Legislature(1999 - 2000)
04/07/1999 08:09 AM House URS
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON UTILITY RESTRUCTURING
April 7, 1999
8:09 a.m.
MEMBERS PRESENT
Representative Bill Hudson, Chairman
Representative John Cowdery, Vice Chairman
Representative Norman Rokeberg
Representative Brian Porter
Representative Ethan Berkowitz
Representative Joe Green (alternate)
MEMBERS ABSENT
Representative Pete Kott
Representative John Davies
COMMITTEE CALENDAR
ALASKA PUBLIC UTILITIES COMMISSION (APUC) PROPOSED LEGISLATION
AT&T PRESENTATION
FOUR DAM POOL
(* First public hearing)
PREVIOUS ACTION
No previous action to record.
WITNESS REGISTER
WALTER WILCOX, SR., Legislative Assistant
for Representative Hudson
Alaska State Legislature
Capitol Building, Room 108
Juneau, Alaska 99801
Telephone: (907) 465-6820
POSITION STATEMENT: Introduced the proposed draft legislation.
SAM COTTEN, Chair
Alaska Public utilities Commission (APUC)
1016 West 6th Avenue
Anchorage, Alaska 99501
Telephone: (907) 276-6222
POSITION STATEMENT: Answered questions about the language in the
proposed draft legislation.
JIM ROWE, Executive Director
Alaska Telephone Association
4341 B Street
Anchorage, Alaska 99503
Telephone: (907) 563-4000
POSITION STATEMENT: Voiced some concerns on the proposed
legislation.
TOM POSEY, President
American Telephone & Telegraph (AT&T), Alascom
210 East Bluff Drive
Anchorage, Alaska 99501
Telephone: (907) 264-7122
POSITION STATEMENT: AT&T Alascom presentation.
MARK VASCONI, Regulatory Affairs Director
AT&T, Alascom
210 East Bluff Drive
Anchorage, Alaska 99501
Telephone: (907) 264-7122
POSITION STATEMENT: AT&T Alascom presentation.
DAVE CARLSON
P.O. Box 1232
Petersberg, Alaska 99833
Telephone: (907) 772-3765
POSITION STATEMENT: Presentation on Four Dam Pool.
ACTION NARRATIVE
TAPE 99-12, SIDE A
Number 0001
CHAIRMAN BILL HUDSON called the House Special Committee on Utility
Restructuring meeting to order at 8:09 a.m. Members present at the
call to order were Representatives Hudson, Cowdery, Porter and
Berkowitz. Representatives Green (alternate) and Rokeberg arrived
at 8:12 and 8:17, respectively.
APUC PROPOSED LEGISLATION
CHAIRMAN HUDSON announced the first order of business was a draft
of the APUC proposed legislation.
Number 0186
WALTER WILCOX, SR., Legislative Assistant for Representative
Hudson, Alaska State Legislature, stated:
Generally, the new bill does two things; one, gives more power
to the chair, and two, it requires the APUC to come before the
legislature in annual review to evaluate their activity and
productivity on the timeliness of their dockets and to brief
the legislature on all of their activities for the year.
Section 1 is the same as before. It's a general correction
from "chairman" to "chair." It also makes the chair
responsible for the administration of the commission and
commission employees; that's the same as it was in your last
version. Section 2 is the same as your last version. The
chair rather than the commission may establish offices for the
APUC. Section 3, the chair rather than the commission may
employ temporary legal counsel. For the chair, rather than
the commission, may hire outside consultants and experts.
Section 4 will be addressed by Jim Rowe. Section 5, in
addition to the annual report, the APUC will present the
legislature the commissions activities and timeliness of
docket activity for the previous year, as I mentioned.
Section 6 are mearly repealers.
The portion about removal ... of a commissioner was dropped,
because if this goes on to be a two-year piece of legislation
the question that it addresses becomes moved. We also, as a
request of the chair, dropped a section on having no more than
two individual commissioners from the same party. We also
decided that if the chair had the power and was functioning as
a strong chair the descriptions of the backgrounds for the
commissioners would also not be a problem.
Number 0402
REPRESENTATIVE COWDERY said that he doesn't think the proposed
legislation says anything about assigning of the cases and he
wondered if it was going to.
