Legislature(2001 - 2002)
06/12/2002 01:07 PM Senate JUD
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE JUDICIARY COMMITTEE
June 12, 2002
1:07 p.m.
MEMBERS PRESENT
Senator Robin Taylor, Chair
Senator Dave Donley, Vice Chair
Senator John Cowdery
Senator Johnny Ellis
MEMBERS ABSENT
Senator Gene Therriault
COMMITTEE CALENDAR
Regulatory Commission of Alaska
PREVIOUS SENATE COMMITTEE ACTION
No previous action to record.
WITNESS REGISTER
Mr. Harold Furchtgott-Roth
American Enterprise Institute for
Public Policy Research
Washington, D.C.
Mr. Joe Griffith
General Manager
Chugach Electric Association
5601 Minnesota Drive
Anchorage, AK
Mr. Gene Bjornstad
Chugach Electric Association
5601 Minnesota Drive
Anchorage, AK
Mr. Bruce Davison
President
Chugach Electric Association
5601 Minnesota Drive
Anchorage, AK
Ms. Jeanne McPherren
2100 Tasha Dr.
Anchorage, AK
Mr. Dave Stancliff
Former Legislative Assistant
No address provided
Mr. Eric Yould
Alaska Rural Electric Cooperative Association
703 W. Tudor
Anchorage AK
Mr. Jack Rhyner
TelAlaska Inc.
201 E 56th Ave.
Anchorage AK
Mr. Steve Kohn, Executive Director
Alaska Public Information and Research Group (AkPIRG)
507 E Street
Anchorage, AK
Ms. Kristi Catlin
Director, Government Relations
AT&T Alascom
Anchorage, AK
ACTION NARRATIVE
TAPE 02-35, SIDE A
Number 001
CHAIRMAN ROBIN TAYLOR called the Senate Judiciary Committee
meeting to order at 1:07 p.m. Senators Donley, Cowdery, Ellis and
Chairman Taylor were present. Senator Wilken noted his presence
via teleconference.
[THE FOLLOWING IS A VERBATIM TRANSCRIPT]
CHAIRMAN TAYLOR: ... for the Governor's call of a special session
to be held on the 24th on this subject and such others as he
wishes to raise. With that, I would call upon the first witness.
SENATOR ELLIS: Mr. Chairman?
CHAIRMAN TAYLOR: Yes.
SENATOR ELLIS: Can I make a request for you to review the agenda
for today and tomorrow? I note that you put as the last item on
the second day of the hearing 'public testimony if time allows.'
That concerns me. There are a number of members of the public,
since no public hearing has ever been held in Juneau during the
regular session on this bill, as I thought it should have been,
public testimony may get lost here at the end unless you
specifically make time.
CHAIRMAN TAYLOR: We'll have testimony at the end of today's
hearing if we can fit that in. I didn't know how long these
people might take in their testimony, Senator Ellis, and it's
certainly our intent to not only do so here if we can, but also
during the next series of hearings that will be held on the 20th
and 21st.
SENATOR ELLIS: Item number six for today is testimony by others
who may be called by the committee. [Indisc.] Who that might be?
CHAIRMAN TAYLOR: I don't yet. If, in fact, I know that I was
asked today by Mr. Stancliff to include his testimony, which
we've placed in the packet. He's available. I had hoped that we
would be able to get through the [indisc.], but I don't have any
preconceived list [indisc.].
SENATOR ELLIS: I've been contacted by some folks who are anxious
to [indisc.] public testimony - Jim Rowe, Jack Rhyner, Mr. Don
Reed so - and I understand there's a whole list of others as well
who would like to give public testimony so I'm hoping that you'll
accommodate that in the agenda and not let us - not that you
would purposely let us run out of time - but the public testimony
as the last item be considered to be moved up on the agenda.
CHAIRMAN TAYLOR: Well, we need to get through these first. I'd
consider that, I will. I will do everything we can to accommodate
them. I talked to several of the people, which you've mentioned,
and they have already submitted written testimony and letters to
the committee and they are available within the files so....
SENATOR ELLIS: Well, I hope you will consider the request.
CHAIRMAN TAYLOR: Sure.
SENATOR DONLEY: Senator Taylor?
CHAIRMAN TAYLOR: Yes.
SENATOR DONLEY: I just want to note that I am on jury duty this
week. My group was not - well we were called today but we didn't
have to serve but I am still subject to jury call for tomorrow so
I will be here. If I'm not I'm over at the courthouse. I
appreciate this effort.
SENATOR WILKEN: Senator Taylor?
CHAIRMAN TAYLOR: Yes.
SENATOR WILKEN: This is Gary Wilken in Fairbanks. I'm in my
Fairbanks office and I'll plan on being with you this afternoon
by teleconference.
CHAIRMAN TAYLOR: Well thank you for attending, Gary. I guess
that we have a couple of others on line also.
SENATOR WILKEN: And Senator, if I could ask you, Senator Taylor?
CHAIRMAN TAYLOR: Yes, go right ahead.
SENATOR WILKEN: If I could ask you - I could hear Senator Ellis
just fine but Senator Donley and yourself are coming through a
little weak so if you could come up to that microphone I think we
would all appreciate it.
CHAIRMAN TAYLOR: Sure. Does that help at all Gary?
SENATOR WILKEN: Yes, that's much better.
CHAIRMAN TAYLOR: Okay. The first witness to testify will be
Harold Furchtgott-Roth. Is that right?
MR. FURCHTGOTT-ROTH: Very good, sir.
CHAIRMAN TAYLOR: Could you raise your right hand please? Do you
swear to tell the truth, the whole truth, and nothing but the
truth so help you God before this committee?
MR. FURCHTGOTT-ROTH: I do.
CHAIRMAN TAYLOR: Thank you. Please proceed.
MR. FURCHTGOTT-ROTH: Thank you Mr. Chairman. It's a great honor
for me to appear before this committee. As I will describe, I
have a great attachment to the state of Alaska. I understand the
purpose of this hearing is the reauthorization of the Regulatory
Commission of Alaska. I have not come to tell you what to do.
Your duty is to your constituents, not to the federal government,
much less the private citizens from other states. Mr. Chairman, I
have lengthy testimony that I'd like to have entered into the
record but I will try to just present an abbreviated form of
this. If, at any point during my testimony, you wish to ask me
questions, please feel free to interrupt me. I'm here to help in
any possible way that I can.
SENATOR ELLIS: Mr. Chairman, I guess I have a question at the
outset. Did the committee pay for your travel to Alaska or are
you on your own dime or anyone else's dime to attend these
proceedings?
MR. FURCHTGOTT-ROTH: As I will explain in my testimony, Sir. I
have in the past been a consultant to ACS Alaska and they paid
for my airfare here today.
SENATOR ELLIS: Thank you.
CHAIRMAN TAYLOR: Would you just start off with a resume please
and what your background experience is and I guess if you could
say that first and then go into your testimony and, of course,
your written testimony will be made a part of the record.
MR. FURCHTGOTT-ROTH: Yes, Mr. Chairman. I am currently a visiting
fellow at the American Enterprise Institute in Washington where
I'm working on a book on the Telecommunications Act of 1996. From
November of 1997 through May of last year, I served as a
commissioner at the Federal Communications Commission. In that
capacity, my other responsibilities are review, deliberate, and
better [indisc.] all matters before the FCC. I worked for many
years as an economist from 1995 to 1997. I was chief economist
for the House Commerce Committee where, among other things, I was
one of the principal staff members working on the
Telecommunications Act of 1996. From 1998 to 1999, I served as
the senior economist for a consulting firm called Economists,
Incorporated, where I worked on many different matters. From 1984
to 1988 I was a research analyst for the Whitman Center for Naval
Analyses. [Indisc.] eventually worked on [indisc.] projects. I
earned a PhD in economics from Stanford University and I have an
undergraduate degree in economics from MIT.
Mr. Chairman, I have advised ACS in the past. I have a great
regard for the company and its management. My views are not
necessarily those of ACS; my views are my own. I have offered
advice to companies afflicted by all manners of regulation -
competitors and incumbents alike, broadcasters and cable
companies alike. Much of America is a battleground between large
regional Bell operating companies [RBOCs], on the one side, and
formerly large competitive carriers on the other. I'm not
partisan in these fights. I have no view as to which company
should succeed or fail, nor do I believe that that is the proper
issue for government to contemplate. I have not come to say bad
things about any company and particularly not about GCI. I have
only the utmost respect for private businesses trying to make a
profit in America.
I do have consistently strong views about one matter and that is
that laws should be followed by private parties and, even more
importantly, by the government. Property contracts and liability
rules are the building blocks of all economic activity. If they
are predictable and enforceable by private parties, economies
thrive. If they are not enforceable, or only at the discretion of
the government, economies flounder. To an economist, competition
is about using property contracts and assets to provide services
to customers as efficiently as possible with an awareness that
other firms are doing exactly the same. It is not about competing
to see who can carry the most favor with the government agency to
hobble other firms in the market. The typical advice I give to
companies is not so much how to succeed in business as about how
to convince the government to follow the law. Sadly, it is an
all too common problem. Most regulatory problems have their
origin not in bad business behavior by private parties, nor even
so much as bad laws or bad regulations, but rather in the
unwillingness of government agencies to follow the very laws
entrusted to them. Over the years I've worked closely with the
states and state officials, including governors, legislators and
regulators, from education to the environment, from roads to
public safety. Most government in America is at the state and
local level. You have an enormous responsibility.
The Nobel Laureate, Milton Friedman, wrote eloquently on
capitalism and freedom - about the close relationship between
free markets and political liberty. In the same book, he also
emphasized the importance of having as many political decisions
made as closely as possible to the decentralized levels of
government, closest to the people. Such a framework of
government, as is America's, is the most conducive to free
enterprise. Every state is looking for more investments and
investment is not more, and nothing less, than a contract for
property. Where the rights to property are eroded, where the
rights to contracts is limited, investments will decline. This is
not the result of complicated economics. It is simply common
sense.
As an FCC Commissioner, I visited Alaska in July of 1998 and May
of 2000. I traveled around the state meeting with state
officials, municipal officials, industry representatives, tribal
councils, teachers, and anyone I could possibly meet with. And I
met with state regulatory commissioners. I traveled with
Commissioner Jim Posey in 1998 and Nan Thompson in 2000. I gave a
few speeches but mostly I came to listen and to learn. I traveled
to cities such as Anchorage, Fairbanks, Juneau and Ketchikan. I
traveled to small towns such as Whittier, Galena, and Dillingham,
and I traveled to villages such as Tanana, Nuiqsit, Deadhorse,
Huslia, Aniak, and smaller settlements without names. Of all I
have seen in Alaska I am grateful. Yet, I've seen very little of
the state, not nearly enough.
As an FCC Commissioner, I took a special interest in Alaska,
partly with the kindness and interest of Senator Stevens and his
staff who wanted to be sure that I understood the problems of
your state. But having visited Alaska, it was hard not to take an
interest in it.
I've traveled much of the world. I've met many people but there
are few places I yearn more to see than Alaska. Alaskans are
fortunate people. You live in some of the most beautiful majestic
land in the world. I have no illusions that life here is easy. To
the contrary, your life is a daily challenge. Climate, geography,
remoteness and darkness conspire to make life less comfortable
and less convenient than a sedentary life available to us in the
Lower 48. It is a part of the difficulty of life here in Alaska
that both attracts and shapes the rugged individuals, people who
look to themselves to solve most of their problems. To see Alaska
is to see the future of America. This is where new opportunities
lie. This is where growth will occur. This is where new
investments will be made and new jobs created. Economic growth
will come to Alaska and not just because of beauty and natural
resources. Laws must make sense as well, laws that protect
property and contract interests.
