Legislature(1993 - 1994)

04/18/1994 09:10 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                                                                               
                             MINUTES                                           
                    SENATE FINANCE COMMITTEE                                   
                         April 18, 1994                                        
                            9:10 a.m.                                          
                                                                               
  TAPES                                                                        
                                                                               
  SFC-94, #71, Side 2 (250-000)                                                
  SFC-94, #73, Side 1 (000-end)                                                
  SFC-94, #73, Side 2 (end-350)                                                
                                                                               
  CALL TO ORDER                                                                
                                                                               
  Senator  Drue  Pearce,  Co-chair,  convened the  meeting  at                 
  approximately 9:10 a.m.                                                      
                                                                               
  PRESENT                                                                      
                                                                               
  In addition to Co-chairs Pearce  and Frank, Senators Rieger,                 
  Kerttula, and Sharp were present.   Senator Kelly joined the                 
  meeting after it was in progress.   Senator Jacko was absent                 
  from the meeting.                                                            
                                                                               
  ALSO ATTENDING:  Senator Randy Phillips; Representative Gary                 
  Davis; Representative Fran Ulmer; Josh Fink, aide to Senator                 
  Kelly; Alyce  Hanley, Commissioner, Alaska  Public Utilities                 
  Commission  (APUC),   Department  of  Commerce   &  Economic                 
  Development; Bob Lohr, Executive  Director, APUC, Department                 
  of Commerce & Economic Development; Ray Gillespie, Lobbyist,                 
  Petro-Marine;  Dana   Tindall,  Senior  Vice   President  of                 
  Regulatory Affairs, GCI; Jimmy Jackson, regulatory attorney,                 
  GCI, former hearing officer of the APUC; Gary Lucken, Acting                 
  General Manager, Anchorage  Telephone Utility (ATU); Michael                 
  Burns,   Chairman  of  the  Board  of  Directors,  Anchorage                 
  Telephone Utility (ATU); Mark Foster,  private consultant in                 
  utility issues,  engineer, former APUC  Commissioner; Gerald                 
  L.  Gallagher, Director, Division  of Mining,  Department of                 
  Natural Resources; David Rogers, and Kent Dawson, lobbyists,                 
  Council  of   Alaska  Producers;  Jetta   Whittaker,  fiscal                 
  analyst,   Mike   Greany,   Director,  Legislative   Finance                 
  Division; representatives of  the media, aides  to committee                 
  members and other members of the legislature.                                
                                                                               
  VIA  TELECONFERENCE:    Steve  Borell,  Executive  Director,                 
  Alaska Miner's Association, testified from Anchorage.                        
                                                                               
  SUMMARY INFORMATION                                                          
  CSSB 213(JUD):      An  Act  extending  the   Alaska  Public                 
                      Utilities  Commission;  and  relating to                 
                      regulation  of  public utilities  and to                 
                      regulatory cost  charges; and  providing                 
                      for an effective date.                                   
                                                                               
                                                                               
                      Alyce   Hanley,   Commissioner,   Alaska                 
                      Public   Utilities  Commission   (APUC),                 
                      Department   of   Commerce   &  Economic                 
                      Development,  and  Bob  Lohr,  Executive                 
                      Director, APUC, Department of Commerce &                 
                      Economic   Development,  testified   and                 
                      asked the committee to  delete Section 1                 
                      of CSSB  213(JUD).   Josh Fink, aide  to                 
                      Senator Kelly  spoke  to the  CS.   Dana                 
                      Tindall,  Senior   Vice  President   for                 
                      Regulatory  Affairs,   GCI,  and   Jimmy                 
                      Jackson,   regulatory   attorney,   GCI,                 
                      former  hearing  officer  of  the  APUC,                 
                      spoke in favor of amendment  2.  Michael                 
                      Burns,   Chairman   of   the  Board   of                 
                      Directors,  Anchorage  Telephone Utility                 
                      (ATU), and Gary  Lucken, Acting  General                 
                      Manager,  Anchorage   Telephone  Utility                 
                      (ATU),   testified   in   opposition  to                 
                      amendment  2  proposed  by  GCI.    Mark                 
                      Foster,  private  consultant,  engineer,                 
                      former  APUC   Commissioner,  spoke   in                 
                      support of CSSB 213(JUD).  CSSB 213(JUD)                 
                      and amendments 1, 2, and 3, were HELD in                 
                      committee until April 19,  1994, and Co-                 
                      chair  Frank  and Senator  Kerttula were                 
                      asked to research language  in amendment                 
                      form that would address  concerns of the                 
                      committee.                                               
                                                                               
  CSHB 453(FIN):      An Act establishing, for purposes of the                 
                      levy  and collection  of the  motor fuel                 
                      tax  and   for  a   limited  period,   a                 
                      different tax levy on residual fuel  oil                 
                      used in  and on certain  watercraft; and                 
                      providing for an effective date.                         
                                                                               
                      Representative Gary Davis, sponsor of HB
                      453,  spoke  in  support  of  the  bill.                 
                      Discussion  was  had by  Co-chair Frank,                 
                      Senators Kerttula and Kelly  regarding a                 
                      sunset provision, and the  effect of the                 
                      bill on  state revenue.   CSHB  453(FIN)                 
                      was HELD in committee.   (Note SB 327 is                 
                      the Senate's companion bill.)                            
                                                                               
  SB 333:             An Act relating  to disclosure of  close                 
                      economic associations  by certain  state                 
                      employees and to the prohibition against                 
                      nepotism  in  the  executive  branch  of                 
                      state government; and  providing for  an                 
                      effective date.                                          
                                                                               