MR. WILCOX responded that if a strong chair is going to work they
need to be given the power and then monitored. The more
limitations that are put on them seems to be counter productive.
He asked Representative Cowdery what he would suggest for a change.
REPRESENTATIVE COWDERY replied that he felt the proposed
legislation should address who controls the agenda and the
assignment of the cases.
Number 0472
CHAIRMAN HUDSON wondered if in Section 1, where the chair is given
responsibility for the administration of the commission and
commission employees, administration would include the assignment
of case loads.
REPRESENTATIVE PORTER noted that the assignment of case loads is
one of the things that administration is intended to encompass.
CHAIRMAN HUDSON asked if in Section 1, line 10, the committee would
want to add, "including assignment of case loads." He wondered
about the correct language for that.
REPRESENTATIVE BERKOWITZ asked how dockets are currently assigned
to members.
Number 0598
SAM COTTEN, Chair, APUC, testified via teleconference from
Anchorage. The chair assigns the cases to a panel, which consists
of three to five members. The members that aren't appointed to the
panel can choose to be on it.
CHAIRMAN HUDSON asked Mr. Cotten if he had a copy of the APUC
proposed legislation before him.
MR. COTTEN replied yes.
CHAIRMAN HUDSON asked Mr. Cotten if he believes that the language
on page 1, line 9 and 10, is adequate for dealing with case loads.
Number 0655
MR. COTTEN said that it has never been the point of any
controversy.
REPRESENTATIVE COWDERY referred to the issue last year about
political appointees for parties and explained that if it isn't
implemented there could be a governor who appoints all of one
party, democrat or republican. He believes that by limiting the
political party the politicization argument would be bogus.
Number 0819
REPRESENTATIVE PORTER noted that in previous discussion it was
decided that there would be no more than two members from the same
party, but took out the language that would have precluded
consideration for non-affiliated votes. He agreed with
Representative Cowdery that some protection would exist with that
limitation.
REPRESENTATIVE BERKOWITZ pointed out that once the doors are opened
to partisanship they can be opened to regionalism.
CHAIRMAN HUDSON expressed that he feels it is a balancing act. The
Utility Restructuring Committee is the one that should be the least
political, because it deals with constituents across the board. He
informed the committee that he is not opposed to adding the
language which says, "no more than two from the same party."
Number 0964
MR. WILCOX pointed out that it does not include independents. It
only includes registered parties that received more than 5 percent
of the vote in the last election.
CHAIRMAN HUDSON clarified that the language already in the proposed
legislation would be the definition of, "no more than two from same
party."
MR. WILCOX explained that if those are the committee's wishes, it
can be done.
REPRESENTATIVE BERKOWITZ stated that it is not his wish. He
believes that the committee is moving in the wrong direction,
especially with Section 6 where there is the repealer of other
qualifications. Someone anomalous could say that the only
qualification is that someone not be a member of a political party.
There is no concern for engineering, law, finance and business
administration. He would dispute that politics is important to
what the APUC does.
Number 1057
REPRESENTATIVE PORTER expressed that the committee would be better
served to support Representative Berkowitz's argument than to deny
it. He stated that if the other qualifications were taken away and
there was an extremely bad governor, he could take the downtown
republican club and appoint them to the APUC. There should be some
protection against that happening. If there were individual
qualifications that needed to be met, the members of the republican
club would not meet those qualifications, but without those
restrictions they would.
REPRESENTATIVE GREEEN concurred with Representative Porter. If the
proposed legislation is adopted he believes that they will be
moving away from politics as opposed to moving closer to it. If
there ends up being a bias board, this legislation would tend to do
away with the bias. As we move into the 21st century, the APUC
will become one of the most important commissions that Alaska will
be dependent on, and the further from politics the better.
Number 1172
REPRESENTATIVE BERKOWITZ noted that he does have some concern with
competence in regards to the commission and that there is some
overlap with being a republican and being competent or incompetent,
but that is not the focus. He stated that if the worry is whether
or not this is a partisan activity then the legislation should say,
"commission members shall engage in no partisan politics." This
would force everyone to not be a member of a political party,
making sure they don't make any campaign contributions and restrict
their rights of speech. He suggested a possibility may be to put
the same restrictions on commission members that are put on judges.