At first blush, Alaska is the great success story of the
Telecommunications Act of 1996. Residents in the largest
communities have choice for local, long distance and broadband
access services. Telecommunication prices have fallen. More than
50 percent of Anchorage residents use a competitive service.
Universal service continues in rural areas. Beneath the surface
is a different story. Yes, consumers have choices, but it's
competition primarily for different providers on the same
network, not competing networks. Moreover, a government agency
compels one private party to provide services to another private
party at rates determined not by negotiations, but by state
central planning. Investment decisions are distorted by
government decisions, all of which erode incentives to invest.
Some private companies are in financial distress directly as the
result of government decisions. Throughout, there are legitimate
concerns about process, about whether laws are followed, about
whether government agencies feel compelled to follow the law.
Which is the real story about telecommunications in Alaska - the
one on the surface or the one below the surface or perhaps both
or perhaps neither?
Has the role of the RCA been to champion private decisions about
the use of property and contracts? What about the RCA's role to
determine the outcome of transactions between private parties? If
so, have these determinations been as minimally invasive as
possible and consistent with the law? Has the RCA done as the
legislature would choose or are there areas where it could be
predictably improved? No simple answers are available. Those are
adjustments that you alone can make. I can offer some advice on
how to frame the issues and share a few observations on the
specific issues that I follow.
I am currently writing a book on the implementation of the
Telecommunications Act of 1996. In getting closer to writing the
book, I've thought much about how to evaluate laws and government
institutions. In my view, the Telecommunications Act of 1996 has
been grossly misinterpreted. The obvious question is: What can or
should be done about it? The answer is not obvious.
1:22 p.m.
Misapplications of broken laws show poor exercises of judgment.
These are not exceptional events in either the public or private
sector. They go together with the brilliant insights, the
fortunate guesses, the hard work and efforts that make up daily
life. Institutions and laws can do a perfect and wonderful job
and still be rationally phased out. For example, at the end of
every war military forces are demobilized rather than kept on
indefinite active duty. On the other hand, a poorly performing
law or institution may still be better than no institution.
Government agencies that might plausibly have had an opportunity
to detect and stop the terrorists last year may have performed
below hopes, but it does not necessarily follow that they should
all be abolished. How can the effectiveness and longevity of
public laws and institutions be evaluated?
In my book I focus on three forms of liberty that public laws and
institutions should protect; political liberty (the public's
choice and control of their government), economic liberty (the
individual's relationships for property and contracts with other
individuals); and what I've termed administrative liberty (an
individual's freedom from abusive treatment by government). I
used these three areas of liberty to evaluate the
Telecommunications Act of 1996. While the Act reflects progress
on the first two forms of liberty, it has had substantial
failings on administrative liberty.
Questions that the legislature might consider, regarding the RCA,
are as follows: Under political liberty, has the RCA been
responsive to the legislature and to the people of Alaska? For
economic liberty, has the RCA respected and enforced property and
contract rights of private parties in Alaska consistent with
relevant laws? Has the RCA enforced liability rules or does it
violate property and contract laws? Are the cumulative economic
and social benefits of the RCA decisions greater or lesser than
the cumulative costs of those decisions? Administrative
liberties, has the RCA interpreted relevant laws with the
clearest, most predictable meanings in an air that can stand
judicial review? Are processes predictable, expeditious and
consistent with administrative law? Has the RCA treated all
parties before it equally and fairly within the law? Have parties
before the RCA felt at liberty to appeal unfavorable rulings
without fear of retribution? I know the answer to some of these
questions in the context of the FCC but I do not pretend to know
the answers to these questions with respect to the RCA.
I hope this framework may be of some use to you as you consider
the RCA. It is easy to point to the failings of government and
government officials. Each of us is human and fallible. Whether
in private life or in public office, none of us is beyond
reproach. None of us would willingly submit to microscopic review
of our every move, our every motive. Each of us has made a great
many mistakes. We do not become perfect or beyond reproach merely
by entering public office. No matter our intentions or efforts,
we still make mistakes. The mistakes of the FCC, many of which I
contributed to, are legion. It is an imperfect institution. I'm
familiar with the strengths and weaknesses of the FCC. I am far
from familiar with the same details for the RCA. At the same
time, it would be inappropriate for a legislative body to turn a
blind eye to the possibility of improving government. Laws are
made by legislators and the purpose of laws is to make
improvements where they can be obviously made.
My first job in government was for Congress. I hold the
legislative body to be the highest form of government. Yours is a
solemn undertaking. Despite the sentiment of those who live in
Washington, I firmly believe that all of the wisdom of America is
not to be found in Washington, D.C. Indeed, I often find that the
views of proper government improve with distance from Washington.
It is no surprise to me to find that the good people of the
Alaska Legislature have developed two brilliant innovations in
government management. The first innovation is the sunsetting of
authority for government agencies. Other than legislatures,
government institutions need not be permanent. The institutions
of the federal government change over time with awkward
transitions. New institutions are occasionally required, much as
President Bush last week called for a new Cabinet agency for
Homeland Security. But as new institutions are required, the need
for existing ones can wither away. Some institutions remain
protected beyond any reasonable purpose. Thus, if the Federal
Interstate Commerce Commission had been abandoned years before
its ultimate demise, the United States could not have been the
worse for it.
In the past 25 years, sunset provisions have been inserted into
Congressional legislative language but usually just for specific
sections or provisions. The Telecommunications Act of 1996 has
several sunset provisions. Sunset provisions have three clear
purposes. First, legislators believe that a provision need not
necessarily remain in place indefinitely. Second, the duration of
the provision may depend on information that can only be revealed
in the future, not at the time of the initial legislation. And
third, legislators today may wish to establish the relevant test
and procedures, including the burden of proof, to continue a
provision beyond an established date. Of course, a future
legislature has the prerogative of writing new laws to extend the
authority but that is based on the legislative authority and
burden of the new legislature.
Alaska has extended the concept of the sunset for a specific
section of the statute for sunset of authorization of an entire
agency. Presumably, the Alaska Legislature believed that at some
future date, the Regulatory Commission, as currently constituted,
may no longer be necessary. The exact information necessary to
continue the RCA was not known at the time of the original
legislation but the burden of proof to continue the agency was
clearly placed on the state legislature. That's presumably the
purpose of this hearing.
1:27 p.m.
To sunset an agency is not an unnatural event. It is not the end
of the world. Alaska has direct experience with the closing of a
regulatory agency. No calamity resulted. Federal funds to the
state did not cease. Universal service remained in place. The
former regulatory agency was immediately replaced by a new one.
The new agency was known to be governed by a specific sunset
provision. The new agency knew that it was accountable to the
legislature and it would be periodically evaluated. Even if
Alaska had not created a new regulatory agency, the rights and
obligations of carriers and citizens of Alaska under federal
communications law would not have ended. The Communications Act
of 1934 and the Telecommunications Act of 1996 do not place
unfunded mandates on the State of Alaska or any other state. The
state alone chooses whether to fund a regulatory agency to
implement those provisions of the Act, which are reserved for
state control. If the state chooses to fund such an agency, or if
the state agency were to decline to perform such activities, the
FCC is obligated to perform them. It is not without precedent.
Within the past two years, the Virginia Corporation Commission
refused to arbitrate a Section 252 contract under the
Telecommunications Act. The FCC was forced to provide the
arbitration.
CHAIRMAN COWDERY: Did you misstate on the first sentence there -
you said if the state chooses to fund an agency. Did you mean not
to fund an agency?
MR. FURCHTGOTT-ROTH: Yes sir, you're quite correct. If the state
chooses not to fund. Yes sir.
CHAIRMAN TAYLOR: One more word - we're kind of at a break here
anyhow - ask just one thing. We've got several people [who wrote]
to the committee concerned about the pass-through of funds for
universal services because they've basically been threatened by
the current RCA members if, in fact, they go into their grace
period, which they're in right now, that they would not be able
to convey these funds through federal law because they wouldn't
have the time to rubberstamp them or do whatever it is they do to
[indisc.] those funds. Are you saying within this section of your
testimony that the FCC would make certain that those funds were
conveyed to those people if such an agency did not exist or
refused to convey them?
MR. FURCHTGOTT-ROTH: Senator, the federal universal service fund
depends on states to designate [indisc.] its telecommunication
carrier status on carriers but, based on my understanding, these
funds would not suddenly cease to flow to carriers depending on
the status of the RCA or any other state commission.
CHAIRMAN TAYLOR: Go right ahead. I'm sorry I interrupted you.
MR. FURCHTGOTT-ROTH: The second innovation in Alaska in the area
of good government is a practical cost benefit analysis of
telecommunications regulation as it affects the economic
environment in the state of Alaska. Government activity is for a
broader good; it is not an end unto itself. Moreover, there must
be and are ways of measuring how well government performs
regulation. Measuring performance of government activities is not
a novel idea. In education, for example, President Bush and
others have emphasized measuring the academic performance of
students as a means of evaluating the effectiveness of
educational programs. It is a simple concept, though one that is
applied to surprisingly few government programs. At the federal
level, there are no such evaluations for telecommunications
regulation. I believe that federal communications regulation
would be much more accountable and effective if there were
periodic evaluations of efficacy. (Indisc.) The evaluation of the
Alaska telecommunication industry will provide the state
legislature with much of the information that it may need in
evaluating the sunset review of the RCA.
CHAIRMAN TAYLOR: Are you then referring to the study that the
legislature has - and the Administration just recently let - on
telecommunications?
MR. FURCHTGOTT-ROTH: Yes sir.
CHAIRMAN TAYLOR: Okay, thank you.
SENATOR ELLIS: Mr. Chairman, I had a question. A minute ago you
made a charge that people have been threatened about pass-through
of the universal services money. Did you...?
CHAIRMAN TAYLOR: I've got several letters from them - that
they've been told that the RCA going into its wind-down year
would not be able to certify them to the federal government and
thus their funds for universal services might be in jeopardy. I
had a discussion with one gentleman on this just last night.
SENATOR ELLIS: And hopefully that can be substantiated for the
record - those...
CHAIRMAN TAYLOR: [Indisc.] are standing in the back of the room.
That's the discussion we had.
SENATOR ELLIS: Okay. And copies of those letters - if you could
provide those to the members of the committee that would
substantiate members of the RCA threatening people with universal
services money? I'd like to have some evidence of that if you're
going to make those charges.
CHAIRMAN TAYLOR: Yes.
MR. FURCHTGOTT-ROTH: Mr. Chairman, I may be one of the last
people in America who believes passionately in the
Telecommunications Act of 1996, who believes it would work if it
were properly implemented. I believe in all of the provisions of
the Act, including Section 251 with its unbundling network
elements and I believe in the regulatory provisions of Sections
10 and 11. I don't believe that the government can pick and
choose which sections of the law to implement and choose to
ignore the rest. Such implementation renders the democratic
process of legislation meaningless.
Sadly, much of the implementation of the Telecommunications Act
of 1996 has not happened. I am writing a book about how it has
not been implemented properly and the dire consequences, not just
for the telecommunications sector, but for democracy and
government as well. For the past six years the federal government
has misinterpreted many sections of the Telecommunications Act of
1996. Some states have made similar mistakes. The courts, slowly
but surely, are correcting the mistakes of the government but the
damage has largely been done. Unlawful and unpredictable
regulation has helped to wipe out an entire generation of
investment. Badly burned in the past, investors shun this sector
today.
Part of the Act has been properly interpreted, particularly where
the government has properly followed statutory instructions to
get out of the way. One example is cable rate regulation. From
1993 through 1996 the federal government embarked on a feudal
effort to make consumers better off by regulating cable rates. A
consistent finding in economic history is that rate regulation
does not work. When consumer rates are regulated, investment
declines, quality suffers, and consumers ultimately are harmed.