                                                                               
                      Scheduled but not heard.                                 
                                                                               
  SB 350:             An   Act   relating  to   a  defendant's                 
                      violation of conditions of  release; and                 
                      providing for an effective date.                         
                                                                               
                      Scheduled but not heard.                                 
                                                                               
  CSSB 371(RES):      An   Act   providing   for   exploration                 
                      incentive    credits    for   activities                 
                      involving    locatable   and    leasable                 
                      minerals  and  coal deposits  on certain                 
                      land in the state; and providing  for an                 
                      effective date.                                          
                                                                               
                      Steve Borell, Executive Director, Alaska                 
                      Miner's   Association,  testified,   via                 
                      teleconference   from    Anchorage,   in                 
                      support of SB 371.  Gerald L. Gallagher,                 
                      Director, Division of Mining, Department                 
                      of  Natural  Resources,  spoke   to  the                 
                      concerns  of  the  department  with  the                 
                      bill.   David Rogers,  and Kent  Dawson,                 
                      lobbyists, Council of  Alaska Producers,                 
                      spoke  in  support of  the  bill.   CSSB
                      371(RES)  was  HELD  in   committee  for                 
                      amendments  from   Senators  Kelly   and                 
                      Kerttula.    SB  371  was scheduled  for                 
                      April 19, 1994.   (HB  498 is the  House                 
                      companion bill.)                                         
                                                                               
  CSHB 119(JUD) am:   An Act authorizing a sentencing court to                 
                      impose a sentence of a day  fine instead                 
                      of  a  sentence  of  imprisonment  on  a                 
                      defendant  convicted  of  a misdemeanor;                 
                      directing  the  Alaska Supreme  Court to                 
                      develop and  implement a day  fine plan;                 
                      requiring  the  Alaska  Court System  to                 
                      report to  the legislature on the use of                 
                      day  fines;  amending  Alaska   Rule  of                 
                      Criminal Procedure 32; and providing for                 
                      an effective date.                                       
                                                                               
                      Scheduled but not heard.                                 
                                                                               
  CS FOR SENATE BILL NO. 213(JUD):                                             
                                                                               
       An  Act   extending   the   Alaska   Public   Utilities                 
       Commission;  and  relating   to  regulation  of  public                 
                                                                               
                                                                               
       utilities and to regulatory cost charges; and providing                 
       for an effective date.                                                  
                                                                               
  CO-CHAIR  PEARCE  announced  that  SB  213  was  before  the                 
  committee.  She  invited Alyce Hanley  and Bob Lohr to  join                 
  the members at the table.                                                    
                                                                               
  ALYCE   HANLEY,   Commissioner,   Alaska  Public   Utilities                 
  Commission  (APUC),   Department  of  Commerce   &  Economic                 
  Development, asked the committee to consider an amendment to                 
  delete Section 1  of CSSB 213(JUD).  She went on to speak to                 
  the  language "liberally construed."   She  said it  was not                 
  unique language in  public utilities commissions  (PUCs) and                 
  the Alaska PUC was fairly new, organized in 1972.  The major                 
  portions  of  the  APUC  statutes   came  from  Oregon,  and                 
  commissions  across  the  country  enjoy  the   same  powers                 
  afforded by the language "liberally  construed."  She shared                 
  a few examples where the  APUC had used that language.   One                 
  had to do  with the garbage in  Healy.  The person  that had                 
  the  certificate  to pick  up the  trash  had not  picked up                 
  garbage for two months.  APUC  members went to Healy, had  a                 
  consumer input hearing, and  determined a public  necessity.                 
  Temporary  certificates were awarded  to two other companies                 
  so that they  could begin trash  pickup and address a  major                 
  health hazard.  In the statutes, the Commission did not have                 
  the ability  to award  temporary certificates  but authority                 
  for  such an  incident was  drawn  from the  term "liberally                 
  construed."                                                                  
                                                                               
  Ms. Hanley went on to say that sometimes it could  benefit a                 
  utility.  A utility could come to the Commission and explain                 
  that fuel and insurance  costs had increased and it  was not                 
  earning enough to continue operation.   The Commission could                 
  temporarily review the  situation, and allow the  utility to                 
  increase  its  rates  on an  interim  and  refundable basis.                 
  Again,  the   authority  for   this  came  from   "liberally                 
  construed."  She  reminded the committee that  the utilities                 
  they dealt with were not all sophisticated ones.                             
                                                                               
  She also  felt removing  the "liberally  construed" language                 
  could cause problems  because of increased competition.   It                 
  would be  more difficult  for APUC  to respond  in a  timely                 
  manner.  By restricting  the APUC's authority, she  felt the                 
  legislature  would assume more  of the  regulatory authority                 
  and have more  questions and problems.   In court cases,  it                 
  could  change   the  way   the  APUC   authority  would   be                 
  interpreted.   Instead of looking  at the stated  purpose of                 
  the APUC, the  courts would  look at specific  mention of  a                 
  particular power.  She urged the committee to delete Section                 
  1  and  instead  to  target   specific  problems  that  were                 
  perceived with the  APUC rather  than remove the  "liberally                 
  construed" language.                                                         
                                                                               
  SENATOR   KERTTULA  asked   who  recommended   the  proposed                 
                                                                               
                                                                               
  amendments.                                                                  
                                                                               