REPRESENTATIVE COWDERY stated that he doesn't think the commission
members could be restricted from donations; it would be
unconstitutional. He believes that if the language was added that
it would depoliticize it, which is what the committee is trying to
do and he would like to see the language, "no more than two members
from the same party," added to the proposed legislation.
REPRESENTATIVE BERKOWITZ stated that it is clear what the concern
is. Governor Knowles, who is a democrat, may have a couple of
vacancies and he might appoint a couple of democrats. If he
chooses to appoint republicans and a republican governor follows
Governor Knowles, the new governor may be put in a position of
appointing democrats.
Number 1315
CHAIRMAN HUDSON said that he believes the purpose is not to put
more people from one particular party or the other on the
commission, but to try to create a balance. In his opinion, the
amendment is not necessarily intended to restrict anybody, instead,
all the qualifications will be taken away and the governor will be
asked to appoint five honorable people and avoid any inference of
politicizing and make sure that no more than two members are from
the same party. He thinks it is a balancing act not necessarily a
partisan activity.
REPRESENTATIVE PORTER stated that his interest in having the
revision has nothing to do with the current Governor.
REPRESENTATIVE COWDERY concurred with Representative Porter. He
pointed out that Commissioner Jim Posey of the APUC was appointed
by the Governor and is a registered republican.
CHAIRMAN HUDSON explained that the amendment will read, once
drafted, "No more than two members of the commission may be members
of the same political party."
Number 1482
REPRESENTATIVE COWDERY made a motion to adopt the amendment.
REPRESENTATIVE BERKOWITZ objected. He stated that he understands
the committee's concern with partisan politics. It is optimistic
to feel that just because there is a limitation in the political
party that partisan politics is going to be restricted from the
commission members. If the intent is to restrict the political
involvement of the commission members, he suggests that a model be
adopted that is similar to the restrictions put on judges, which
precludes them from being involved in partisan politics at all.
REPRESENTATIVE PORTER pointed out that the model that
Representative Berkowitz is referring to is already in place in the
Ethics Committee. He believes that it is a bit extreme to try to
put the same restrictions on commission members that are put on
judges. The concern is more their action before they are appointed
to the commission; what philosophical intent the members bring to
the commission.
REPRESENTATIVE BERKOWITZ explained that the Ethics Committee does
have certain restrictions; they can't make contributions and they
can't be involved in partisan politics.
Number 1591
CHAIRMAN HUDSON asked Representative Berkowitz if he would feel
more comfortable if the commission was more clear about its intent.
He indicated that he does not want to treat the commission members
like judges and he thinks that the real concern is the members
actions before they are appointed commissioners as opposed to their
political action after they are appointed. He asked Representative
Berkowitz if his objection was still maintained.
REPRESENTATIVE BERKOWITZ replied yes.
A roll call vote was taken. Representatives Porter, Cowdery,
Rokeberg, Green (alternate), and Hudson voted in favor of adopting
the amendment. Representative Berkowitz voted against it.
Therefore, the amendment was adopted by a vote of 5-1.
Number 1702
REPRESENTATIVE BERKOWITZ referred to Section 2, and wondered why
the power was being given to the chair instead of the commission in
establishing an office.
MR. WILCOX responded that the staff was directed by Chairman Hudson
to add that language.
REPRESENTATIVE BERKOWITZ presumed that the same would hold for
Section 3 and Section 4.
MR. WILCOX replied that is correct.
REPRESENTATIVE BERKOWITZ wondered what the impetus is behind the
repeal of qualifications in Section 6.
CHAIRMAN HUDSON responded that Section 6 opens it up so the
Governor and the legislature can consider citizens of sound
judgement regardless of their background. Given the
professionalism of the staff and the ability of the chair and the
commission to hire proficient people that language was put into the
drafting.
Number 1779
REPRESENTATIVE BERKOWITZ stated that the removal of a commissioner
is not a mute point even though it might not be appropriated for in
the current situation, but if another contingency occurs in the
future it would be good to have a "removal clause."
MR. WILCOX responded that a "removal clause" has been discussed at
length and at this time it is probably poor public policy to aim
legislation at a particular individual.
REPRESENTATIVE BERKOWITZ noted that he has never wanted to endorse
poor public policy and that's why he is in the minority. Good
public policy would suggest that the "removal clause" would go
beyond the current situation. He stressed that he specifically
said that it does not necessarily apply to the current situation.