Such was the case in cable. The Telecommunications Act of 1996
ended this experiment and predictably, cable investment and
quality of service recovered with the end of rate regulation for
cable companies around America, including GCI. This result is
entirely consistent with my own empirical research, as published
in my 1996 book on cable rate regulation.
I'm going to briefly skip over the discussion of other parts of
the Act and move on to Section 9 in my testimony. Over the years
I have come to the reluctant conclusion that the FCC has great
disdain for rural America in general and small telephone
companies in particular. I reached this conclusion, not as an
avid partisan on behalf of small rural telephone companies. To
the contrary, during the drafting of the Telecommunications Act
of 1996, I was lead staffer for the House, trying to limit the
size and scope of Section 254 on universal service. It helped me
to negotiate the language with Senate staffers. I learned all too
well exactly what the language of the Act said, exactly what the
Senate, which largely prevailed in conference, meant.
The FCC followed neither the statutory language nor the intent of
the Senate, a large targeted program to small rural telephone
companies, nor the wishes of the House - a small manageable
program. Instead the FCC developed its own program. I followed
these programs with great interest, not out of any inherent
sympathy to small telephone companies, but rather out of a sense
of moral indignation at watching a government agency seemingly
intent on hurting small business in America and systematically
circumvent the law crafted by a legislative body.
Few sections of the act have been as misconstrued as Section 254.
Seven years ago, the universal service was less than a $2 billion
program, funded with explicit subsidies, almost entirely targeted
at small telephone companies in rural America. Today, universal
service is over $5 billion, with an exclusive fee contribution
system. The funding mechanism is broken with the tax base,
interstate revenues, shrinking. The net result is a death spiral
of increasing rates on interstate telecommunications services to
support ever-expanding universal service expenditures. I mention
this program because it is particularly important to Alaska, and
state regulatory authorities have failed to challenge the FCC's
poor implementation. Almost all of the growth in universal
service expenditures since 1996 has been outside of rural America
and outside of Alaska. The primary beneficiaries of Section 254
have not been Alaska, but rather California and large urban
states. The section was reserved for political purposes. The
schools and libraries remains, siphoning $2.25 billion to largely
urban school districts in politically important states. In
addition, the FCC managed to broker a deal between large regional
Bell operating companies and long distance carriers to create a
new universal service program to help large RBOCs under the
euphemistically entitled 'CALLS' program. Thus, in the name of
universal service under Section 254, the FCC doles out about $700
million annually to support large carriers outside of Alaska. Its
primary areas are part of the nation's largest metropolitan
areas.
Some small percentage of schools and libraries money finds its
way to Alaska and other rural states but in no sense has the
program been targeted to rural America or used to help small
telephone companies. The FCC, in coordination with some state
agencies, as a fact used the universal service programs to
put financial pressure on small telephone companies making
additional funds available only to new carriers. What happened to
the intended beneficiaries of Section 254 - the small telephone
companies of America? All of the requests for universal service
from schools and libraries and large RBOCs were dealt with
expeditiously by the FCC but the FCC decided to delay finding how
to address the intended beneficiaries of universal service.
Instead it invented two new mechanisms intended to punish rural
America. One was a joint rural task force - it would take years
to make a recommendation - valuable time lost for small companies
but not for schools and libraries or large RBOCs.
The other was a universal service computer cost model so
outrageously bad that the only plausible explanation for its
existence was to insult the intelligence of anyone working in the
area of universal service. It is worth spending a few moments to
describe just how bad this cost model was and is. In its initial
inception, it took 180 hours to run in its entirety with all of
its so-called optimization routines. That run would result in a
calculation of an unbundled network element price for every
central office in the Lower 48 states, not that the FCC had any
particular reason to calculate all of this information. Keep in
mind that today most computer models take at most a few tenths of
a second to run - not 18 seconds, not 180 seconds, not 1.8 hours,
not 18 hours and certainly not 180 hours. That's more than a week
for a computer to run 24 by 7. Indeed, I suspect that you would
have to pay a premium to find a computer programmer willing to
risk his or her professional reputation to write a program that
takes 180 hours to run. A program that takes that long obviously
does not work. For much of my tenure at the FCC, I went around
the country listing the model that doesn't work as Exhibit A in
describing the hostility in the FCC towards rural America,
including states such as Alaska.
I can't say for certain why the model was first developed. I do
not believe it was for the purpose of distributing universal
service funds or more directly that it was for the purpose of
estimating unbundled network rates in Alaska. Yet those are two
of the unintended uses for the model today. It was used for the
CALLS program to distribute the $700 million dollars to large
RBOCs, and one of the first ones of them all, Bell South of
Kentucky, was to receive tens of millions of dollars. But
practically all of that money disappeared in the second run of
the model a month later. When a model takes 180 hours to run, you
can only run it about once a month. It is not surprising that it
takes a long time to get all of the kinks out. What the model
said one month would change the next. It was embarrassing for
the FCC. Quest, US West at the time, opposed the model because
the model said that US West did not deserve any universal service
support. Imagine - no universal service support for the one RBOC
serving the Rocky Mountain states and the Great Plains, but
plenty of support for Horizon in the middle Atlantic states and
New England but it was clear at the time that the FCC ran the
model several times, adjusting inputs for the specific purpose of
getting money to the right states, rather than having all of the
money go to Mississippi, which was the result of some of the
earlier runs. Someone at the FCC had the cynical idea that using
the model that doesn't work to distribute universal service
payments, not just to the RBOCs, but to small telephone companies
across America. Perhaps they wouldn't know any better.
The rural task force included representatives from companies that
historically mistrusted each other. In other words, the task
force was designed to fail. Miraculously, in part because of the
leadership of Commissioner Bill Jels (ph) of Washington State,
the task force did not end in the apparently intended complete
deadlock. When I met with Jack Rhyner in Alaska in 1998, he was
disillusioned about the rural task force. He said that the FCC
staff had given the RTF its instructions and those instructions
were to find the appropriate input values for the model that
doesn't work so that the FCC could use that model to allocate
universal service funds to small telephone companies. Moreover,
it was clear that the primary purpose of using the model that
doesn't work, aside from juvenile mischief and testing the
intelligence of all Americans, was to cut the size of federal
support for small telephone companies, including those in Alaska.
Mr. Rhyner was not happy and neither was I. I told Jack that the
rural task force was not appointed to be the lapdog to the FCC
staff. I told him that he was appointed to represent the
interests of his company and rural America and that those were
unlikely to intersect with the interests of the FCC staff. I
worked closely with the members of the RTF, including Jack
Rhyner, with one overriding objective: to be certain that the
rural task force did not recommend the use of the universal
service cost model. Chris McLain of the Rural Utilities Service
at the Department of Agriculture went to great trouble to develop
specific examples of how the model did not work with mountainous
geography or bodies of water. The model was never written for
Alaska where peculiar terrain and geography are the norm rather
than the exception.
The task force, and certain members of the joint board on
universal service, met here in Anchorage in May of 2000. I had
the honor of addressing that group and telling them as politely
as I could that it would be a grave mistake to use this model for
any purpose. Ultimately, despite intense pressure from the
bureaucracy of the FCC to use this model, the rural task force
did not recommend its use for universal service allocation for
small companies.
Two years ago I had reason to believe that the rural task force
had put the stake in the heart of the use of the model that does
not work in rural America. I was wrong. Despite the fact that the
model optimizes based on information for the Lower 48 states and
does an extremely poor job at that, the RCA has incredibly
selected the model that does not work to estimate unbundled
network element rates for the formerly designated rural areas of
Juneau and Fairbanks. No doubt, the juvenile pranksters on the
FCC staff are rolling with laughter. They pulled a fast one on
rural America and the most rural state, Alaska, fell for the
prank. Doubtlessly, the model must have improved in the past year
or two but the parentage and history of this model are so bad and
offensive that I wonder why anyone would choose to use it. I
would not have expected any state to adopt this model, least of
all Alaska and Hawaii, the two states specifically excluded in
the development of the model.
SENATOR DONLEY: If the state were to choose not to adopt that
model, what's the alternative? They could use any model they like
- different state commissions use any number of different models,
some of which are homegrown in the state, some of which are used
or developed by various parties to the state proceedings? Are
there examples out there of other states that are more rural in
nature and have similar geography to Alaska that have adopted a
model that could be an example for Alaska?
MR. FURCHTGOTT-ROTH: Senator, there's no state like Alaska.
SENATOR DONLEY: I know, but rural with mountains and lakes and
oceans - I mean big bodies of water - right?
MR. FURCHTGOTT-ROTH: The geography of Alaska is truly unique. I'm
probably not the person to ask specifically about which specific
cost models other states have used. I do know that there are
other cost models in use in other states.
Let me briefly describe six additional examples where the FCC is
misinterpreting universal service provisions of the
Telecommunications Act of 1996 systematically to the disadvantage
of small rural telephone companies. In each instance,
unfortunately, RCA decisions have not corrected the FCC mistakes
to the detriment of Alaska. The first is the destination of
eligible telecommunications carriers. The Act gives clear
authority to states and states alone to designate eligible
telecommunications carriers, but an ETC must be capable of
serving an entire area and be capable of being designated as a
carrier or last resort when a non-ETC carrier is unwilling to
serve an area. The FCC has occasionally, and improperly tried to
insinuate itself into these designation decisions. As a carrier
of last resort, an ETC must have its own facilities, not relying
on other facilities. The issue of whether an unbundled network
element counts as ones' own facility is a semantic issue. But for
these purposes of universal service, it is difficult to classify
them as owned facilities. RCA compounded this situation by
designating GCI as an eligible telecommunications carrier in
areas of Alaska where its phone service would be entirely based
on unbundled network elements, someone else's facilities.
Intrinsically, that someone else is the party that is the only
possible carrier of last resort, the only possible eligible
telecommunications carrier.
Second, the awarding of universal service funds to non-ATCs.
Section 254 renders universal service awards to eligible
telecommunications carriers. This was an inconvenient statutory
limitation for the FCC, which wanted to award funds to school
districts and other entities under the schools and libraries
program. The FCC avoided the statutory language, which led the
award to schools and libraries corporation funds to many entities
in Alaska and around the United States, few of which were truly
eligible telecommunications carriers. A state regulatory
commission might have challenged the FCC decision and stated that
it alone had the authority to determine which entities are
eligible telecommunications carriers and thus which entities
would receive schools and libraries corporation funds.
Awarding of the universal funds for purposes other than
investment and plant equipment. Section 254 is quite clear that
universal service funds are going to be used for investments in
plants and equipment. The words of the statute must have some
meaning, but the FCC has refused to give them that meaning. A
state commission committed to the statute could insist that
eligible telecommunications carriers use federal USF funds to
invest in plants and equipment. Under the Act, rural carriers are
exempted from some Section 251 obligations. That exemption can be
removed by a state regulatory commission, if the commission can
make certain showings. The RCA removed the rural exemptions from
the Juneau and Fairbanks study areas but without the RCA making
statutory showings. Both federal courts in the FCC are consistent
in the interpretation that the state commission bears the burden
of proof in such a decision. The apparently improper action of
the RCA is currently in litigation. FCC rules limit rural
universal service subsidies to carriers whose loop costs are
roughly 15 percent above the national average. The unbundled
network element cost structure in Fairbanks is below the national
average, yet based on this and RCA eligible telecommunications
carrier designation, GCI will receive universal service support.
This is a peculiar way of using federal funds.
