's last  statement and added                                                               
that a person who  goes to a notary would have  to have some form                                                               
of identification, such as a driver's license.                                                                                  
                                                                                                                                
Number 1253                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GRUENBERG stated,  "This  is an  Act that  really                                                               
cries out for a uniform Act."   He asked Ms. Kreitzer if there is                                                               
a uniform or model notary public Act.                                                                                           
                                                                                                                                
MS.  KREITZER   answered  yes.     She   informed  Representative                                                               
Gruenberg that it is "much more bureaucratic than this one."                                                                    
                                                                                                                                
REPRESENTATIVE  GRUENBERG stated  that  California's process  for                                                               
getting a  notary public is  complicated and expensive,  which he                                                               
opined is not  appropriate for Alaska.  He said  he has litigated                                                               
cases  involving notarizations.   Some  of the  cases dealt  with                                                               
whether  or  not the  notarization  itself  was  a forgery.    He                                                               
indicated that  "it" shouldn't  be an impediment.   He  asked Ms.                                                               
Kreitzer, "Does this require the keeping of a journal?"                                                                         
                                                                                                                                
MS. KREITZER answered it does not.                                                                                              
                                                                                                                                
REPRESENTATIVE GRUENBERG noted that that  issue was a big deal at                                                               
the time  he had introduced  his bill.   He asked why  [a journal                                                               
would not be required].                                                                                                         
                                                                                                                                
MS.  KREITZER   indicated  that  although  [the   Office  of  the                                                               
Lieutenant Governor]  thinks it is  important to keep  a journal,                                                               
it doesn't have the ability  to enforce that people are [keeping]                                                               
a   journal,  because   it  only   has  one   [notary  commission                                                               
administrator].  She  explained that one of the  things that [the                                                               
Office of the  Lieutenant Governor] is trying  to accomplish with                                                               
"this  rewrite" is  a move  to more  of a  Web-based, educational                                                               
system.   She said this  would be more efficient  considering the                                                               
limited staff.                                                                                                                  
                                                                                                                                
Number 1111                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG shared that  when he introduced his bill                                                               
in the  past, the keeping of  the journal was something  that the                                                               
notary  public  was  required  to   do  and  didn't  require  any                                                               
additional bureaucracy or staff.                                                                                                
                                                                                                                                
REPRESENTATIVE GRUENBERG  turned to  page 14, [beginning  on line                                                               
9], which  he noted was  in regard  to acknowledgments.   He said                                                               
acknowledgments are  already covered under  AS 09.63.   He asked,                                                               
"Why do  you have your  own separate acknowledgment  statute when                                                               
we already have a perfectly good uniform acknowledgment Act?"                                                                   
                                                                                                                                
Number 1038                                                                                                                     
                                                                                                                                
MR.  CLARK  said  Representative  Gruenberg  is  correct  in  his                                                               
observation.  He noted that some  language was amended on page 3,                                                               
[lines 2-3  of Version  D], regarding AS  09.63.090.   He stated,                                                               
"With that change, it would  be fine to remove all acknowledgment                                                               
sections from the bill."                                                                                                        
                                                                                                                                
REPRESENTATIVE  GRUENBERG stated  his  interest  in working  with                                                               
[Ms. Kreitzer and Mr. Clark] on the legislation.                                                                                
                                                                                                                                
Number 1000                                                                                                                     
                                                                                                                                
REPRESENTATIVE LYNN stated the following:                                                                                       
                                                                                                                                
     If  you said  to examine  the journal  part, I  can see                                                                    
     where  it would  be  appropriate to  put  it in  there,                                                                    
     because I'm concerned that we  don't mandate someone to                                                                    
     have a journal so we can  -- if it becomes a problem in                                                                    
     the future, then we have something to look at.                                                                             
                                                                                                                                
Number 0988                                                                                                                     
                                                                                                                                
REPRESENTATIVE  BERKOWITZ  surmised  that  he  should  declare  a                                                               
conflict,  because  his wife  is  a  notary public;  although  he                                                               
revealed that  she doesn't  make any  money at  it and  she can't                                                               
notarize for him.   He stated that when the  right time comes, he                                                               
will  offer  an amendment  to  do  away  with the  entire  notary                                                               
system.                                                                                                                         
                                                                                                                                