CHAIRMAN HUDSON added that a number of folks have expressed their
concern about putting an amendment in that simply deals with a
condition that is in flux. The committee doesn't know what is
going to happen to the commissioner that some folks believe that
we're aiming at here. He said that for the purposes of a clean
draft he felt it would be better to leave out the "removal clause."
The two best things in the proposed legislation is, one, the
finality that will come from decision making and, two, hopefully
better administration by the commission with the requirement that
they come before the legislature every year.
Number 1921
JIM ROWE, Executive Director, Alaska Telephone Association (ATA),
expressed concern with page 2, line 17, Section 4, subsection (b),
where the chair is given the power to decide if there needs to be
services of consultants. Overall the draft looks good, but
subsection (b) brings up some concerns. He suggests on line 19
where commissioner has been eliminated and chair has been added,
perhaps to reverse that, so the commission decides if it's
necessary and then consults the chair. A few reasons for this is,
one, the monetary cost for hiring a consultant, which is of less
importance, and two, if only the chair gets to decide then too much
weight is being put on the chair and not on the commission.
REPRESENTATIVE GREEN asked Mr. Rowe if his intention is to soften
the potential dictatorial position of the chair of the commission.
MR. ROWE responded that he would not go so far as to say
dictatorial, but he thinks what is being looked for is a commission
decision.
Number 2138
REPRESENTATIVE ROKEBERG noted that a couple of issues are not in
the draft, such as the employment of non-Department of Law
attorneys. He wondered if ATA's working group would look over
things like that.
MR. ROWE replied yes.
REPRESENTATIVE ROKEBERG wondered if there was the issue of
commissioners being provided staff that are independent from the
commission.
MR. ROWE replied that there is, and he would like to see various
members of industry working these issues out.
CHAIRMAN HUDSON clarified that what Mr. Rowe was suggesting was to
eliminate chair from line 19 and reinstate commission, which would
provide the management and contractual responsibilities to the
chair, but the discretionary decision making to the commission. He
said that he agrees with that concept, because we want the
commission to be an independent body. If the committee feels
comfortable with the change, he suggests that the final draft be
changed accordingly.
Number 2266
REPRESENTATIVE PORTER suggested that they add on the political
party section that a person may not be appointed or reappointed to
the commission for one year after changing political party
membership.
MR. WILCOX said that he has that language and it can be added.
CHAIRMAN HUDSON agreed.
AT&T PRESENTATION
Number 2348
TOM POSEY, President, American Telephone & Telegraph (AT&T),
Alascom, read his testimony into the record, as follows:
Good morning, Mr. Chairman and members of the committee. My
name is Tom Posey, and I am the President of AT&T Alascom,
which is the AT&T subsidiary providing telecommunications
service in Alaska. I want to thank you for allowing AT&T
Alascom to address the committee today.
I have been in the telecom industry for 17 years and have been
with AT&T Alascom since September 1998 as a Vice President and
took over the reigns as President in January 1999.
Today, I will give a brief "State of the Business" at AT&T
Alascom and then Mark Vasconi, our Director of Regulatory
Affairs will provide further testimony on access charges and
competition in the provision of local telephone services.
AT&T Alascom currently employs 482 people and has
responsibility for serving residential and business markets,
plus we operate the most distributed network in Alaska. We
are the only carrier in the state required to service all
locations in the state with 25 or more customers. Our
backbone network consists of: fiber optics, terrestrial radio,
and a satellite network with more than 200 earth stations.
From the time AT&T purchased Alascom in 1995 through the end
of this year, we have invested over $198 million dollars in
capital improvements to our network in the State of Alaska.
Some examples of these improvements include:
A new "4E" switch. This switch provides the basic platform
for all AT&T services. The "4E" circuit switch allows Alaska
to become part of the AT&T Global Network. It also supports
disaster recovery, long range planning and feature upgrades as
part of the AT&T Global Network. The normal duration for a
project of this scope is about two years, but we did it in
just eight months.
Digitization of the Bush Network. Digitization of the Bush is
a multiple year project which AT&T Alascom began in 1996, and
which we plan to complete by the end of the year 2000.