Commission rules are quite specific that funds received for the
schools and libraries program must be used exclusively for
educational purposes. In the past year, the RCA and others have
lobbied the FCC for a waiver of this rule so that schools and
libraries funds could be used for non-educational purposes in
rural Alaska where broadband services are not commercially
available. Broadband is important to American communities,
particularly small communities in the Alaska Bush. A waiver could
have equally well been sought and, perhaps, attained to get funds
for commercially available broadband services through the rural
universal service program. Such funds would have gone to eligible
telecommunications carriers, not just the recipients of funds for
educational programs. Paradoxically, the RCA efforts, while
getting broadband services on communities, has had the effect,
intended or not, of putting financial pressure on small telephone
companies which now have no viable business plans to bring
broadband services to communities where federally subsidized
programs are in place.
Competition and deregulation are the parallel goals of the 1996
Act. Competition means letting the market, not government,
determine the use of resources. Competition does not mean
multiple carriers all riding the same network. Indeed, Section
271 of the Act, which instructs the FCC to review whether
competition in a state is sufficient to permit a regional Bell
operating company to enter long distance services, first calls on
the FCC to examine the state of facilities-based competition.
Multiple carriers all using the same facilities is an interesting
idea, but it does not fall under the heading of competition.
I have been told that some government officials in the state have
been ill advised on this specific matter. Any suggestion that the
purpose of the Act is to prevent or in any way limit investment
in new equipment or duplicating networks reflects a
misunderstanding of the Act. What is the correct rate to charge
for residential service for unbundled network elements? I don't
know. As I mentioned earlier, practically all empirical economic
research finds rate regulation to be counterproductive. As such,
there is no correct rate that can be set by coercion. This is not
an obscure economic theory. It is a standard result presented in
practically every introductory economics textbook. In every
regime that sets prices, whether in Communist Cuba or WWII
America, one observes shortages, long queues and hoarding of some
goods, while other goods have plentiful supply, but few
transactions. In the former case, prices are set below what most
producers are willing to supply in the market, for all but a few
situations, prices set below the market clearing price but an
incumbent and potential suppliers are encouraged from expanding
production because that's production that regulated prices would
lead to economic and financial losses. If prices were not set,
practically all consumers would be better off because they could
predictably purchase all they wanted [at the] prevailing price.
For many such goods, a black market develops to sell goods at
prices below the regulated rate but such black market
transactions are inferior to unregulated transactions because
they lack many of the contractual safeguards, such as insurance
and warranties that characterize unregulated transactions.
In the latter case, prices are set above market clearing prices.
Here producers expand production but sales are illusory because
there are no willing consumers at that regulated price. For many
such goods, a black market develops to sell goods at prices below
the regulated rate. But such black market transactions are
inferior to an unregulated transaction because, again, they lack
many of the contractual safeguards.
In a market without price regulation, no demand goes unmet
between willing buyers and willing sellers. One need not visit
Havana to see the harms of price regulation. Last September in
Anchorage, I visited a brand new residential development in
Anchorage. It is near both ACS and GCI switches. Yet neither
company was willing to wire the new development for telephone
service at the regulated rates made available by the RCA. GCI
did, however, wire the community for cable service. The decision
not to wire the community at regulated rates for phone service
was not based on heartlessness or mean-spiritedness or any form
of special disorder. Rather, the decision, like practically all
business decisions, represented a rational view of business
behavior. Businesses do not willingly make investments for which
there is no possibility of financial return. The companies have
investors and these investors would be harmed if the companies
had made an unwise investment. It is impossible to say that the
residents of this community benefited from this regulatory
decision of the RCA. If, alternatively, the RCA had compelled
either ACS or GCI to wire the residential community for telephony
service, the residential consumers might have been momentarily
better off, but the company investors would have been worse off
as a result of the government coercion. Such coerced investments
have, in fact, been required of ACS in many residential
developments only to see most, if not all, of the customers
subscribe to GCI. The benefits to residential consumers of
coerced corporate investment may be short lived. Companies have
no incentive to maintain or operate coerced investments. As is
the case of Cuba, and other countries that have followed price
regulation, corporate investment dries up altogether. The next
residential development may have no company left with investors
willing to make unprofitable investments.
GCI has a modern, two-way coaxial cable plant in Anchorage. Like
other cable companies around America, GCI faces the choice to
provide competitive phone service. It can use its own plant to
provide fewer facilities-based competition or it can lease loose
for an unbundled network element platform to provide service on
the incumbent network. If the union rates were subject to
negotiated prices, one would expect to find the result familiar
to anyone who negotiates a contract for service. Negotiated rates
would roughly reflect cost of service and a competitive carrier
would use its own networking neighborhoods when its cost of
providing service is less than the cost of the incumbent and the
competitive carrier would lease facilities for the incumbent's
cost for substantially lower than its own. The negotiated rates
would in fact reflect costs and the option value of assets
because the incumbent could not set a monopoly rate with a
competitor as the alternative of using its own network in which
fixed costs are already sunk. Moreover, if negotiated rates
[indisc.] its cost structure, the incumbent is more profitable to
lease its service than not. It can even be initially profitable
for the competitive cable carrier to lease its facilities where
it has a lower cost structure than the incumbent.
The empirical observation of 100 percent leasing by GCI's
incumbent facilities in Anchorage is puzzling. If rates were
freely negotiated, this is consistent with the hypothesis that
the GCI plant and equipment is uniformly more costly than the ACS
system. Rates in Anchorage were not freely negotiated however,
and it's impossible to tell much about the relative cost of the
plants and equipment. The Supreme Court has upheld the authority
of the FCC to set regulated pricing standards for unbundled
network elements. The price regulation under Section 252 should
only be a last resort. Negotiation between private parties should
be the primary method of setting rates under Section 252.
Regardless of how it occurred, the residential market share of
the competitive carrier in Anchorage is over 50 percent and that
is unique in America. The two principles cited in the preamble of
the Telecommunications Act of 1996 are competition and
deregulation. If Anchorage isn't ripe for deregulation and
allowing market forces to work, no city in America is or, quite
frankly, ever will be. Alaska has the opportunity to fulfill the
vision of the Act, and to deregulate telecommunications services
in Anchorage.
Over the coming weeks - over the coming days and weeks - you will
hear from many different parties about the reauthorization of the
RCA. No doubt that information will not all be the same. Much
will be contradictory, some will be tedious and incomprehensible,
some will make perfect sense. Some will urge a quick decision,
others will urge caution and circumspection. Some will point the
finger of blame at one company, some at another, and others will
single out individuals for blame. In negotiations, whether with
children or government agencies, there is always a great threat
if you don't do exactly as you are requested. Threats are the
common denominator of negotiations. A great many people will
threaten dire consequences if you do not follow their advice
precisely. Consumers will be hurt, businesses will shut down,
individuals will lose jobs, the federal government will take over
Alaska. Your worst nightmares will be conjured before your very
eyes. I cannot speak to other possible threatened outcomes but as
far as federal communications law and federal universal support
to Alaska, there is no need for you to be frightened, no need to
rush to judgment, no bad outcome or result, regardless of your
decisions.
You alone will have to sort out the conflicting claims. Perhaps
you know the right answer today and will come to an expeditious
resolution of this matter. If not you will have much information
to weigh with some people screaming at you to make a quick
decision on an extraordinarily complicated matter. You may
reasonably wish to hear the results of the state-sponsored study
on the health of the telecommunications industry in Alaska. The
proper answer on timing for the legislature is not what is
convenient for others. The proper timing is what is convenient
for the legislature. Do not be rushed to judgment if you need
more time. Do not be slowed to judgment if you have sufficient
information to decide.
It seems you have four broad choices. You can cease to have a
state regulatory agency. Second, you can reauthorize the RCA in
its present form. Third, you can reauthorize the RCA with
statutory modifications or four, you can abandon the RCA and
create a new state regulatory agency. In evaluating these
options, I propose reliance on the three principles of liberty:
political liberty; economic liberty; and administrative liberty.
I have great confidence that the decision you will make will be
the right one. My confidence is not based on any prior knowledge
of what you may decide but rather it's based on the belief in
democracy in America. You, as the state legislature, are the
democratic lawmaking institution in Alaska. We all make mistakes.
In a non-democratic government, governmental mistakes are not
corrected and government ultimately fails. In a democracy, the
mistakes of government are reviewed and, where particularly
troublesome, they are corrected. That is the purpose of this
hearing. Thank you for your kind invitation to appear here today.
I'll be happy to answer any questions that you may have.
2:05 p.m.
SENATOR COWDERY: Based on your experience, there has been some
temporary rates established that have been temporary for a number
of years in Alaska. What is the normal procedure, you know, these
temporary rates? I mean how long should they be temporary before
they're final in the law? I mean what is your judgment?
MR. FURCHTGOTT-ROTH: Senator, I have to confess that my judgment
is probably a lot different from standard practice across
America. I think it's very important for government to have
predictable, expeditious proceedings. I think simple rules are
better than complicated ones. I think getting things out quickly
and fairly is a very important governmental responsibility. That
is not necessarily the norm either here in Alaska or, frankly, in
other states. Temporary rates create a sense of impermanence, a
sense of instability, a sense of - it's difficult to know where
things are going to be a year from now. It's not a good
situation.
SENATOR COWDERY: Temporary rates, as I understand, here have been
a number of years, not just a year, a number of years and when a
temporary rate was originally established, the circumstances were
such at that time, I assume, let's say four years later or
sometime later the circumstances certainly can change but they're
held to that temporary - it would seem to me. I'll just ask you -
the role of RCA should be to establish these permanently - you
know, permanent rates on today's standards, not four years ago or
five years ago? Do you agree with that?
MR. FURCHTGOTT-ROTH: Yes sir and it's very difficult to have a
record, a rate-making record, that's extended over multiple
years.
SENATOR COWDERY: Could you describe the possible consequences to
rural Alaska because the RCA has done the rural exemption - you
know, if it's revoked or isn't revoked? What would you think the
consequences would be?
MR. FURCHTGOTT-ROTH: Senator, are you referring to the Juneau and
Fairbanks study you're in?
SENATOR COWDERY: Yes.
MR. FURCHTGOTT-ROTH: Senator, I don't know what the consequences
would be...[END OF TAPE 02-35, SIDE A]
TAPE 02-35, SIDE B
MR. FURCHTGOTT-ROTH:... and I'm certainly not going to ever say
that I'm against competition. I'm always in favor of competition.
If someone wants to invest their own money to try to make a
dollar, I don't think the government ought to stand in the way. I
do think that where there's a law that says there's a certain
process that has to be followed, that that process needs to be
followed. My comments are directed more at the burden of the
state commission to follow the law and have the burden of proof
in evaluating when it permits a rural exemption. It isn't for me
to know what the effect would be. I think it's the burden on the
state commission to develop a record to determine what the effect
would be in permitting a rural exemption.
SENATOR COWDERY: Thank you.
SENATOR ELLIS: Thank you Mr. Chairman. Harold, you served one
term on the Federal Communications Commission?
MR. FURCHTGOTT-ROTH: Yes sir.
SENATOR ELLIS: And it's been noted that, during a four-year
period, that you ruled that you participated in approximately 190
dissents so I'm trying to get a feeling for the scope of the work
of the Commission and whether your view is representative of sort
of the mainstream position, a majority position, or was 190
dissents over four years sort of put you outside the mainstream
of opinion? I certainly appreciate the minority opinion, being in
the Minority myself and in the Alaska Senate, but that record
just seems to cry out for - maybe you were contrary to most of
what went on there.