Number 0963                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG  surmised that  he too should  declare a                                                               
conflict, because he is a notary public.                                                                                        
                                                                                                                                
CHAIR WEYHRAUCH  responded that when  the time comes to  vote "we                                                               
can declare those."                                                                                                             
                                                                                                                                
Number 0945                                                                                                                     
                                                                                                                                
MR. CLARK agreed that notary  journals are an important aspect of                                                               
functioning  as  a  notary  public  and  the  office  has  always                                                               
stressed the need  to keep a journal and will  continue to do so.                                                               
He said  the notaries are  personally liable for  everything they                                                               
do; the notary journal not only  protects the public, but also is                                                               
the  only evidence  that the  notary  will have  that he/she  has                                                               
performed  the   act  according  to   the  letter  of   the  law.                                                               
Conversely,  he stated  that in  his four  years experience,  and                                                               
after viewing  records from the past,  he has not found  that the                                                               
lack of a  legal requirement to keep a notary  journal has caused                                                               
anybody any problem.                                                                                                            
                                                                                                                                
REPRESENTATIVE  GRUENBERG  stated  that [during  his  involvement                                                               
with the  past legislation] he  worked with the  [National Notary                                                               
Association (NNA)],  and this issue  was a "big deal  with them."                                                               
He offered an example of a  child custody case where the children                                                               
may  have benefited  from a  journal having  been available.   He                                                               
said he is quite certain  that the national organization would be                                                               
able  to find  out whether  [the  keeping of  journals] has  been                                                               
helpful in other states.  He  observed that "it's mainly an issue                                                               
of proof."   He  suggested that  if people  kept the  journal for                                                               
five years,  for example, they would  be able to prove  that they                                                               
notarized  deeds  on certain  dates,  and  that would  facilitate                                                               
lawyers and courts.                                                                                                             
                                                                                                                                
Number 0832                                                                                                                     
                                                                                                                                
REPRESENTATIVE LYNN  asked, "When we  do a notary here,  and then                                                               
we  travel all  over the  United  States, if  we did  not have  a                                                               
notary public here,  would that affect the validity  of some kind                                                               
of a document in one of the other 49 states ...?"                                                                               
                                                                                                                                
REPRESENTATIVE GRUENBERG answered as follows:                                                                                   
                                                                                                                                
     Let's say you're litigating a  will in Nebraska, and it                                                                    
     involves  an  Alaska  deed.   Under  certain  Rules  of                                                                    
     Evidence, if  these are notarized,  they could  be what                                                                    
     are   called,  "self-authenticating,"   and  it   would                                                                    
     definitely  affect litigation  in  other  states -  the                                                                    
     validity of Alaska documents.                                                                                              
                                                                                                                                
REPRESENTATIVE  BERKOWITZ   said  it   seems  to  him   that  the                                                               
government  has  the  ability to  authenticate  deeds  and  wills                                                               
independently from any notary.   He noted that a driver's license                                                               
or birth  certificate doesn't  have a  notary's signature  on it.                                                               
He  suggested  moving  to  a system  where  people  could  "self-                                                               
notarize."                                                                                                                      
                                                                                                                                
REPRESENTATIVE GRUENBERG said that even  though he is in the same                                                               
political  party as  Representative Berkowitz,  his views  may be                                                               
opposite on this issue.                                                                                                         
                                                                                                                                
[HB 439 was heard and held.]                                                                                                    
                                                                                                                                
HB 520-REGULATORY COMMISSION OF ALASKA                                                                                        
                                                                                                                                
Number 0670                                                                                                                     
                                                                                                                                
CHAIR WEYHRAUCH  announced that  the last  order of  business was                                                               
HOUSE  BILL  NO.  520,  "An  Act  relating  to  the  expenses  of                                                               
investigation, hearing, or public  advocacy before the Regulatory                                                               
Commission  of  Alaska, to  calculation  of  the regulatory  cost                                                               
charge for public utilities and  pipeline carriers to include the                                                               
Department of  Law's costs  of its  public advocacy  function, to                                                               
inspection of certain  books and records by  the attorney general                                                               
when participating as  a party in a matter  before the Regulatory                                                               
Commission of Alaska; and providing for an effective date."                                                                     
                                                                                                                                