When AT&T purchased Alascom in 1995, equipment and technology
in the Alaska Bush was nearly 20 years old. Replacement parts
were becoming scarce. Because analog services are nosier than
digital equivalents, customers were expressing interest in
digital services. AT&T Alascom was unable to provide the
desired digital services over the network that existed at the
time, and thus plans were made to digitize the Alaska Bush.
Digitization of the Bush is a multifaceted plan that involves
network improvements both for terrestrial and satellite
routes. Digitization of terrestrial routes involves
replacement of analog equipment with digital equipment.
Digitization of satellite-dependent routes includes the
deployment of a relatively new technology, Demand Assigned
Multiple Access, or DAMA, at many Alaskan locations.
DAMA technology provides numerous benefits to our customers in
the Bush. The technology reduces the number of times a call
must be routed up to the satellite from 2 times to 1. the
elimination of this "double satellite hop" reduces the delay
experienced during the voice conversation, or switched data
circuit connection.
DAMA technology also improves the quality of the transmission
by reducing noise, improving the echo control and by
supporting many FAX and dial up data calls at higher
transmission rates. DAMA provides for more efficient
transponder utilization, reducing overall cost.
Although, as mentioned before, Bush Digitization is a multi
year project, the vast majority of sites will be upgraded by
the end of this year. The remaining sites are scheduled for
upgrade in the year 2000.
The result of AT&T Alascom's Bush Digitization project
ultimately comes down to this: improved quality of service;
and more and better services for Alaska consumers.
New satellite replacement of Aurora II in 2001. As I am sure
you are all aware, the satellite is a critical element
necessary to preserve Universal Service to Bush Alaska. The
primary reason for the replacement of Aurora II is it is
approaching end of service life. In order to offer continued
universal service to Bush Alaska, the Aurora II replacement
will be deployed in 2001.
So what does this all mean to the State? The essence of the
investments AT&T Alascom has made over the past four years is
about our customers. We will continue to provide and invest
in a new generation of universal communications services that
put our customers in touch with the people or information they
need, want and at a competitive price. Competition works.
Speaking of competition, I would like to take a few minutes to
talk about the changing face of competition and
facilities-based competitors in Alaska.
AT&T Alascom has fully supported facilities-based competition
in all locations because we believe we can be competitive
based on our offer set and what customers will perceive as our
value to them.
In the last year, fiber optic capacity within Alaska and to
the Lower 48 has increased dramatically with more scheduled to
come on line. AT&T Alascom supports this capacity expansion
and the new services that may utilize it. All of this has
occurred in a competitive marketplace.
When the Legislature considers competition in local markets,
we believe that good lessons can be learned from competition
in long distance. That is, more capacity and lower prices
have resulted from this competitive landscape. In a
competitive environment, the winner is chosen based on their
offers and efforts, not based on a regulation that prohibits
competition.
TAPE 99-12, SIDE B
Number 2330
MARK VASCONI, Regulatory Affairs Director, AT&T Alascom, read his
testimony into the record, as follows:
Thank you Tom, and good morning Mr. Chairman and members of
the committee. I would like to talk this morning about access
charges and competition in the provision of local services
from the standpoint of what these mean to consumers and AT&T
Alascom. As you might know, long distance carriers pay for
the use of local telephone companies' networks, to originate
or terminate long distance calls. these so-called access
charges are a major part of the costs of long distance calls
and can be reduced either by further regulatory initiative or
the institution of local service competition. To the extent
that access costs drop, consumers will benefit as competition
in long distance (LD) will force LD rates for consumers to
drop. We think that these issues are important for the
legislature to understand as they will ultimately affect the
bills paid by consumers.
As the largest long distance carrier in Alaska, in 1998, AT&T
Alascom paid Local Exchange Carriers (LECs) in Alaska
approximately $39 million to use their networks to complete
in-state long distance calls. AT&T Alascom's total revenues
from in-state services were roughly $61 million; in other
words, approximately 64 percent of AT&T Alascom's in-state
revenues went to pay for the use of Local Exchange Carriers'
networks. In order to put these numbers into perspective,
local access charges translate roughly into fourteen and
a-half cents per minute for each and every in-state long
distance phone call versus a national average of just over
five cents. At approximately 14.5 cents per minute, access
charges in Alaska are among the highest in the nation. Sates
such as Montana, Utah and Wyoming all have lower access rates
yet, like LECs in Alaska, LECs in those states must cope with
issues of relatively low subscriber densities and long
distances between locations. The access charges in Alaska are
clearly higher than national averages and higher than those in
states with low population densities and heavy reliance on
long distance calling.