MR. FURCHTGOTT-ROTH: Senator, I was very proud to have had the
opportunity to serve on the Federal Communications Commission. I
think if one looks at governmental bodies that have multiple
heads or responsible officers, I don't think it's appropriate to
look at the uniformity of those to come to a conclusion about
whether one's views have merit. I'm quite sure that, as a member
of a party of the state legislature, you wouldn't want to be
evaluated negatively based on the number of negative votes that
you cast nor would a judge on a court, whether it's a district or
appellate or supreme court, want to sort of say whether, you
know, measure me based on the number of dissents I cast or
perhaps how frequently I voted with the majority. If the point is
are my views on universal service outside of the mainstream of
the FCC, Senator, I will say as proudly as I can possibly say,
they are so far out of the mainstream of where the FCC has been
for the past six years because the FCC has been exactly wrong in
my view.
SENATOR ELLIS: I appreciate your answer. I'm just - I mean you've
been brought here as an expert witness and I've been reviewing
your credentials and I just wanted to get a sense of where you
fit in to the public policy discussion. Your theory, you know, in
part of your testimony you made characterizations of the other
commissioners and of the staff - I think you referred to the
staff as juvenile pranksters who were maliciously out to get
rural America. Do you - what was the motivation - to help other
moneyed interests or political interests or? Why would any
[indisc.] juvenile pranksters out to hurt other Americans? Can it
really be that way?
MR. FURCHTGOTT-ROTH: Senator, I don't know the motives of the
staff or those who directed them. I do know that federal
universal service support is very big money. It is today over $5
billion. Six years ago, over 75 percent of that money went to
small, rural telephone companies. A disproportionate amount of
that money went to the state of Alaska. Today, Alaska's share of
federal universal service support is substantially less than it
was six years ago. That was not the intention of Senator Stevens
and others when they helped draft Section 254. What has happened
with universal service has been changing a program that was a
fairly small, targeted program to go to small telephone
companies. It has been hijacked for other purposes. The money
goes primarily, increasingly not to small rural states, but to
large urban states. Senator, I wasn't privy to making those
decisions. Those are decisions that I very proudly voted against
every single time they were brought before the commission. I
don't think that was the purpose of Section 254. I have a very
long record - very public record on universal service support. I
don't know what the motives are. Senator if you're questioning my
characterization of the model as having been constructed for
juvenile pranks, I accept the criticism and perhaps it's harsh
but Senator, I don't know what other explanation to come up with.
At least juvenile pranks [don't] get to the question of the
motive. It doesn't get to the question - was this for some other
purpose? Was this to be able to get money to somewhere else? I
can tell you, Senator, that I have spoken very frequently about
why is it that this program increased by over 200 percent in the
course of a few years and all of that increase primarily went to
other states? Why is it that the FCC established this rural task
force saying, you know, small companies - that's really hard.
It's going to take us many years. We need to gather expert groups
together and let's get everyone together and we'll just have
hearings. We're going to think about this for years and years and
years.
Well, you know, let me tell you what happens when the regional
Bell operating companies want some money. They hire some fancy
lobbyists. They come into the FCC and with hardly any record at
all, within a few months, they have $700 million. That's $700
million, not a penny of which will come to Alaska. Now, I can't
tell you what the motives are. [Indisc.] lobbyists all sitting
behind you saying yea, yea, [indisc.- laughter]. But I don't know
what the motives are and, believe me, I don't think for a moment
that the FCC staff invents these things without direction from
someone else. That is definitely not the case.
SENATOR ELLIS: So should the RCA be terminated in Alaska?
MR. FURCHTGOTT-ROTH: Senator, I'm not here to give that advice. I
have no answer to that.
SENATOR ELLIS: Are you aware that Pat Davidson, our chief
legislative auditor, reviewed the work of the RCA, the policy and
the process, and recommended a four year extension as was put
into Governor Knowles's bill to extend the RCA?
MR. FURCHTGOTT-ROTH: No sir, I'm not aware of that.
SENATOR ELLIS: I noticed she doesn't appear on the witness list
anywhere. I just wanted to see if you had a reaction to that.
Thank you Mr. Chairman.
CHAIRMAN TAYLOR: Other questions? I want to thank you for your
testimony. I really appreciate you coming before us today. I
would hope that you would, if you could, stay for the rest of the
testimony - maybe be available after that. By the way, I don't
know of anybody on this committee or in this legislature that is
trying to terminate the RCA. I know a whole lot of people that
are desperately trying to grant an early and premature extension,
but I don't know anybody trying to kill it.
Next up we have Mr. Boucher, or members of the Chugach Electric
Board. Is Joe Griffith here or Red here? You can step right here
to the table if you wish because there aren't any chairs left.
MR. JOE GRIFFITH: Mr. Chairman, with the indulgence of the body
and in the interest of brevity, perhaps we could combine those
two points and bring up the past general manager, the board
president and myself.
CHAIRMAN TAYLOR: That would be fine. I'd like to have you all
three here at the same time and we'll just turn the floor over to
you and, Joe, you go ahead if you wish to start off or you wish
to have someone else start off.
SENATOR DONLEY: Mr. Chairman? Can everybody - if people in the
back want to stand up to see - but if you guys want chairs we can
try to set out more chairs or something. Is everybody okay?
SENATOR ELLIS: Before we begin with the next presentation, can I
just inquire of you, is Mr. Tillinghast working for the committee
now or serving as a staffer?
CHAIRMAN TAYLOR: Yes.
SENATOR ELLIS: In what capacity - as a legislative employee or on
contract?
CHAIRMAN TAYLOR: He is on contract with this committee to advise
and assist us in what I think is one of the most complex issues
that I've ever wandered into.
SENATOR ELLIS: So, just the RCA?
CHAIRMAN TAYLOR: That's all. Yes, just for the purpose of these
hearings and to assist us in such research as we might need and,
believe me, I don't understand the technical aspects of this deal
and I don't know if others do but his assistance has been
invaluable. I appreciate having him.
SENATOR ELLIS: It's nothing personal. I just was ignorant to the
fact that you hired more staff.
CHAIRMAN TAYLOR: Go right ahead.
MR. JOE GRIFFITH: Mr. Chairman, It's a pleasure to be before you
today. My name is Joe Griffith. I am the general manager of
Chugach Electric - just recently appointed to that position. I've
served there about a month now. Prior to that, though, I was
executive manager that was in charge of regulatory matters for
Chugach for the prior 13 years.
Chugach is a member-owned coop, consisting of about 60,000 retail
members. We do sell power wholesale to three wholesale customers
as well as one opportunity customer, mainly Fairbanks. The result
is that we supply the bulk of the electric power for the
Anchorage area and almost all of that for the Mat-Su Valley and
the Kenai Peninsula areas and we supply substantial amounts to
Fairbanks. We are a cooperative. Our members elect our board that
sit and rule on our activities and provide policy direction. We
believe that our electorate has elected good people and talented
people to this job. We have dedicated and knowledgeable directors
with considerable professional expertise which meet over 25 times
a year to ensure that they keep close track of our members'
interest.
And the message I bring you today is very simple. We don't
believe we're getting good value for the regulatory process that
is being conducted by the RCA. We have very serious difficulties
with the process and the actions that we have with the RCA.
Let me say that it is with considerable trepidation that I appear
before you. Many would say that it's a fool's errand to complain
publicly about an agency with absolute power and authority over
every aspect of each of the utility's operations. This agency,
the RCA, sets the prices at which we sell our services. It sets
the terms of that service. It has virtually unlimited
investigative authority and, ultimately, in extreme circumstance,
the authority to take on management authority at our company.
Despite these risks, we feel we owe it to our members and you to
give you the benefit of our experience. I want to stress that
what we have to say is offered in a spirit of constructive
criticism, although maybe some would say that's an anachronistic
phrase, and we trust and hope that it will be accepted in that
manner.
Let me tell you just quickly about some of our experiences which,
of course, [are] unique. It may not be that it's across the board
but it's things that we have encountered. With a few notable
exceptions when we actually get a decision, we're pretty much
happy with the result. It's getting the result that's our problem
and let me make three points in that regard.
First, the Commission takes far too long to make decisions. A
couple of quick examples there. A rate case was opened in, I
believe, 1996, could even have been 1995 now. We finally held a
hearing on it in September of 2001 and a decision was issued six
months later in March of 2002. This rate review process is six
years old and still open.
CHAIRMAN TAYLOR: That case is still open?
MR. GRIFFITH: Still open. The 2000 test year general rate case
that we filed in 2001, we are unlikely to have a decision in that
process for at least 18 months from the time we filed it and I
believe that's optimistic.
Secondly, the Commission does not control its proceedings well.
In excess of 60,000 pages of discovery has been disclosed thus
far after two rounds of discovery. There are four more rounds
scheduled.
Thirdly, the Commission has a tendency to make the least final
decision possible in many circumstances and so what the result is
nothing ever goes away. In our current rate case, the Commission
is considering a financing issue that it has twice considered and
ruled on before. They confronted the issue once in a separate
docket open to decide whether to investigate the claim, closed
that docket, finding no basis for investigation, then allowed
consideration of the issue in the case that I mentioned that has
been open for six years. They seem to have terrible trouble with
finality. As I said, the Commission sets the prices at which we
sell our services, but once they've set that price and we've sold
the service, they have asserted that it is their right to go back
and actually change that price. You can imagine what that does to
a company to rectify your books as well as to refund your money.
You can imagine running a business when you can't know whether
the revenues you receive are going to be taken back perhaps years
later.
So, concluding my remarks, and I told you I would be brief, we
look to the Commission to perform its role. We think they have an
important role that prior testimony indicated that they have a
role and chose not to suggest what you might do with their role.
I think it can be proved we are a customer of the RCA and we
believe, from our perspective, its main function is to adjudicate
those cases that we must bring before them. The RCA has become
ineffective in performing this function. Chugach has, and will
continue, to participate in good faith and try to make work
whatever regulatory structure the legislature determines is best
but the current situation is not good for our members.
We currently pay about $365,000 a year to fund this process. We
don't think it adds much value and it's nothing but cost to our
members. More importantly, this process diverts huge amounts of
the talents of my staff on work that we believe benefits few. For
example, in the 2000 test year rate case that I just mentioned to
you, we have already expended over 6,000 staff hours and we still
have months to go. We need to expedite and improve this process.
Now I have spent a month at the helm. Gene Bjornstad spent eight
years and has commented also on what we believe is process that
needs some work. Gene?
2:25 p.m.
SENATOR COWDERY: Could I ask you a question?
MR. GRIFFITH: Please do sir.
SENATOR COWDERY: I've known Joe for quite some time. We've been
on opposite sides of some issues and on the same side at times.
But anyway, you know the cost of these delays, you said, and the
cost of production they require. What do you estimate, say in
your company, Chugach, who serves about 50,000 citizens, I think,
what do you think that costs the citizens or how much money have
you - do you have any estimate, say this case you were talking
about that was six years - what it cost you to get where we're at
today - not finality I guess.
MR. GRIFFITH: That's a tough question but regarding the test
case, the case that is still open, I do have - I can give you the
figures on the current one because it's more of a near term. As
I've said, we've spent about 6,000 man hours pursuing this
current rate case and that's worth a little over half a million
dollars to us, notwithstanding the fact that the staff expending
those 6,000 man hours weren't doing their other job while they
were engaged in the discovery and the depositions and all of the
process. It probably will double easily before it's all over on
our part. In addition to that there are the other parties that
are also approving costs, probably about the same rate we are, to
deal with 60,000 pages of discovery and it will probably be
80,000 before it's over as well as their attorneys and
depositions. Depositions are still ongoing, as is discovery.
SENATOR COWDERY: And have they concluded the costs to RCA?
MR. GRIFFITH: It does not include the cost of the RCA staff other
than - I think you would have to add the PAS in there as part of
the overall direct cost because they participated in the
discovery and also have questions involved there.