  BOB LOHR, Executive Director, APUC, Department of Commerce &                 
  Economic Development, said the Alaska Rural Electrical  Coop                 
  Association (ARECA) had  been promoting the deletion  of the                 
  "liberally construed"  language  and  the  phrase  found  in                 
  Section  1  of  the  bill  which  would  narrow  the  APUC's                 
  authority  within  those  areas.     In  answer  to  Senator                 
  Kerttula, Mr. Lohr said  that Ms. Hanley had touched  on one                 
  problem, temporary operating authority.   The second problem                 
  would  be  interim  refundable rates.    Currently,  the law                 
  clearly authorized the  Commission to establish a  rate that                 
  was  subject to refund and to  require a bond of the utility                 
  in order  to cover the difference between the permanent rate                 
  and  the  interim  rate.    The  Commission  had  "liberally                 
  construed"  that authority to  mean that  interim refundable                 
  rates,  without  requiring  a  bond  of  the  utility,  were                 
  appropriate.    Without  Section  1,  that  assumption would                 
  probably not hold up in court.   The utilities had benefited                 
  and acknowledged it.   In  roughly 50 percent  of the  eight                 
  cases that had gone to  the Supreme Court, interpreting  the                 
  phrase "liberally construed",  four had been to  the benefit                 
  of the utilities.                                                            
                                                                               
  CO-CHAIR FRANK said in a "perfect world" he would agree with                 
  the  "liberally construed"  language,  but the  Constitution                 
  limited the  power of  government and the  laws limited  the                 
  power  of  regulatory agencies.    He believed  the existing                 
  language  was too  broad and  proposed language  may be  too                 
  narrow.   He would like to find  a way to speak to the areas                 
  where the power should be liberal  and limit those powers in                 
  some way.                                                                    
                                                                               
  Mr.  Lohr  said that  Co-chair Frank  had made  an excellent                 
  point and agreed there might be a middle ground.  The common                 
  area  of  discussion  had been  issues  within  the specific                 
  powers  and  duties  that were  conferred  that  may deserve                 
  legislative attention.   He read  a quote from  the original                 
  court case, Homer  Electric Association  versus the City  of                 
  Kenai, "this provision (talking about "liberally construed")                 
  represents  two guiding principles determining the extent of                 
  the APUC jurisdiction under specific  provisions of the Act.                 
  On  the  one  hand it  includes  a  principle of  limitation                 
  restricting the APUC's power to the  specific jurisdictional                 
  areas  of  its  stated purposes.    On  the  other hand,  it                 
  includes a principle of expansion  mandating that the APUC's                 
  power to act  within its specific areas  of jurisdiction 'is                 
  to be  liberally construed.'"  He went on  to say it did not                 
  confer any powers that were not  already there.  He admitted                 
  there  may have  been  a  few  years  of  bureaucratic  foot                 
  dragging,  and that the  APUC took too many  years to take a                 
  position, but the "leading liberal construed" would have the                 
  affect  of giving  the  Commission a  better excuse  for not                 
  acting.    It could  say  "our  hands are  tied,  go to  the                 
                                                                               
                                                                               
  legislature."                                                                
                                                                               
  Mr. Lohr believed, in looking  for terms of specific  powers                 
  or specific areas of agreement,  if the legislature, through                 
  intent  language or  otherwise, directed  the Commission  to                 
  work    with    the     associations    representing     the                 
  utilities/cooperatives to do a review of the specific powers                 
  and duties,  and come  back with  recommendations next  year                 
  with some kind of deadline, it would be very beneficial.                     
                                                                               
  SENATOR SHARP asked  in relation to interim  tariffs subject                 
  to refund, which basically were  ordered with the suspension                 
  of a  tariff filing,  had there  ever been  an interim  rate                 
  tariff set so high that there had ever been a refund  order.                 
  Mr.  Lohr said  there  had been  and  could supply  details.                 
  Senator Sharp believed in most cases the interim rates would                 
  be set  considerably below the  tariff filing and  that time                 
  period was not subject to recoupment.                                        
                                                                               
  Senator Sharp went on to speak to "liberally construed."  He                 
  felt  it had been  used to  the detriment  of consumer-owned                 
  utilities,  and  pictured  it  as  a  blank  check  for  the                 
  Commission.  Mr.  Lohr said  "liberally construed" had  only                 
  appeared in the text of court cases eight times.                             
                                                                               
  Senator Kerttula pointed out that this act was  initiated in                 
  1962-64 and modified again  in 1971-72.  It had  always been                 
  supported strongly by those who now have a problem with this                 
  provision.  He questioned that since the other 49 states had                 
  a  similar  program,  maybe  there  was  an artful  form  of                 
  modification  of   these  powers   as  Co-chair   Frank  had                 
  suggested.   Mr. Lohr answered that state statutes for state                 
  agencies  had  been researched  and  there  was a  range  of                 
  phrases that  accomplished the  broad  result of  "liberally                 
  construed."    He  said  there  were  about  12 states  that                 
  actually used the phrase "liberally  construed,"  and others                 
  ran  the gamut  from broad  to strict  phrases.   Discussion                 
  continued by  Senator Kerttula  and Mr.  Lohr regarding  new                 
  language.                                                                    
                                                                               
  JOSH  FINK,  aide  to Senator  Kelly,  chairman  of  Labor &                 
  Commerce Committee,  sponsor of  SB 213,  said that  the two                 
  differences  of  the  Labor &  Commerce  CS  and the  Senate                 
  Judiciary CS was  that the  Judiciary CS deleted  "liberally                 
  construed" and also mandated regulation  of cable unless the                 
  consumer opted out.  Previously, in law, the consumers would                 
  have to petition  the APUC to be regulated  under cable.  He                 
  then went through each section.                                              
                                                                               