Not only have access charges been high in Alaska, they have
exhibited very little downward movement while competition in
the long distance market has steadily been dropping rates
(See Chart 1 showing comparison of ARPM with access costs).
As you can see, since 1995 when AT&T purchased Alascom, the
Average Revenue per Minute (ARPM) has been on a steady
decline. In 1995 AT&T Alascom's ARPM was at 29 cents; by 1998
it had dropped to 21 cents. That's a decrease of 27 percent
and that is exactly what you'd expect from the workings of a
competitive marketplace. Aside from the conclusions that one
can draw on the level of competition in the LD market, the
chart also shows that per minute access costs have been flat
and are effectively placing an absolute floor on how low LD
prices can go. Presently, AT&T Alascom is offering Optional
Calling Plans (OCPs) that have specific in-state rates that
are as low as 15 cents per minute with no associated monthly
recurring charge - it is impossible for AT&T Alascom or any
other rational competitor to justify any lower priced OCPs
when the margin between access costs and rates is less than a
penny. I also want to stress that the fall in LD prices
occurred prior to the implementation of any statewide access
reform. The workings of the competitive marketplace for LD
services provided these savings to consumers in an environment
of high access charges that have historically exhibited little
if any downward price movement. As access rates decline, the
workings of the competitive LD market will inevitably result
in even more reductions in rates.
While the APUC needs to continue examining access charges, it
is our guess that substantial reductions in access charges
will not occur until competition provides alternative access
to local customers. In fact, to the extent that LECs try to
maintain access charges above their true economic costs, they
will deny further benefits of lower long distance prices to
end users and they also serve as a disincentive for Long
Distance companies to invest in Alaska.
In order to understand where we need to go, its important to
understand something about how Local Exchange Carriers have
traditionally recovered their costs. Local Companies
historically had three sources of revenue: (1) charges for
local service; (2) charges for access service (which has
hidden subsidies); and (3) explicit payments from the federal
Universal Service Fund. This system was designed to foster
healthy LECs by ensuring that these three sources of revenue
gave a LEC a reasonable opportunity to recover its expenses
plus a reasonable rate of return. The current system is also
designed to provide affordable universal service. This
present system features high subsidies, high costs and low
local rates.
This system is economically unsound because it was designed to
achieve social, not economic goals. When all facets of the
telecommunications industry were organized around the
principles of monopoly markets, it was a fairly easy chore for
regulators to require business users to subsidize residential
users and Long Distance service to subsidize local service.
If anyone paid a rate equal to cost it as merely a
coincidence.
As long as the primary goal of telecom policy was universal
service in a monopoly environment, the internal subsidies were
successfully managed through regulation. Regulators designed
a system of hidden subsidies that supported both local and
long distance services. Alaskans, both rural and urban, were
major beneficiaries of this policy. So was Alascom. After
all, prior to AT&T's purchase of the company Alascom received
an annual subsidy of approximately $100 million to keep
interstate Long Distance rates affordable to all Alaskans.
Since the advent of AT&T's purchase, the subsidy is no longer
there, but universal toll service has continued, and
competition has extended itself to more and more locations in
Alaska.
While Universal Service goals have not changed, the tools for
insuring it must. With competition in the long distance
industry, prices and margins have dropped to the point that it
is becoming more difficult for Long Distance carriers to
provide support for Universal Service through the mechanism of
hidden subsidies which have historically been paid by long
distance companies in the form of high access charges. Other
mechanisms, as well as other market structure policies have to
be implemented in order to insure that Universal Service goals
are met.
First, the APUC and its Staff should continue efforts begun
last year that identify hidden subsidies in access charges.