Number 0646                                                                                                                     
                                                                                                                                
DANIEL  PATRICK  O'TIERNEY,  Senior Assistant  Attorney  General,                                                               
Commercial/Fair  Business  Section, Civil  Division  (Anchorage),                                                               
Department Of Law, stated that he  is testifying on behalf of the                                                               
attorney general.   He said  he is  quite familiar with  not only                                                               
the  bill, but  also  with the  Regulatory  Commission of  Alaska                                                               
(RCA)  in the  public  advocacy function,  having  served on  the                                                               
commission  under two  prior governors  from  1989 to  1994.   He                                                               
continued as follows:                                                                                                           
                                                                                                                                
     This bill  is before  you ... as  a ...  "follow-on" to                                                                    
     last   year's   Executive   Order   [EO]   111,   which                                                                    
     transferred  the  responsibility  from  the  Regulatory                                                                    
     Commission  of  Alaska  personnel for  public  advocacy                                                                    
     before  the  commission,   to  the  attorney  general's                                                                    
     office.  And that  executive order also established the                                                                    
     public advocacy function within the Department of Law.                                                                     
                                                                                                                                
     RCA   personnel  were   historically  responsible   for                                                                    
     representing the public and  the public interest before                                                                    
     the commission,  and those personnel now  act under the                                                                    
     authority and the direction of the Department of Law.                                                                      
                                                                                                                                
     So,  the bill  before  you  would essentially  complete                                                                    
     what's  already  occurred  -   the  prior  transfer  of                                                                    
     authority.                                                                                                                 
                                                                                                                                
Number 0562                                                                                                                     
                                                                                                                                
CHAIR  WEYHRAUCH  asked,  "Why  not simply  do  this  by  another                                                               
executive order?"                                                                                                               
                                                                                                                                
MR.  O'TIERNEY replied  that  that had  been  considered but  was                                                               
judged as  inappropriate, because an executive  order has limited                                                               
applicability  and only  exists  to  transfer existent  statutory                                                               
responsibilities.   He explained  that that transfer  has already                                                               
occurred.   He  clarified that  [HB 520]  would actually  provide                                                               
"some of  the wherewithal for  execution of the  authority that's                                                               
already been transferred."                                                                                                      
                                                                                                                                
MR. O'TIERNEY continued as follows:                                                                                             
                                                                                                                                
     This bill  contains, principally, four  provisions, the                                                                    
     first  of  which  would clarify  that  regulatory  cost                                                                    
     charge receipts - not general  fund - would continue to                                                                    
     pay for  the general costs of  public advocacy function                                                                    
     that's now  administered by the  Department of  Law and                                                                    
     by the  attorney general as  the public  advocate, just                                                                    
     as  those  same  RCC  receipts  historically  paid  for                                                                    
     public advocacy  costs when the function  was performed                                                                    
     under the RCA.                                                                                                             
                                                                                                                                
MR. O'TIERNEY,  in response to  a question from  Chair Weyhrauch,                                                               
explained that  RCC stands for  regulatory cost charge,  which is                                                               
the  existent  statutory  mechanism  that  funds  the  regulatory                                                               
commission  of Alaska,  and historically  also funded  the public                                                               
advocacy  function, which  was exercised  within the  commission.                                                               
He called  it "off-budget," and  said it's not  generally funded.                                                               
He said he thinks the RCC  is premised on a user-fee concept; the                                                               
utility providers are essentially tied  to pay for the regulation                                                               
that administers  the services and  the rates that  "they provide                                                               
under  their monopoly."   In  response to  a question  from Chair                                                               
Weyhrauch,  he  said that,  under  the  statute itself,  the  RCC                                                               
administers   the   regulatory   cost-charge  formula   and   its                                                               
applicability.   He  noted that  there  is a  statutory cap  that                                                               
exists  on the  total amount  of funds  that can  be administered                                                               
under the RCC.                                                                                                                  
                                                                                                                                
Number 0268                                                                                                                     
                                                                                                                                
CHAIR WEYHRAUCH clarified  he wants to know:  At  what point does                                                               
the  public  pay for  "every  and  all  costs";  who is  it  that                                                               
arbitrates what is  reasonable or not; where is the  cap set; and                                                               
why should the  public continually "pay this up"  when it doesn't                                                               
know what goes on in the disputes.                                                                                              
                                                                                                                                