  Section 1 deleted "liberally construed."                                     
                                                                               
  Section 2 and 11  raised the maximum regulatory  cost charge                 
  from .61 percent to  .8 percent.  The reason  for the change                 
  may be found in Section 3.                                                   
                                                                               
                                                                               
  Section 3 explained that the cost  of power was deleted from                 
  the gross revenues of electrics in determining the regulator                 
  cost  charge.   When  the  cost  of power  was  deleted, the                 
  remaining  had  to  be increased.    In  answer  to Co-chair                 
  Pearce,  Mr.  Fink said  ARECA  made  the argument  that  in                 
  comparing  the  time  the  Commission  spent  with  electric                 
  utilities and  with other utilities, electric utilities were                 
  paying  a disportionate amount  of the  Commission's budget.                 
  The auditor recommended a time-keeping system be established                 
  but realized it would be costly.   The percentage change was                 
  a "rough cut" at making an adjustment to the regulatory cost                 
  charge  but  it did  bring electric  more  in line  with the                 
  amount of time spent by the commission.  Again in answer  to                 
  Co-chair Pearce, he  said every regulated utility  would see                 
  an increase of  about 30  percent.   The remaining  revenues                 
  from  electrics would  see  about a  30 percent  increase as                 
  well.                                                                        
                                                                               
  Section 4  instructed the  Department  of Administration  to                 
  earmark the money collected from  the regulatory cost charge                 
  that was in excess or an overcharge.  He explained the money                 
  from the fourth quarter came in after  the end of the fiscal                 
  year, so if they  had overcharged (which would not  be known                 
  until  the  end of  the  fiscal year),  the  money currently                 
  lapsed into the  general fund.   It would earmark the  money                 
  for program receipts for next year's budget.                                 
                                                                               
  The following sections related  to recommendations from  the                 
  auditor.                                                                     
                                                                               
  Currently,  certain   utilities,  depending  on   the  gross                 
  revenues  and type,  were  exempt from  regulation.   In  an                 
  exempted utility, the consumers  may opt to be  regulated by                 
  petition.  In the  new provisions, the opting in  and opting                 
  out  provisions  were identical.    Section 5  contained the                 
  application for electric and telephone utilities.                            
                                                                               
  Section  6 exempted  electric  and telephone  utilities with                 
  gross  revenues not  exceeding  $500,000  (currently it  was                 
  $325,000).                                                                   
                                                                               
  Section  7  referred to  utilities  other than  telephone or                 
  electric and raised the threshold to $150,000.                               
                                                                               
  Section 8, for the collection of trash, raised the threshold                 
  from $200,000 to $300,000.                                                   
                                                                               
  Section  9  was  amended  to  automatically  regulate  cable                 
  companies unless consumers opt to exempt themselves.                         
                                                                               
  Section  10  was  a  conforming  amendment  clarifying  that                 
  procedures for opting in and out were the same.                              
                                                                               
                                                                               
  Section 11 had been explained earlier.                                       
                                                                               
  Section 12  referred to  earmarking the  RCC collected  from                 
  pipelines addressed in Section 11.                                           
                                                                               
  Section 13 extends the APUC to 1998.                                         
                                                                               
  Section  14  repealed  the  sunset  of the  regulatory  cost                 
  charges  that  were  recommended  by  the Commission.    The                 
  reasoning  was that the Commission  was up for sunset review                 
  every  four years  and at  that time  the legislature  could                 
  address regulatory cost charge concerns.                                     
                                                                               
  Section 15 staggered  the terms  of the Commission  members.                 
  Currently, there  were two  seats that  expired at  the same                 
  time but it  would not  affect any  existing members,  terms                 
  would just run out.                                                          
                                                                               
  Section  17  put   an  effective  date  on   the  "liberally                 
  construed" deletion of July 1, 1995.                                         
                                                                               
  Section 16  made clear that any proceeding  that was started                 
  prior  to  July 1,  1995,  the "liberally  construed" powers                 
  would apply.                                                                 
                                                                               
  Section 18 contained the effective date.                                     
                                                                               
  Discussion was had  by Senator Rieger and Mr. Fink regarding                 
  Section 5 and 10,  the opting in and opting  out provisions.                 
  Mr.  Fink referred to  Section 7.12 for  clarification.  Mr.                 
  Fink  said there were two ways of exempting out, if you were                 
  a small utility and  revenues were under the threshold,  or,                 
  if revenues exceeded  the threshold, consumers could  sign a                 
  petition and opt out.                                                        
                                                                               
  Co-chair Pearce  invited Dana Tindall, Senior Vice President                 
  of  Regulatory Affairs, GCI,  and Jimmy  Jackson, regulatory                 
  attorney, GCI, former  hearing officer of the  APUC, to join                 
  the members.                                                                 
                                                                               
  DANA  TINDALL  said   she  would   give  a  general   policy                 
  introduction in support  of both  the "liberally  construed"                 
  language and the amendment GCI supported on the power of the                 
  Commission  to  fix  rates.    She  said  GCI supported  the                 
  existing language in the statute  of granting the Commission                 
  "liberally construed" powers to carry out their mandate.  It                 
  believed the Commission  had used it  to good effect in  the                 
  past  and  it was  necessary  in  order to  carry  out their                 
  mandate to insure  that competition was fair  to competitors                 
  and consumers alike.                                                         
                                                                               