Once these subsidies are "smoked out" of rates, the APUC needs
to examine them in light of what is actually required to
preserve Universal Service. As an example, last year the APUC
identified approximately $3.8 million of costs that were moved
out of access charges and into an Alaska Universal Service
Fund. This $3.8 million was seen as a hidden subsidy that was
used to support switching costs for 9 of the 22 LECs operating
in Alaska. In an effort to examine if the entire 3.8 million
is needed to support Universal Services, the APUC on March 23
took up a Staff recommendation to begin an inquiry into the
necessity of any or all of the $3.8 million. This inquiry
will need to consider the affordability of local phone service
without the subsidy as well as the financial position of local
exchange carriers. At this point it is premature to make any
conclusions as to whether the switching subsidy is or is not
required but we think that continued investigation by the APUC
is critical. Investigation should also continue with respect
to other subsidies that remain hidden in access charges.
Second, while it's important for the APUC to continue its
investigation of subsidies found in access charges, the
legislature and the APUC need to promote the development of
the ultimate access reform measure and that is allowing
competition in local markets. Competition in local markets
will ultimately take a number of forms ranging from mere
resale of existing services, to the introduction of wireless
technology, new wireline infrastructure or even Internet-based
telephony. All of these developments will require
participants in the industry to adapt. While I listened to
Mr. Rhyner's testimony last month I was struck by the static
quality of his analysis. In an example that Mr. Rhyner
presented, potential competition in Fairbanks would force
rates to increase to $27 from $16. This would indeed happen
if the costs of the business were to stay the same and if
monopoly concepts of pricing were to continue. However, with
competition, monopoly concepts of "revenue requirement" that
allow for the recovery of investments and expenses plus a
return (so-called cost-plus) are replaced by market-based
concepts that force a firm to reduce costs through expense
reductions or even mergers in order to position themselves to
meet the prices quoted by a new competitor. In short,
competition forces changes and reactions that are not
incorporated by Mr. Rhyner's analysis.
Therefore, in summary, we believe that the APUC needs to
continue its efforts to "smoke out" subsidies that have been
embedded in access charges and then work to examine if the
subsidies are indeed needed to promote Universal Service.
Second, to the extent that subsidies are needed they should be
correctly sized, distributed to those who need them most and
most importantly, collected from all telecom providers, not
just the long distance carriers who are required to pay access
charges. Last, the legislature and the APUC should move to
allow competitive entry into local exchange markets. Through
competition we have seen prices for LD services drop and the
limited experience we have in Anchorage with local service
competition suggests that we will see service expansion and
lower rates when competitive entry is allowed. These changes
will result in lower prices to consumers for local services
and will enable the competitive long distance market to
continue offering services to customers at affordable prices.
I'd like to close by thanking the legislature for allowing us
to address these issues and for your previous work on
promoting competition in the long distance market. We think
there will be substantial benefits by extending the
competitive model to local service markets. We'd be glad to
answer any questions you might have.
FOUR DAM POOL
Number 0270
DAVE CARLSON testified on behalf of the Four Dam Pool and clarified
that he is currently not the vice-chair of the Project Management
Committee, but a member with possibly the longest tenure. He
stated that he was on the Petersburg City Council during the Tyee
Lake project and was involved during the power sales negotiations
and is still involved. He discussed a history of the Four Dam Pool
and how it works and also divestiture and restructuring. The
report titled, "Project Management Committee", gave a overview of
the Four Dam Pool Project. The introduction read as follows:
Following the dramatic increase in oil prices in 1979-1980,
the State was in a financial position to pump massive amounts
of money into the development of energy projects.
During the early 1980s, the Alaska Energy Authority
constructed or acquired four projects - Tyee Lake, Terror
Lake, Swan Lake, and Solomon Gulch. The costs for
constructing or acquiring the projects was initially paid by
bond financing. Eventually, the bonds were replaced with
money lent to the Authority by the Department of Commerce and
Economic Development, from the Power Development Revolving
Loan Fund.
In an effort to equalize power costs for the communities
served by the four projects, the Alaska legislature provided
that these four projects would be considered as one project -
the Initial Project. Together they would be operated and
managed jointly and the wholesale power rate for power sales
would be the same for all four projects.
Between May and October of 1985, the parties engaged in
intense negotiations. The Memorandum of Understanding between
the Authority and the Representatives of the Four Dam Pool
communities (signed on May 8, 1985), forged the basic tenets
of what was to become the Long-term Power Sales Agreement for
the Four Dam Pool.
TAPE 99-13, SIDE A
Number 0931
ADJOURNMENT
CHAIRMAN HUDSON adjourned the House Special Committee on Utility
Restructuring meeting at 9:55 a.m.
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