SENATOR COWDERY: Just to follow up - these costs are paid by, you
said, but ultimately the consumers pay those costs.
MR. GRIFFITH: Our members pay the bill.
SENATOR COWDERY: Members pay the bill but members of RCA and the
public pay their bills and their costs. The whole thing is
consumed by the public through whatever rates they have to have.
MR. GRIFFITH: Correct, Senator.
SENATOR COWDERY: So I'll - I'll just - I just wanted that for
the record.
SENATOR ELLIS: Joe, thanks for being here today. The first
example you gave us - unacceptable delays - was from 1996 so that
was the old APUC that we abolished. My understanding is that
while things may still frustrate you as slow, the RCA is
significantly quicker in their work than the old APUC. I hope
that will either be confirmed or denied with documentation later
in this hearing. What is your suggestion then for some mechanism
for protecting consumer interests in Alaska and speeding up the
process for your operation?
CHAIRMAN TAYLOR: Let's let him get to the first question you
raised first. Is it faster? Are they doing a better job?
MR. GRIFFITH: I think, in some respects, the answer to that is
yes. I would say that in the small cases they have moved those
through much faster and they seem to be adhering to the timelines
on what are the traditional TA - tariff advice actions. I don't
believe they have done any better in the big cases as yet.
SENATOR ELLIS: Because they're complicated?
MR. GRIFFITH: They're complex, they're complicated and, as I say,
they have difficulty coming to closure on key issues that affects
the bottom line of these cases.
SENATOR ELLIS: Any suggestions for improvements to protect the
consumer interests and speeding up the process at the same time?
Can they expect to be accommodated?
MR. GRIFFITH: I think so, yes.
SENATOR ELLIS: Any specific suggestions you have I think would be
welcome.
SENATOR COWDERY: Don't we have, on these cases that you talked
about that goes on for years, don't we have statutes that address
that timeline in statute that their supposed to finalize things?
MR. GRIFFITH: I don't believe we have developed, Senator, a
timeline and put it in the statutes. There are timelines and
certain filings - when you have to file, when you have to
respond, but it is my understanding there are not clear timelines
on when you have to have finality on these kind of ...
SENATOR COWDERY: [Indisc.]
MR. GRIFFITH: I think it would be helpful.
SENATOR COWDERY: Thank you. Thank you Mr. Chairman. I thought
there was some statute...
SENATOR DONLEY: There may be with different types of utilities.
It may not be in the electrical realm but I believe there are
some guidelines for other types of utilities.
CHAIRMAN TAYLOR: In fact the RCA has actually adopted timelines
of their own and they're in the Alaska Administrative Code. The
only problem is they are totally disregarded so - and I think we
will find that out tomorrow when we discuss things with them.
Maybe you'd like to give testimony?
MR. GENE BJORNSTAD: Good afternoon. My name is Gene Bjornstad.
I'm the former general manager of Chugach Electric Association. I
just recently retired but elect to offer my prior experience with
the RCA. First of all, Senator Taylor and your committee - all of
the Senators - I appreciate your efforts to improve the process.
I want to digress from that to say when you did away with the
APUC and established the RCA, I thought it was good move. I was
optimistic that things would change but I don't think they did
and I'll elaborate a little bit.
As you are aware, Chugach has also tried to lead the way in the
utility industry in a number of different ways, a few include
getting rid of the competition, benchmarking, adopting some best
practices. In the past five years, I think some of you Senators
know that Chugach has prepared to sell for competition by looking
at emerging technologies and we tried to promote innovation. And
also we offered new services to our members. None of these
changes came easy however, but I believe Chugach is a better
organization for it because we weren't afraid to change and we
weren't afraid to stick our head out of the sand and look at the
future, so much, the regulatory process changed. As Joe said,
utilities are extremely dependent on the regulatory process and
the cooperative members and the cooperative profits can be
affected by the decisions and, more importantly, indecisions by
the Commission. The legislature has a duty to ensure the
regulatory process is fair and serves the best interest of
utility ratepayers. In my opinion, both the RCA and its
predecessor organization failed to provide value to its utility
ratepayers.
In my last year as general manager of Chugach Electric, my direct
reports - and I supervised much of the efforts to comply with
several rounds of discovery requests on the Alaska Electric
Generation and Transmission Cooperative, Matanuska Electric and
the Public Advocacy Staff [PAS] in our present general rate case.
At times, Chugach had as many as 40 employees, the majority of
whom were in management positions, including senior management
working on nothing except responses to the discovery request. As
Joe mentioned earlier, I estimate in excess of 6,000 hours
employee time was spent responding to these discovery requests.
In addition to the staff time dedicated to the discovery
requests, 11 members of my staff, including myself, made
themselves available for deposition by AT&T, HEA, and MEA in the
proceedings, sometimes being deposed twice. These depositions,
necessarily, caused us numerous hours away from our normal
duties. The documentations prepared in response to these parties
is staggering. Chugach made nearly a half of a million copies -
pages responsive to the discovery request. In just the first two
rounds, the parties have propounded a total of 184
interrogatories, 190 requests for information or production, and
13 requests for omission on Chugach.
All of this comes on the heels of the Commission's order stating
its intent to, 'limit the contentiousness of the case,' by
limiting the number of discovery requests. In contrast, just the
opposite has occurred. The number of requests in this current
docket already surpasses that of Chugach's 1998 test year matter,
which the RCA did not decide until after the 2000 test year
matter was filed.
In summary, the current process is not efficient. It's extremely
disruptive to staff. It diverts critical resources from normal
business activities and it's also extremely burdensome. Entire
conference rooms full of documents have been produced. All this
adds up to costs for the staff, costs for legal counsel, and the
costs to prepare documents. In addition because Chugach is not
receiving its permanent rate increase, it's losing $200,000 a
month, that implementation of its request, because it's been
delayed. I would encourage the committee to use good management
and problem solving techniques to reinvent the regulatory process
from the bottom up. Although we can't solve the problem today, I
believe with a commitment to change, good leadership, and the use
of the industry experts, the regulatory process can become more
timely and efficient. I appreciate the opportunity to express my
views and would be happy to answer any questions you've got.
2:25 p.m.
SENATOR COWDERY: I served, when I was in the House, you recall
the Regulatory Restructuring Committee or whatever - I forget
what it was called then, and out of that we - if I remember,
maybe you can help me out here, it seems like the APUC had
something like 41 employees or around that and that there were
delays and the main complaint we had the delays were indecisions.
They couldn't make a decision. So we established the RCA. When we
did away with APUC the world didn't collapse, of course. But,
then we've got the new - but, now we've got something like 61
employees with the new RCA agency and with our information we're
just as far behind, and in some cases further behind, than we
were before. So I guess what we're talking about is, if you agree
with what I said or if I'm in the ballpark of accuracy, I think I
am. What would you suggest we go forward? I mean, - you know we
can't, we've been - somebody said earlier about pressure
or just let it go or should we try to have hearings and try to
improve it or make it go away or do you think it's needed where
there's competition or, you know, can you generalize on some of
that?
MR. BJORNSTAD: Senator Cowdery, first of all, I think your
numbers are probably correct and I think that a record would show
that I wrote a letter back a couple of years ago with
anticipation and the optimism to increase the staff of the RCA
because we thought it was going to make it better. I'm not
certain that's been the end result. Number two, I believe that
the process can be improved. It may be that there has to be this
discussion of sunsetting in a shorter period of time that creates
the pressure in order to have some different kinds of ideas. I
think you made suggestions earlier last year about changing the
process and how they ought to maybe do something different. I
think some of those things were accepted by the present RCA but,
in my opinion, the workload that they have in part was created by
themselves when they started existence a couple of years ago.
They started a number of general rate cases and so forth with the
other utilities. I think we need to look at the entire process
and I think this committee should look and get some experts maybe
from around the country to tell you how to do it differently and
better.
CHAIRMAN TAYLOR: Do you think we have the time to do that if
we're going to go into a special session here on the 24?
MR. BJORNSTAD: You're not going to - you're not going to tell
them in the next two weeks but I think that [indisc.] six months
or nine months you could come up with something and reauthorize
it next year.
SENATOR COWDERY: Could you define the 2,000 a month in a little
bit more detail - or 200,000 a month - just how you....
MR. BJORNSTAD: In the year 2001, we went in last summer for a
rate increase and we asked for an interim rate increase first
because some of these other test year cases weren't complete yet,
but a permit increase to come in at the end of this year. The
interim rate increase was first flatly denied [indisc.]
significantly. We finally got a decision that allowed us an
interim rate increase just under four percent and that's still in
effect. But in the meantime, we filed for a higher rate increase
than that and unless things have happened differently in the last
month or so since I retired, because we don't have a decision on
that current rate increase, we anticipated that we would be
getting more than $200,000 a month and I don't believe we are and
Joe or....
SENATOR COWDERY: Can I ask - is there any chance of this ever
being recovered, this $200,000 per month?
MR. BJORNSTAD: No.
CHAIRMAN TAYLOR: How in the world do you guys craft a budget? I
mean you don't know what you can charge for your costs.
MR. BJORNSTAD: Senator, we have what is called interim refundable
rates so you take your best guess on the basis of this interim
refundable rate, the circumstance that we have, and you hope that
they aren't really refundable and you put a budget together on
the basis of that and, again, it's with very narrow margins so
there is a high risk factor that you won't achieve it.
CHAIRMAN TAYLOR: And none of that is recoverable retroactively,
is it?
MR. BJORNSTAD: No.
CHAIRMAN TAYLOR: So this current rate case that we're talking
about has now been ongoing for what, 18 months?
MR. BJORNSTAD: Since July of 2001 for the 2000 test year,
however, it's really inextricably linked to the one that started
in 1996 so it's sort of part and parcel of the whole process
because the calculations effective in the '96, '97, '98 test year
influenced the numbers in the 2000 test year.
CHAIRMAN TAYLOR: And that hasn't been resolved yet?
MR. BJORNSTAD: That's not been resolved in full as yet, no sir.
CHAIRMAN TAYLOR: So we're actually looking back more than six
years at this point on data that you are now submitting,
apparently.
MR. BJORNSTAD: That is the case, Senator. As of about a month
ago, though, we submitted the second set of numbers,
recalculations, on the 2000 test year that we believe [indisc.]
up the '96 test year up through the 1998 circumstance and the
ruling on that piece of the case. If that is accepted, and we
have no reason to believe that they won't accept the new numbers,
then when they act on that, we should get permanent rates but the
best guess is that, at the earliest, next spring before we'll see
a result on that.
CHAIRMAN TAYLOR: ...for five, six, seven years at a time, you
don't know whether or not you're going to be granted your
increases. You can't go back and recover them retroactively. It
just seems to me to be very difficult to operate under those
circumstances.
MR. BJORNSTAD: Senator Taylor, it is a challenge, but we have
become very adept at estimating these challenges, and, knock on
wood, we have done quite well. We haven't bitten the bullet yet.
We've been fortunate.
CHAIRMAN TAYLOR: Let me just ask both of you a general question
here. It was raised by Senator Ellis when we were commenting
about Mr. Rhyner and his - I haven't found his letter, by the
way. We can have him testify to verify each of these things, but
I think these gentlemen might do exactly the same thing. Have you
been reading in the newspaper comments by the chairman of the RCA
that if they are placed into their grace period year, they will
not be able to take on new rate filings, will not be able to take
on new cases, will not be able to handle the essential business
of regulating utilities? Have you heard that or is that just me
hearing that?
MR. BJORNSTAD: Oh, no. We have heard that.
CHAIRMAN TAYLOR: How do you interpret that especially as far as
the other utilities in the state? How would you interpret that?