  Ms. Tindall said  she would speak  to the policy behind  the                 
  amendment GCI supported under Section 42.05.431(a), power of                 
  Commission to fix rates.  The genesis was ATU's announcement                 
                                                                               
                                                                               
  to enter both the long distance and the video program market                 
  in the next three to five years.  GCI had concerns about ATU                 
  competing with them in the  long distance market because  of                 
  their existing monopoly over the  local exchange network but                 
  that was not really  why she was speaking today.  She wanted                 
  to speak to the rate payers of ATU.  GCI and Alascom account                 
  for about 60 percent of ATU's revenues in the form of access                 
  charges.  GCI  must pay for  the privilege of going  through                 
  ATU to  both originate  and terminate  all calls.   The  way                 
  their rates  were set  was based  on allocating ATU's  total                 
  costs between  the different  services.   GCI was  concerned                 
  about  ATU's  proposal  because  it  believed  the  ventures                 
  proposed were risky, would increase ATU's total costs, would                 
  increase GCI  rates as access  payers, and if  failed, would                 
  force all regulated rate payers to  pick up all failed costs                 
  of the venture.  She went on to explain the reasons she felt                 
  GCI's ventures were risky.                                                   
                                                                               
  End SFC-93 #71, Side 2                                                       
  Begin SFC-93 #73, Side 1                                                     
                                                                               
  JIMMY JACKSON said  that the amendment  proposed by GCI  was                 
  logged in  as amendment 2.  This amendment gave municipally-                 
  owned utilities  a protection which other  private utilities                 
  did  not have.   The protection was  that the APUC  must set                 
  rates  to insure that the bond  covenants of a municipality-                 
  owned utility were  never reached.  A similar  provision had                 
  been added  for cooperatives a few  years ago.  When  it was                 
  added for cooperatives, the statute said that new bonds were                 
  required to be approved  by the Commission.  That  had never                 
  been added for municipally-owned utilities.   He pointed out                 
  that  existing  statutes  said  that  if  ATU  entered  into                 
  ventures and any of  them failed, APUC would be  required to                 
  raise rates to  GCI and  local rate payers  in Anchorage  to                 
  cover those  losses.   GCI opposed  this law.   Amendment  2                 
  targeted this issue.                                                         
                                                                               
  SENATOR  RIEGER questioned  testimony that  the request  for                 
  municipally-owned utilities would be changed  to be the same                 
  as the cooperatives.  Mr.  Jackson said it would not be  the                 
  same and  referred amendment 2 to Senator  Rieger.  It was a                 
  restriction but not the same restriction.                                    
                                                                               
  Mr. Jackson cited the statement regarding bonds in amendment                 
  2.  He  said this section  was comparable to sections  being                 
  proposed  in  federal law.    Ms. Tindall  said  the federal                 
  legislation would permit the Bell  operating companies to go                 
  into  new  services   like  computer  information  services,                 
  previously forbidden.  While permitting  them to enter those                 
  services, the regulation would  not let them incur debt  for                 
  these  services  that would  put  the regulated  services at                 
  risk.                                                                        
                                                                               
  Mr. Jackson said ATU had premised their entry into these new                 
                                                                               
                                                                               
  markets  on  the  fact  that  this federal  legislation  was                 
  pending and believed that it was going to pass.  Amendment 2                 
  would  not  allow  these companies  to  use  their regulated                 
  monopoly  as  collateral for  new  businesses, or  put their                 
  basic  services  at risk  by going  into  new ventures.   In                 
  answer to Senator Kerttula, Mr.  Jackson said they should be                 
  able to get money because a business should stand on its own                 
  two feet.  Mr. Jackson said that press releases from ATU had                 
  stated that this legislation would  prohibit them from going                 
  into competition or issuing bonds.  He said that was not the                 
  intent.                                                                      
                                                                               
  In answer  to Senator  Sharp,  Mr. Jackson  said there  were                 
  different degrees of separation in other states by utilities                 
  when  entering unregulated  businesses.   Ms.  Tindall added                 
  that under present  statute, APUC would  be required to  set                 
  rates for  its main  business to  cover any  default of  the                 
  separate subsidiary.  She went  on to say the intent of  the                 
  proposed  amendment 2 was to  put ATU and other municipally-                 
  owned utilities that are  rate regulated by the APUC  on the                 
  same footing as anyone else going to the bond market.                        
                                                                               
  Mr. Jackson felt the legislature  did not envision utilities                 
  going  into  competitive  services   and  had  offered  that                 
  protection when utilities gave very basic service.                           
                                                                               
  MICHAEL BURNS, Chairman of the Board of Directors, Anchorage                 
  Telephone  Utility  (ATU),  introduced  Gary Lucken,  Acting                 
  General Manager,  Anchorage  Telephone  Utility  (ATU),  and                 
  thanked  the committee for  the opportunity  to speak  to SB
  213.  He said the Board of  Directors for ATU was created by                 
  the voters of  Anchorage in 1991.   At that time  the voters                 
  chose not to  sell the  company but establish  the Board  of                 
  Directors  which  indicated  a desire  that  the  company be                 
  operated and compete in accordance  with prevailing industry                 
  practices.  In February of this year, ATU announced that the                 
  company intended to complete five  fibre rings in Anchorage,                 
  enter  the   long  distance  business  through   a  separate                 
  subsidiary,  and  begin a  pay-for-view  video project.   He                 
  believed this  was in keeping with the  instruction from the                 
  people in Anchorage.   Prior to that announcement, a  survey                 
  was done and convinced ATU that was the wish of the voters.                  
                                                                               