MR.  O'TIERNEY  answered that  the  statute  provides a  specific                                                               
decimal  number cap,  as well  as explicitly  providing that  any                                                               
given utility may pass through  the regulatory cost charge to its                                                               
consumers.   That  charge is  shown at  the bottom  of any  given                                                               
[utility]  bill.   The  consumers are  the  beneficiaries of  the                                                               
advocacy that's  provided on their behalf  before the commission.                                                               
Mr. O'Tierney continued as follows:                                                                                             
                                                                                                                                
     Absent  that advocacy  ... you  would essentially  have                                                                    
     one  hand clapping,  for the  most part,  at any  given                                                                    
     utility  rate  proceeding,  because the  utility  comes                                                                    
     before the  commission and it's generally  asking for a                                                                    
     rate  increase, not  a rate  decrease, and  absent some                                                                    
     other  party  on  behalf of  the  public,  there  would                                                                    
     simply  be  the utility  making  its  case without  any                                                                    
     meaningful  ... cross-examination  or review.   So,  it                                                                    
     seems perfectly  logical, and prudent,  and appropriate                                                                    
     that  consumers would  ultimately bear  the cost;  it's                                                                    
     consistent with  the entire user-fee concept,  which is                                                                    
     certainly not held in disfavor [at the] current time.                                                                      
                                                                                                                                
Number 0068                                                                                                                     
                                                                                                                                
CHAIR WEYHRAUCH  stated his belief  that the public does  need an                                                               
advocacy position  in these hearings,  because its  interests are                                                               
seldom  represented;  therefore,  [the   public]  should  have  a                                                               
legitimate role  to play and  some legitimate costs  incurred for                                                               
that role.   However, he  noted that simply having  that advocacy                                                               
role may create an adversarial  situation for the utilities to be                                                               
involved, which in turn "ramps up  the cost to the public because                                                               
of  the  overhead  involved  with  advocating  its  own  interest                                                               
against the public's interest."                                                                                                 
                                                                                                                                
TAPE 04-32, SIDE A                                                                                                            
Number 0001                                                                                                                     
                                                                                                                                
CHAIR  WEYHRAUCH indicated  that  everything would  get paid  for                                                               
through the  regulatory cost  charge.  He  said it's  a conundrum                                                               
and  he is  expressing  concern.   He  invited  Mr. O'Tierney  to                                                               
continue.                                                                                                                       
                                                                                                                                
MR.  O'TIERNEY responded  that he  appreciates Chair  Weyhrauch's                                                               
comments;  however, he  surmised  that the  bottom  line is  that                                                               
consumer protection has  to be funded in some  fashion, and under                                                               
the current scheme ... - as  exists in statute and as promulgated                                                               
by  prior legislature  -  it is  paid for  by  the consumers  who                                                               
benefit.   He  noted  that the  vast majority  of  states have  a                                                               
variation of a regulatory cost charge mechanism.                                                                                
                                                                                                                                
Number 0117                                                                                                                     
                                                                                                                                
CHAIR  WEYHRAUCH  offered  his understanding  that  the  attorney                                                               
general's  office  defines  the  public's  interest;  it  doesn't                                                               
conduct  a  poll of  the  representatives  of  the state  in  the                                                               
legislature, but makes its independent  determination of what the                                                               
public's interest is and then advocates that interest.                                                                          
                                                                                                                                
MR. O'TIERNEY  answered that's correct.   He said that's  what EO                                                               
111 provides  for and it  is not  unlike the existent  context in                                                               
most other states.  He noted  that he has discussed with Attorney                                                               
General Renkes the  notion of adopting something  similar to what                                                               
exists in  Washington State,  which is a  type of  consumer input                                                               
panel whose  members are nominated  by the attorney general  as a                                                               
means of  having some kind  of a consumer  representative council                                                               
that provides ongoing input and  can keep the public advocate "on                                                               
the pulse  of consumer  interests and concerns."   He  added that                                                               
that's not  something that  necessarily needs  to be  embodied in                                                               
statute.                                                                                                                        
                                                                                                                                