MR. BJORNSTAD: Senator, I guess my view of that is that in view
of their current work load, I wouldn't take on anything else for
a long time irrespective of whether I was being wound down or
not. They need to get some of the stuff off their plate so they
can deal with the big issues.
CHAIRMAN TAYLOR: Well, I appreciate that, but I also appreciated
your earlier comments when you said with a great deal of
trepidation you stepped forward on behalf of the largest
electrical supplier in the state to even testify on these matters
for fear of the retaliation or retribution that might be visited
upon you by the very commissioners that you're criticizing and I
can't understand for the life of me what government makes these
statements, the chairman of the commission would make these
statements if they are not intended to threatened and intimidate
every utility to there that needs some action by this RCA during
the next year. We won't be able to do a thing if we're in a wind
down year. They have even gone so far as to tell the people at
Universal Services that they won't be able to certify them. This
is just pass through federal light, that they're going to be
stamped over $70 million bucks that is the life blood of many of
these small telephone companies out there. So, are they a little
anxious? Yes. Are they willing to come before this panel and
testify against RCA today? I don't think so. Not when they have
already been told oh we might not be able to pass the federal
money through to you.
You made the opening statement. Is there a fair concern that we
should be addressing on the part of this body as we contemplate
the future of this organization whether or not utilities large
and small, such as yourself, can find themselves intimidated to
tell the truth to a legislative panel.
MR. BJORNSTAD: If I may, Senator Taylor, I think it's built into
the system and anyone who holds absolute power over the economics
of your business is absolutely intimidating whether or not they
openly intimidate you or not. I assure it was with a lot of
trepidation, as I said, that I appear before you and it was with
a lot of discussion on the part of our staff and with the board
of directors about the risks we face for stepping up here and
saying we think the system is broken. We fully understand that
and we chose to say we're going to take it any way in the hopes
that everybody will take it in good faith and maybe we'll make
some progress along the lines of fixing it.
CHAIRMAN TAYLOR: Do you want to comment on that?
MR. BJORNSTAD: I was going to say something similar to what Joe
said. We have been kind of quiet in the last year with this
controversy going on for the very reason that Joe spoke of. We do
not believe it would be practical to have no regulation law, but
we do believe that the process has to change and we always
[indisc.] when I was the manager that speaking out publicly could
have an adverse affect on some of decisions that we were seeking.
CHAIRMAN TAYLOR: You haven't had a chance to testify.
MR. BRUCE DAVISON, President, Chugach Electric Association Board
of Directors: Thanks for the opportunity to address this
committee on behalf of Chugach's 60,000 members. You've heard
from Chugach's former general manager, Gene Bjornstad, and our
new general manager, Joe Griffith. Gene has 20 years of utility
management experience and Joe has management and regulatory
experience dating back over 17 years. The testimony of these
experienced managers indicates that the current regulatory
process is not providing true value for out members and owners.
As testified and presented, the regulatory process takes too
long, is not controlled by firm time tables and guidelines and
many issues fail to be finally - and I emphasize the word
'finally' - resolved. Rather than repeat the problems we have
with RCA, let me offer some suggestions as to how the regulatory
process can be improved.
First, it's time for the RCA to undergo its own benchmarking
study and identify areas for improvement. Gene Bjornstead
mentioned that modern management techniques should be used to
reinvent the process. The RCA should undergo a process review
under the direction of an oversight committee empowered by the
state government. This oversight committee should work with the
RCA and regulated parties to get to the heart of the problem and
make recommendations for improvements. The oversight committee
should be comprised of professionals and perhaps you could
include industry leaders from the private sector who are familiar
with utility and regulatory processes. The oversight committee
should be tasked with presenting a review and recommendations to
the state government within a one-year timeline.
Second, it appears this additional leadership or management
coordination needs to take place to manage the workload of the
RCA. The chair of the RCA needs a senior level staff person to
assist in planning, organizing and controlling the overall
process. The staff also needs modern management techniques and
tools to assist in the change process.
Third, the RCA needs to lighten its caseload. Proceedings need to
be managed within set timetables and guidelines. Processes need
to be created that place boundaries on discovery and you've heard
those horror stories from the two gentlemen to my left. Findings
need to be scrutinized to be sure that issues are not readdressed
in multiple forms.
And last, the RCA needs a better method of resolving disputes
between parties. Benchmarking the judicatory processes used by
other more successful entities would be a good start. For
example, organizations like the American Arbitration Association,
offer expedited dispute resolution procedures that bring finality
within 90 days for certain kinds of disputes. Even our own state
agency Department of Transportation that was publicly criticized
in the past has better and more timely dispute resolution
processes and procedures than we see by the RCA. In short, the
regulatory process needs to be more efficient. We offer these
suggestions in the spirit of cooperation and with the intent of
offering solutions rather than criticism. As far as large
electric utilities go, we at Chugach, prefer no economic
regulation as our elected boards are perfectly capable of
balancing the needs of the coop with the needs of our members and
owners. In summary, we seek to be heard. We ask for leadership in
promoting changes and we stand ready to assist in any way we can.
Thank you for the opportunity to speak and I'd be happy to
address any questions.
2:50 p.m.
SENATOR COWDERY: Did I hear you say that in certain circumstances
where there is competition there's no need for a regulatory
commission, in your opinion, for regulatory commissions to be
where there is no competition. Is that right?
MR. DAVISON: I think that's a fair statement of the position this
board of directors has taken, yes. As many of you know, our board
and senior staff has been in your offices over the past year
promoting deregulation and competition and those positions we
presented then is still our position now and we recognize that is
not the purpose of this committee, but that is our ultimate goal.
SENATOR COWDERY: You have helped us understand. How many
competitors do you consider you have?
MR. DAVISON: Well, within the Railbelt, at least five - Golden
Valley, MEA, ML&P, ourselves, Homer Electric and perhaps the City
of Seward.
SENATOR DONLEY: If you explored the deregulation of electric
utilities, how would you handle the problems of the transmission
lines in the specific areas and jurisdictions?
MR. DAVISON: Right now our primary focus has been deregulation of
the retail sector of the market. By recognizing that deregulation
of transmission distribution generation would come in subsequent
steps. So, I don't think we've taken the position on deregulation
of that aspect in the market, but we would like to at least start
with retail competition so that we could see how that works.
SENATOR DONLEY: I don't think I fully understood that. So, when
you're thinking of phased in deregulation, what would be the
first area that you would - you said retail, but that's when I
think retail, I think of delivery right to people's homes.
MR. DAVISON: I think the first step would be to deregulate -
abolish the service territories and allow competition for that
within the Anchorage bowl between ML&P and Chugach Electric and
also allow each utility to set their rate for electric service
that is competitive, yet allows you to stay in business. That's
what I mean by deregulation.
SENATOR DONLEY: And when you say establish competition across the
various zones, are you talking about delivering to people's homes
or when you say retail, are you talking about business?
MR. DAVISON: Both areas.
SENATOR DONLEY: How do you envision the transmission lines?
MR. DAVISON: The construction or the ownership?
SENATOR DONLEY: The ownership. You don't want two sets like we've
already got on Arctic Blvd., because on one side of the street is
ML&P and the other side of the street is Chugach. So, you've got
two giant transmission lines running down both sides of the
street. How do you avoid that?
MR. DAVISON: There is a way to avoid it and that is you simply
charge fully allocated costs for going over somebody else's
system and in fact that's what the FERC's rule is in the Lower 48
for loading power over other people's transmission systems.
SENATOR DONLEY: So that is what the commission's role would be?
Because somebody would have to set that, right?
MR. DAVISON: True, yes and I think the question you're getting at
is what is the role for the commission in a deregulated
environment and that is a good question, but somebody needs to
establish the rules of regulation or deregulation, if you will.
In the business world you have the UCC, as you know that really
provides the guidelines for how businesses operate and we would
need something similar to that in the deregulation processes if
we struck out in that direction. And there would be a role for
the commission in certain elements of that certainly. You still
have a FERC; you still have an SEC; you still have not quite the
same as the Interstate Commerce Commission used to be within the
Lower 48, but it would still work in about the same manner. There
would still be some form of an entity there that would be
government's arm that dealt with it.
CHAIRMAN TAYLOR: Is there anything further today you would like
to add?
MR. DAVISON: We'll be available, Senator Taylor, as you need us.
CHAIRMAN TAYLOR: Let me do just one ministerial function, because
you all came up at once. Would you all please raise your right
hand and repeat after me. I swear the testimony I have given
before this committee to be the whole truth and nothing but the
truth.
[Laughter]
SENATOR DONLEY: Just because [indisc.] doesn't mean that I still
don't really support it.
[Laughter]
SENATOR COWDERY: Say, if somebody wants to use your line, how do
you establish a reasonable use of your line?
MR. DAVISON: If someone wants access across our line and there is
capacity to do that, then the answer is you charge them fully
allocated costs across your line. That doesn't mean that's how I
would do it in a free market environment. Today we do not have
that. We have agreements that govern access across most of the
transmission lines between Fairbanks and Homer, but were we
deregulated, then the fair way to deal with all the parties, and
this was really Senator Donley's question, is to determine the
fully allocated costs per unit of service over that line and
that's the charge. You make that decision. Someone has to make
that decision. I think there's a role for your regulatory
commission in a deregulated environment. You come in and
establish your fully allocated costs or the various sectors of
your component and deal with parallel path issues and things of
that nature.
SENATOR COWDERY: But if they did make a rate and you didn't agree
with it, then what?
MR. DAVISON: If it was beneath my costs, then the option I have
is to protest their action, which I would do and if I still got
no relief, just go to the courts. You don't have any other
choice.
SENATOR COWDERY: That takes time.
MR. DAVISON: Yes, it does.
CHAIRMAN TAYLOR: I want to thank you again for your testimony.
The next person to testify is Jeanne McPherren - Jeanne? Will you
raise your right hand and solemnly swear to tell the truth, the
whole truth and nothing but the truth.
MS. JEANNE MCPHERREN, Former Regulatory Commission Program
Coordinator: I do.
CHAIRMAN TAYLOR: Jeanne, could you give us some background about
who you are and how long have you been involved in this
regulatory process in Alaska?
MS. MCPHERREN: I started at the Alaska Public Utilities
Commission in January of 1972 and I just retired a few weeks ago
from the RCA. I served over 30 years there working directly for
the chairman and subsequent chairmen. I started out as a
secretary and became a legal assistant and then I was ultimately
Program Coordinator of Regulations under the RCA.
SENATOR COWDERY: So, you must have served under my good friend,
Mr. Shrer (ph) when he was commissioner?
MS. MCPHERREN: I did. I worked with them all.
[Laughter]
CHAIRMAN TAYLOR: What was your last position with the APUC?
MS. MCPHERREN: I was called an associate attorney too, but that's
just a higher level of paralegal assistant. I'm not an attorney.
I want that very clear. I'm not an attorney.
CHAIRMAN TAYLOR: What were your job responsibilities under that?
MS. MCPHERREN: As the associate attorney, I supervised the people
in the commissioner's section as direct staff. Ultimately, I had
four paralegals, two secretaries and a clerk - from 1981 until
1999.
CHAIRMAN TAYLOR: And how did your position change in 1999?
MS. MCPHERREN: In 1999, when the Regulatory Commission started, I
guess they determined they didn't need - because my job was a
reimbursable agreement with the Department of Law - and they
decided they didn't need the position anymore. They did have an
opening for a program coordinator to do regulations and I applied
for it and was appointed to that position.
CHAIRMAN TAYLOR: Was there someone else brought in that did your
old job, kind of?
MS. MCPHERREN: Not on a one-on-one basis. I think a lot of the
stuff I did was farmed out to various other people in the
sections - the paralegals - other tasks that I did - editing
orders, supervising the commissioner's direct staff.