  Mr.  Burns said there were several  reasons for ATU entering                 
  the  long  distance market.    First, analysis  indicated it                 
  would be profitable.  He said  ATU lowered its long distance                 
  charges last year and none of the money made its way back to                 
  consumers in Anchorage.   He  said federal legislation  that                 
  could  be  passed  this year  would  accomplish  three major                 
  goals.   One, open local markets to competition, two, remove                 
  the  prohibition  against   telephone  companies  and  cable                 
  companies from entering each  other's businesses, and three,                 
  free the Bell operating companies from restrictions on their                 
  entry  into long  distance and  other  businesses.   He said                 
                                                                               
                                                                               
  ATU's competitors and                                                        
  ATU's desire to  access Anchorage  to the information  super                 
  highway were reasons ATU was so adamant about entering these                 
  fields.                                                                      
                                                                               
  Mr. Burns said  ATU opposed  amendment 2 for  Constitutional                 
  reasons and because of the mandate from the voters.  MCI and                 
  GCI  had  publicly announced  their  intention to  enter the                 
  local  markets  and  now  were  asking  the  legislature  to                 
  restrict  ATU's ability to compete.   He maintained that ATU                 
  must be  allowed to  compete in  accordance with  prevailing                 
  industry  practices  or the  people  of Anchorage  would see                 
  their asset  value  reduced  substantially.    Finally,  the                 
  pending federal legislation he had  mentioned earlier, would                 
  open the local market to competition, and, if this amendment                 
  passed, it would be successful  in restricting ATU's ability                 
  to compete in  all areas.  He again urged  the committee not                 
  to pass amendment 2.                                                         
                                                                               
  In  answer to Senator Kelly, Mr. Burns said that none of the                 
  costs related to  MacTel (ATU's  cellular phone  subsidiary)                 
  were passed on to the customer.                                              
                                                                               
  MARK FOSTER, private consultant in utility issues, engineer,                 
  and former APUC Commissioner, said the "liberally construed"                 
  clause  represented  a fair  and  level balance  between the                 
  utilities and the  Commission, and was consistent  with most                 
  of  the  statutory  authority  in   commissions  across  the                 
  country.  He felt a specific  example would help address the                 
  situation.  In reference to  the bond covenant in  amendment                 
  2, what  the amendment did was protect  monopoly rate payers                 
  from  subsidizing   services  they  did   not  receive,  and                 
  protected competitors from  predatory pricing.  He  felt Mr.                 
  Burns had made an argument in support of amendment 2 when he                 
  indicated  MacTel's losses had not found  their way into the                 
  regulated  side  of   the  house.    This   amendment  would                 
  statutorily  make sure that did  not happen.  Under existing                 
  statute, if those  expansions were  bond funded, they  could                 
  have put some of those losses  to the regulated rate payers.                 
  He  encouraged  adoption of  amendment  2 as  reasonable and                 
  consistent to federal legislation.                                           
                                                                               
  In answer to Senator Kerttula, Mr. Foster posed the question                 
  "would  you  allow  a firm  that  has  a  monopoly base,  to                 
  leverage that  base of  rate payers, and  use the  borrowing                 
  power  available,  to get  into  competitive services?"   He                 
  pointed out that the Consumer  Federation of America and the                 
  American Association of Retired Persons  had made this issue                 
  one of their top  priorities in legislation.  He said he was                 
  testifying  for public  interest and  had not been  hired by                 
  anyone.                                                                      
                                                                               
  In answer to Senator Rieger, Mr. Foster said the traditional                 
  approach, when there was a monopoly and a competitive market                 
                                                                               
                                                                               
  within the same  firm, was to  try and separate the  profits                 
  and losses out so there were no cross subsidies.  Mr. Foster                 
  said it was  consistent with  federal provisions in  pending                 
  legislation.  He cited voice  mail as a good example.   Many                 
  small entrepreneurs  were trying to get into the business of                 
  providing voice mail  and voice mail services  in Anchorage.                 
  This  kind  of  entrepreneur  was  not  protected  if  large                 
  utilities were  allowed the  flexibility to cross  subsidize                 
  their services and offer services like voice mail at near or                 
  below cost because  they had monopoly  rate payers to  cover                 
  those losses.   He  encouraged the  committee to  retain the                 
  "liberally construed" language and adopt amendment 2.                        
                                                                               
  Co-chair  Frank asked  if there  was any statute  that would                 
  prohibit ATU  from setting up  a subsidiary and  moving some                 
  amount of net worth into that  subsidiary and borrow against                 
  that equity.   Mr. Foster said he  did not know if  he could                 
  answer  that  question  today.    He  said  there  could  be                 
  arguments  where the equity would  be coming from -- whether                 
  it  was either  from the  monopoly rate  payers or  retained                 
  earnings as property of the shareholders.  They continued to                 
  discuss this situation.                                                      
                                                                               
  Co-chair  Pearce announced  that  SB 213  would  be HELD  in                 
  committee and asked  Co-chair Frank and Senator  Kerttula to                 
  research new language for a committee substitute.                            
                                                                               
  CS FOR HOUSE BILL NO. 453(FIN):                                              
                                                                               
       An  Act  establishing,  for purposes  of  the  levy and                 
       collection of  the motor  fuel tax  and  for a  limited                 
       period, a different tax levy  on residual fuel oil used                 
       in  and  on certain  watercraft;  and providing  for an                 
       effective date.                                                         
                                                                               