CHAIR  WEYHRAUCH  said  something  like that  may  be  critically                                                               
important  to gain  the public's  trust in  the process,  whether                                                               
it's a consumer input panel  or whether the department's position                                                               
is  publicly  noticed  with  an opportunity  for  the  public  to                                                               
comment.   He said,  "I know  you need to  act and  react without                                                               
having  a cumbersome  public  process.   I  know  that there's  a                                                               
tension  here  between  being  able   to  be  involved  in  these                                                               
proceedings, yet  also representing  the public's interest."   If                                                               
the  Department  of  Law  purports   to  represent  the  public's                                                               
interest, he said,  then the public must  necessarily be involved                                                               
in expressing what those interests are.                                                                                         
                                                                                                                                
MR.  O'TIERNEY said  he thinks  it's  useful to  recall that,  in                                                               
terms of what  the public interest did, "it  certainly includes -                                                               
first  and foremost  - rate  payer interest,  consumer interest."                                                               
He offered  his understanding that those  interests are generally                                                               
defined in  terms of  taking a  hard look at  whether or  not the                                                               
type of  expenses that  the utility  suggests are  legitimate for                                                               
inclusion  in rate  base  are,  in fact,  legitimate  and can  be                                                               
adequately  justified.   He explained,  "Those are  the stuff  of                                                               
which rates are  made, and I think most  consumers are interested                                                               
in  making sure  that  rates are  ... not  higher  than they  can                                                               
honestly and legitimately be justified."                                                                                        
                                                                                                                                
CHAIR WEYHRAUCH stated  that that too is subject  to some debate,                                                               
because  it may  be in  the public's  interest to  pay the  least                                                               
amount for  the utility  services it's obtaining,  but it  may be                                                               
also  important to  pay  now in  order  to pay  less  later.   He                                                               
illustrated  that  many   companies,  particularly  in  utilities                                                               
markets,  must invest  in research  and development  in order  to                                                               
obtain technology  that eventually  is going  to reduce  costs in                                                               
the  long term,  which  requires a  higher  investment today  for                                                               
greater return  on the  investment tomorrow.   He said  there's a                                                               
public process in adequately explaining  that to the public so it                                                               
knows what it's getting.                                                                                                        
                                                                                                                                
MR.  O'TIERNEY replied  that  that's  part of  the  balance.   He                                                               
indicated  the question  of balance  is  often the  focus of  the                                                               
commission.   He  added, "Ultimately,  of course,  the commission                                                               
itself, as the adjudicator, gets to make the call."                                                                             
                                                                                                                                
Number 0386                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GRUENBERG emphasized  that he  likes the  idea of                                                               
having  a citizen  advisory commission  to the  attorney general,                                                               
since the citizen protection arm  office has been moved "from the                                                               
agency itself to  the attorney general."  He stated  that he does                                                               
not support an elected attorney general  but likes the idea of an                                                               
appointed  one,  even  though it's  subject  to  some  continuing                                                               
criticism  on  the  close relationship  between  the  [governor's                                                               
office] and the attorney general.                                                                                               
                                                                                                                                
REPRESENTATIVE GRUENBERG asked if  the commission still regulates                                                               
garbage disposal.                                                                                                               
                                                                                                                                
MR. O'TIERNEY answered yes.                                                                                                     
                                                                                                                                
REPRESENTATIVE  GRUENBERG   noted  that  part  of   the  City  of                                                               
Anchorage's  solid  waste  services are  from  the  municipality,                                                               
while part  of those services are  from [a private company].   He                                                               
said  part of  his district  is  served by  one and  part by  the                                                               
other.   He said the rates  are similar; however, he  offered his                                                               
recollection  that  the municipality  will  pick  up four  refuse                                                               
containers, while [the private company]  will only pick up three.                                                               
He opined that  that is unfair and suggested  that the commission                                                               
could consider that issue.                                                                                                      
                                                                                                                                
Number 0798                                                                                                                     
                                                                                                                                
MR. O'TIERNEY continued  with his testimony.  He  stated that the                                                               
second  principal  area  of  the  bill  addresses  providing  the                                                               
Department  of Law  - in  its public  advocacy function  and with                                                               
respect  to that  function  only  - the  same  access to  utility                                                               
records that  formerly had  been obtainable  by the  RCA's public                                                               
advocacy  staff.     He  said  that  although  it   speaks  to  a                                                               
substantive aspect  of things,  it is  not a  substantive change,                                                               
because  the intent  is to  transfer the  same access  to records                                                               
previously possessed by the RCA to the Department of Law.                                                                       
                                                                                                                                