  Co-chair  Pearce  announced  that  HB  453  was  before  the                 
  committee and invited Representative Gary  Davis to join the                 
  members  at the table.   She said  that HB 453  could not be                 
  moved today because the  Senate version of the bill,  SB 327                 
  had been noticed instead of HB 453.                                          
                                                                               
  REPRESENTATIVE GARY DAVIS  said that  CSHB 453(FIN) was  the                 
  same bill as companion bill, SB 327.  He  felt it was a good                 
  economic  development bill  that promoted  Alaska's product,                 
  established  jobs,  and  promoted  some  additional  taxable                 
  infrastructure.  He pointed out reducing the motor fuels tax                 
  on residual oil  seemed untimely  but that 5  cents tax  was                 
  stifling sales of residual  oil.  The prime use  of residual                 
  oil  was by  cruise  ships.   The  CS of  HB  453 carried  a                 
  guarantee that the  state would not lose  revenue from sales                 
  of residual oil.   The cruise  lines used it as  bunker fuel                 
  which was  a blend of residual oil plus #2 diesel, on a 1 to                 
  9 ratio.  There would be  the potential of selling 40M  plus                 
                                                                               
                                                                               
  gallons to the cruise lines.                                                 
                                                                               
  Senator Kerttula asked if a sunset provision should be added                 
  to this bill.   Representative Davis  said that there was  a                 
  four year sunset in the bill.  He agreed  that it was a good                 
  clause so the  legislature could review assumptions  made in                 
  this bill.                                                                   
                                                                               
  In answer to Co-chair Frank, Representative Davis said there                 
  was a tourist year in the bill rather than a FY or CY.                       
                                                                               
  Co-chair Pearce announced  that CSHB 453(FIN) would  be HELD                 
  in committee.                                                                
                                                                               
  CS FOR SENATE BILL NO. 371(RES):                                             
                                                                               
       An Act providing for exploration incentive credits  for                 
       activities  involving  locatable and  leasable minerals                 
       and coal  deposits on  certain land  in the  state; and                 
       providing for an effective date.                                        
                                                                               
  Co-chair  Pearce  announced  that  SB  371  was  before  the                 
  committee.                                                                   
                                                                               
  At  this  time  the  meeting  was  joined  by Steve  Borell,                 
  Executive   Director,   Alaska   Miner's  Association,   via                 
  teleconference from Anchorage.                                               
                                                                               
  End SFC-93 #73, Side 1                                                       
  Begin SFC-93 #73, Side 2                                                     
                                                                               
  STEVE BORELL said he would testify in support of SB 371.  He                 
  said  the  stages  of  a  project   were  broken  down  into                 
  exploration,  development,  and actual  production.   It had                 
  been  estimated  that  for  every  project that  becomes  an                 
  operating mine, major mining companies would  investigate at                 
  least  1,000 exploration  targets.   If the  results of  the                 
  initial investigation were encouraging the evaluation effort                 
  was  expanded  to  include  more   tests  and  drilling  was                 
  increased to  smaller spacing.   Drilling  was necessary  to                 
  prove minable deposits.   Once the drilling  had defined the                 
  deposit to be economical, bulk samples of several tons would                 
  be taken and tested for metallurgical recovery and to define                 
  the type  of  milling and  recovery  process that  would  be                 
  required.   At this point,  there was still  no mine  or any                 
  guarantee that there would be one.  The exploration stage of                 
  the  project then ends  when a  feasible study  was complete                 
  which  could  convince  the  financial  markets  to  provide                 
  funding to build the project.                                                
                                                                               
  At that point, the project moved into the development stage.                 
  The  bill would no longer apply to this part of the project.                 
  He talked  to people  at the Red  Dog Mine, and,  in general                 
                                                                               
                                                                               
  terms,  from   1977-86,  approximately  $25M  was  spent  on                 
  exploration work.  In 1987-89, the development period, $350M                 
  was  spent   on  actual  construction  of   facilities  (not                 
  including the road  which was an  additional $100M+).   From                 
  November 1989 to  present, during the operating  mode, there                 
  has  been  an  annual  payroll of  $25M  a  year,  operating                 
  supplies and services of  about $35M a year, and  fuel costs                 
  of about $10M for a total annual cost of $70M a year.                        
                                                                               
  Mr. Borell went on to explain that this credit was a minimal                 
  amount of money but significant because of where it appeared                 
  (in the exploration  stage) and  the encouragement it  could                 
  give a company.                                                              
                                                                               
  Senator Kerttula agreed that mining  was a tough occupation.                 
  He said he was  worried about school taxes and would like to                 
  figure out a way to recover those costs.  Since there was no                 
  state income  tax, it  was harder to  do that.   He  did not                 
  agree with giving any credit for non-residents.                              
                                                                               
  In response to  Senator Kerttula's remarks, Mr.  Borell said                 
  the only people  hired that  were non-residents were  highly                 
  technical people that might  not be able to be found  in the                 
  state.  In the  case of big companies, one  technical person                 
  might follow projects all over the  world.  Senator Kerttula                 
  still  was   opposed  to  giving  non-residents   credit  in                 
  development.                                                                 
                                                                               
  GERALD   L.  GALLAGHER,   Director,   Division  of   Mining,                 
  Department of  Natural  Resources, said  the department  had                 
  some concerns about  SB 371.   The primary problem was  that                 
  the mining  industry contributes  so little  to the  general                 
  fund and  creating a back door  out of the general  fund did                 
  not seem like  good policy.   He  felt this  type of  credit                 
  would become the new "floor" and after six months  or a year                 
  it would be forgotten that it was an incentive.  One example                 
  was the mining license  tax that changed about a  decade ago                 
  to give the mining industry a 3-1/2 year exemption at start-                 
  up from paying that fee.  The intent was to let them recover                 
  their initial costs.   He pointed out that the  royalties of                 
  locatable  minerals  was  3  percent  of  net  again.    The                 
  Department was concerned  that incentives  would become  the                 
  new "floor".  Senator  Kerttula agreed that Alaska  was very                 
  developmentally minded and encouraging in these programs.                    
                                                                               
  Mr. Gallagher said the  state royalty on coal was  5 percent                 
  of  the adjusted  gross  or about  $1/ton  depending on  the                 
  deposit.   That  was the low  or middle of  what most states                 
  charge for coal.  The royalty  on relocatable minerals was 3                 
  percent of  the net and that  was very low in  comparison to                 
  other states.                                                                
                                                                               
  In  answer to  Senator  Rieger, Mr.  Gallagher said  that he                 
  thought  the bill would  not include credit  for drilling at                 
                                                                               
                                                                               
  the  edge  of a  deposit  to prove  or  delineate additional                 
  reserves since that was development and not exploration.                     
                                                                               
  DAVID ROGERS, lobbyist, Council of  Alaska Producers, a non-                 
  profit corporation that consisted  of a number of the  large                 
  hardrock mining companies doing business  in the state, said                 
  they supported SB 371.   He pointed out that  the Department                 
  of Natural Resources was taking a different view of the bill                 
  than they had  previously expressed in  the House.  He  also                 
  wanted to point  out that the  emphasis on the general  fund                 
  was misleading.   He thought it was not clear  if the impact                 
  would be positive or negative.                                               
                                                                               
  In  answer  to   Senator  Rieger's   previous  question   of                 
  developmentally  drilling, Mr.  Rogers thought  those issues                 
  should be clarified in regulations.  Senator Kelly suggested                 
  those issues  be outlined in the  bill.  Mr. Rogers  did not                 
  object to that.                                                              
                                                                               
  Discussion was  had by  Co-chair Frank,  Senator Kelly,  and                 
  Kerttula regarding tax  policy for  resource development  in                 
  the state.                                                                   
                                                                               
  KENT  DAWSON, also  a lobbyist  with the  Council of  Alaska                 
  Producers, said the  state of  Alaska owned a  lot of  land,                 
  there were minerals out there, and the idea was to encourage                 
  exploration and be competitive with the rest of the world in                 
  the development and production stages of a project.                          
                                                                               
  Senator Kelly pointed out that SB 371 would cover private as                 
  well as state land.                                                          
                                                                               
  Mr. Dawson said the state's  tax structure also effected all                 
  land so the state was in charge of adjusting that structure.                 
                                                                               
  In  answer to Senator  Rieger, Mr. Rogers  said according to                 
  his memory, the annual exploration budget of firms operating                 
  in  Alaska  was   approximately  $28M  last  year   and  was                 
  decreasing.  Mr. Dawson said that companies made choices and                 
  decisions and one factor depended  on the regulatory climate                 
  and   the  apparent  willingness  of  the  jurisdiction  for                 
  acceptance.    He  had  heard a  positive  response  to  the                 
  possibility of an  incentive credit available in  Alaska for                 
  exploration.                                                                 
                                                                               
  Senator Kerttula made his point again that he was opposed to                 
  hiring non-residents and he did not want to encouragement it                 
  in  any way.  Mr.  Rogers said that  it was a  cost of doing                 
  business  and that  cost should not  be penalized.   Senator                 
  Kerttula reiterated his opposition to giving credit for non-                 
  resident hire.                                                               
                                                                               
  Senator Kelly requested  that Mr. Rogers draft  new language                 
  delineating  what  would  qualify  for  exploration  credit.                 
                                                                               
                                                                               
  Senator Kerttula said  he would like to propose an amendment                 
  to modify or reduce the non-resident credit.                                 
                                                                               
  Co-chair  Pearce announced  SB 371 would  be HELD  until new                 
  language or amendments could be drafted.                                     
                                                                               
  SCHEDULED BUT NOT HEARD:                                                     
                                                                               
  SENATE BILL NO. 333:                                                         
                                                                               
       An  Act  relating  to   disclosure  of  close  economic                 
       associations  by  certain state  employees  and to  the                 
       prohibition against nepotism in the executive branch of                 
       state government; and providing for an effective date.                  
                                                                               
  SENATE BILL NO. 350:                                                         
                                                                               
       An   Act  relating   to  a  defendant's   violation  of                 
       conditions of release;  and providing for an  effective                 
       date.                                                                   
                                                                               
  CS FOR HOUSE BILL NO. 119(JUD) am:                                           
                                                                               
       An  Act  authorizing  a sentencing  court  to  impose a                 
       sentence  of  a day  fine  instead  of  a  sentence  of                 
       imprisonment on a defendant convicted of a misdemeanor;                 
       directing  the  Alaska  Supreme  Court  to develop  and                 
       implement a day  fine plan; requiring the  Alaska Court                 
       System to report to  the legislature on the use  of day                 
       fines; amending  Alaska Rule of Criminal  Procedure 32;                 
       and providing for an effective date.                                    
                                                                               
  ADJOURNMENT                                                                  
                                                                               
  The meeting was adjourned at approximately 11:05 a.m.                        

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