MR. O'TIERNEY  stated that the  third principal area of  the bill                                                               
is one that  "would explicitly exempt state  agencies from paying                                                               
the cost of  the RCA - another state agency  - its proceedings to                                                               
which a state agency is a  party."  The current situation is that                                                               
the RCA  interprets the existing  statute, which does  not either                                                               
expressly include  or exclude cost allocation  of its proceedings                                                               
to  other   state  agencies.     The  proposed   legislation,  he                                                               
indicated,  would explicitly  exempt  other  state agencies  from                                                               
being cost allocated and then paying  those costs to the RCA.  He                                                               
continued as follows:                                                                                                           
                                                                                                                                
     Not  only  is there  no  net  fiscal benefit  into  the                                                                    
     current arrangement,  but ... it's  compounded because,                                                                    
     for  example,   if  the  Department  of   Law  is  cost                                                                    
     allocated, it  then has to  come to the  legislature to                                                                    
     get a  special appropriation in  order to pay  the cost                                                                    
     allocation to another state agency.                                                                                        
                                                                                                                                
Number 0943                                                                                                                     
                                                                                                                                
MR. O'TIERNEY noted that "the  proposed legislation would provide                                                               
for direct payment, in a  specific proceeding, by the utility, of                                                               
the cost  of any expert assistance  that may need to  be retained                                                               
by  the  Department  of  Law  to represent  the  public  in  that                                                               
specific proceeding."   He said the utilities  could recover that                                                               
case-specific  cost in  the same  manner as  any other  rate case                                                               
expense.  He continued:                                                                                                         
                                                                                                                                
     It's  consistent  with  the cost-causer  principle  and                                                                    
     user-fee principle that is the  basis of the RCC.  It's                                                                    
     also  ... analogous  to  other  existent mechanisms  in                                                                    
     state statute,  those being,  in particular,  one which                                                                    
     exists  in   the  insurance  code,  which   allows  the                                                                    
     director  of  insurance  to   have  the  insurer  being                                                                    
     examined pay the costs of  any expert that the director                                                                    
     needs  to retain  to  do the  examination.   It's  also                                                                    
     analogous  ... to  a mechanism  in the  Alaska Stranded                                                                    
     Gas   Development   Act,   which  provides   that   the                                                                    
     commissioner  may,  essentially,   pay  an  independent                                                                    
     contractor  expert   for  a  review,  and   that  those                                                                    
     expenses  would be  paid  for by  the  applicant.   ...                                                                    
     This is also a mechanism  that exists in numerous other                                                                    
     states,   including   Connecticut,  Iowa,   and   North                                                                    
     Carolina.                                                                                                                  
                                                                                                                                
Number 1038                                                                                                                     
                                                                                                                                
CHAIR  WEYHRAUCH,  reading  an   excerpt  from  a  comparison  by                                                               
amendment  of   the  original  bill  version   and  the  proposed                                                               
committee substitute  [included in  the committee  packet], spoke                                                               
as follows:                                                                                                                     
                                                                                                                                
     It  says,  "the  attorney general  participates  in  an                                                                    
     adjudicatory  proceeding before  the  commission".   If                                                                    
     the  commission makes  a  final  determination and  the                                                                    
     attorney general believes it's  in the best interest of                                                                    
     the public to  proceed in superior court,  either as an                                                                    
     appellant  or as  party to  a proceeding  that goes  to                                                                    
     superior court,  can the same costs  be passed through?                                                                    
     Because this  doesn't allow it  - it only  says "before                                                                    
     the commission", not before a superior court.                                                                              
                                                                                                                                
MR. O'TIERNEY answered that's correct.   He said, "It anticipates                                                               
that that being the fact  finding forum, ... anything beyond that                                                               
would be in an appellate context  and would simply be a challenge                                                               
to some  of the findings of  fact or the conclusions  of law, but                                                               
it wouldn't be, basically, relitigated."                                                                                        
                                                                                                                                
CHAIR  WEYHRAUCH  suggested that  the  issue  could be  discussed                                                               
further at the next hearing of HB 520.                                                                                          
                                                                                                                                
[HB 520 was heard and held.]                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
Number 1097                                                                                                                     
                                                                                                                                
There being no  further business before the  committee, the House                                                               
State Affairs  Standing Committee meeting was  adjourned at 10:01                                                               
a.m.                                                                                                                            

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