CHAIRMAN TAYLOR: Is that part of the increase in staffing that
took place over the next three years?
MS. MCPHERREN: Actually, three of the positions in 1998, we got
two new paralegals and a new clerk in 1998, I believe. Before
that, we had two paralegals and two secretaries and myself -
were directly assigned to the commissioners as well as a hearing
examiner.
CHAIRMAN TAYLOR: When the old APUC commissioners would deliberate
in an adjudicatory fashion, would they include within those
deliberations an attorney assigned from the Attorney General's
Office?
MS. MCPHERREN: Well, I didn't sit in on all the adjudicatory
meetings, but occasionally, I believe, if they had a legal
question they needed answered, but you need to remember that
before 1999, we had the staff issue. If staff was appointed or
party to the proceeding, they usually would be an assistant AG -
would represent the staff. The commissioners were kind of on
their own, if you will. In a lot of instances, until 1993, the
commissioners were probably the most knowledgeable people. Susan
Knowles, for example, had been there 18 years, Marv Woods was
there 12. The commissioners had long tenure and a lot of
background in the regulations that the more recent appointees
have not had.
CHAIRMAN TAYLOR: Did that role change when the RCA was formed?
MS. MCPHERREN: Well, we have two assistant AGs that are assigned
to the PAS and then the commissioners have a full-time assistant
AG that works directly with them in the adjudication and order
editing. So, I think that's a little bit different than it used
to be.
CHAIRMAN TAYLOR: Does that legal advisor sit in with them during
deliberations while making decisions.
MS. MCPHERREN: Like I said, I really don't sit in on
adjudications. That's my understanding that she does, yes or he -
whoever is appointed at the time…
CHAIRMAN TAYLOR: Is this the same attorney general that would
then examine the decision if it went to court.
MS. MCPHERREN: I am trying to think of some recent appeal where -
but I certainly think that especially if PAS were a part of the -
and PAS had any involvement in the case that neither of those
attorneys could represent the commission.
CHAIRMAN TAYLOR: In your mind is this subtle shift that we've
been discussing - does this look like in any way the independence
of the RCA as an independent commission?
MS. MCPHERREN: I can only give you my speculation on that. I
think the commission is an independent body should with few
exceptions make their own determinations without having to have
the Department of Law oversight except if there are legal
questions that they just don't want the answer to. That's
historically the way it's been the way it's been since I was
there, anyway.
CHAIRMAN TAYLOR: And do you think to some extent that this would
compromise the independence or autonomy of the commission in its
deliberations? Perhaps that's too strong a term. I don't want to
put words in your mouth.
MS. MCPHERREN: I guess I don't feel able to answer that. I guess
you'd have to ask the commissioners that - if they need that sort
of legal input in their decision making process.
CHAIRMAN TAYLOR: I guess what I'm trying to get at - you were
there for 30 years. I would have to feel fairly confident that as
a professional with a lot of experience and the involvement with
that commission over that period of time that you developed a
sense of how things were going, how they were moving, through the
old APUC and so on. Can you describe for me the difference
between the old APUC and the RCA that we're reviewing today. Was
there a change in any way that occurred in 1999 with the creation
of this commission and if so, what was it.
MS. MCPHERREN: Like I say, I don't sit in on adjudicatory
meetings, so, I really can't describe that process for you today
and I'm not sure that I could.
CHAIRMAN TAYLOR: I'm asking from your position from where you sat
for 27 years - before this new commission came along, has there
been a change or a shift in the way they do business.
MS. MCPHERREN: Yes, I think so.
CHAIRMAN TAYLOR: In what way?
MS. MCPHERREN: The old commission used to write at least until
the mid-90s. The commissioners wrote a great many of the orders.
That doesn't happen now. We now have two hearing examiners who do
a lot of the case writing. There are a lot of - I think that even
the assistant AG assigned to the commission actually writes
decisions and that's different. I'm trying to think of one or two
instances in my 27 years there that an opinion was authored by an
assistant AG. I grew up in a different environment than what's
there right now. It's not to say what they're doing right now is
right or wrong from their perspective, but it's not what I was
used to.
CHAIRMAN TAYLOR: The commission does employ staff, doesn't it, to
review and comment upon the adjudicatory matters like rate
changes and so on?
MS. MCPHERREN: Yes, it does.
CHAIRMAN TAYLOR: And then, don't they also have an advisory
staff, a public advocacy group?
MS. MCPHERREN: Yes, that's statutorily created.
TAPE 02-36, SIDE A
CHAIRMAN TAYLOR: Can you tell me the differences between those
and what role they play in the current RCA?
MS. MCPHERREN: Quite frankly, I think that's probably a point of
controversy right now because when the, what I will call, the
public advocacy section, is not appointed as a party to the
commission, the commission frequently uses its own staff to get
it advice. And I think over the past several years a lot of the
industry has been opposed to that practice because they don't
feel it's right to cross-examine those people. You have to ask
the people who come before you if that's the case, but that's
certainly my understanding of the facts. It was different when it
was the APUC if the, what they call the staff advocacy section in
those days was appointed a party, then there was an absolute
barrier to the commissioners accepting anything with staff that
were appointed as part of the staff advocacy chain. Whoever was
left over, they could certainly ask questions, though, but there
was no absolute demarcation at that point in time.
CHAIRMAN TAYLOR: And, how does that differ, I guess, from the way
they used to operate? Has this process of having the adversarial
group or public advocacy group on one side and the group over
here advising the commission on another side. Is that process
working? You used the words, 'It's somewhat controversial.' I
don't know what you meant by that.
MS. MCPHERREN: Well, it's my understanding that we have had
complaints from various utility people that they think their
rights have been violated because they don't get to ask those
people questions. If PAS is not a party, for example, and the
staff people only work directly for the commission, where do the
utilities or the pipeline carriers have a right to talk to these
people? I mean, you could certainly look at the records before
the commission. I think that's in several filings that are before
the commission.
SENATOR COWDERY: They don't get a right to respond? Is that what
you're saying?
MS. MCPHERREN: Right. If questions are raised by the staff versus
the PAS, they have to push and the utility doesn't get to cross-
examine that staff person because they are not a party to the
case. So, I think to some extent they have felt they have not had
their due process rights protected.
CHAIRMAN TAYLOR: Because when you say the staff person, are you
talking about the advocacy group staff person or the staff person
working for the commissioners or directly under the commission?
MS. MCPHERREN: I think when PAS is a party, I don't think there's
any problem. But I have seen in documentation was, if PAS was not
a party and the commission was using the rest of the staff as
advisors, and they had questions or discovery requests, if you
will, from those people, then the utilities didn't get the right
to…
CHAIRMAN TAYLOR: This is kind of confusing. If I can put it in an
example, maybe I can understand it. A rate case is pending before
the commissioners. The commissioners turn to their staff people
and say, 'Advise us on the rate case.' Staff people not only
advise, but apparently, at least the attorney with them, sits in
on the deliberations when they make a decision about it.
MS. MCPHERREN: Yes.
CHAIRMAN TAYLOR: Okay, when does the affected utility whose case
is being decided by these people, when does that affected utility
find out what advice is being given by the staff to the
commission? Do they just learn about it when the decision is over
and say, 'Oops, you guys made a big mistake. You didn't figure
this thing right.'
MS. MCPHERREN: I think that's what the controversy is all about.
I think that's the observation that people have made - that the
utility is not getting its day in court.
CHAIRMAN TAYLOR: And can you testify as to whether or not that is
happening?
MS. MCPHERREN: I haven't been in the adjudicatory process
recently, but in 1999, I believe, when the new commission was
first created, we had [indisc.] proceedings in which that did
happen. That's the matter of record that you can check.
CHAIRMAN TAYLOR: So, there is some substantiation for that
concern that at least has been raised on that issue?
MS. MCPHERREN: Yes, that's a matter of public record and I can
certainly get you numbers if you want.
CHAIRMAN TAYLOR: So, not only does the utility never get a chance
to respond or to cross-examine to see if something is true or the
formula is figured out right. What happens if the staff has made
a mistake? How do you get that mistake corrected before a final
decision?
MS. MCPHERREN: Well, if the decision is made based on the
erroneous evidence, if you will, the utility certainly would have
a right to petition for reconsideration and try to point out
where it thinks mistakes had been made and then if they're still
not satisfied, they can make an appeal to the court.
CHAIRMAN TAYLOR: A mistake that didn't have to be made had they
been given the correct advice at the time has been compounded
over time so people have to go to court hearings and so...
MS. MCPHERREN: Yes.
CHAIRMAN TAYLOR: What's the difference between a regulated
utility and an unregulated one?
MS. MCPHERREN: At least under the definitions that the
legislature created when they created the Regulatory Cost Chart
Statute of the commissions, a regulated utility is one that has a
certificate from the commission and is regulated by the
commission for rates, charges, conditions, terms of service,
management practice, everything. An unregulated utility is one
that has a certificate but is not subject to commission
regulations for anything except certification. And, in fact, I
think probably two-thirds of the utilities that the commission
regulates are unregulated. A lot of them are municipalities,
political subdivisions of whatever in nature. There are a whole
litany of reasons you could be unregulated under AS 42.05.711.
CHAIRMAN TAYLOR: I don't want to get into the whole question
about who's paying what share of the rates or fees, but that is a
problem, isn't it? That a lot of times often spent on unregulated
utilities that aren't being charged a fee by the commission and
then the commission basically has to eat that, which means all
the regulated utilities have to make up the difference. We've got
a budget here that's gone from about $4 million to $6.1 million
and we're not even looking yet at how many millions are being
spent by the utilities trying to comply with this. The utility
users of Alaska are paying a lot of money, probably somewhere
about $18 - $30 million a year just so we can have this rate
commission and they can have their papers being stirred for years
at a time. I know that there are concerns there about how we have
a fair compensation coming back to the commission on the matters
that it's taking up. Can you enlighten us to the way the APUC did
it and the way it's currently being done by the RCA - on cost and
fees incurred for regulating unregulated utilities.
MS. MCPHERREN: Under the APUC Act when the RCCs were first
created, the statute was that exempts utilities, which are being
unregulated. They're certificated and then regulated - had to pay
the costs of their doing business before the commission. The
commission developed what is called a loaded labor rate under 43
ACC 47.100 and the staff then kept track of its time and that
loaded labor rate would then account for the administrative
costs, commissioners' costs, the several commissioners' staff and
then there's an attorney rate separate from that. The staff,
then, keeps track of their time and at the end of the case, then,
how many hours were dedicated to that case by the staff people
involved. They took it by the loaded labor rate and that was the
bill that was sent to the utility.
CHAIRMAN TAYLOR: And that was done under the APUC. What's being
done today under the RCA?
MS. MCPHERREN: I think under current RCA orders, and you can
check that as I am not involved in those matters any more, they
feel because of the passage of time and other factors that they
should eat the cost rather than assess them to the exempt
utilities.
CHAIRMAN TAYLOR: Is there is a change in policy by the
legislature directing them to do that? Are you aware of that?
MS. MCPHERREN: You're going to have to ask the commission, but I
believe that's their interpretation of the statute.
CHAIRMAN TAYLOR: In your experience, did the RCA conduct all of
its significant non-confidential business in public sessions with
some type of public notice?
MS. MCPHERREN: Well, this is purely my own interpretation based
on what the APUC did. The RCA is subject to the Open Meetings Act
for everything except adjudicatory matters. That includes
regulations, legislation, contracts, everything that's covered by
the Open Meetings Act. As far as I know the RCA hasn't met on any
contract in a public meeting in the last three years. That's my
reading of the statute. If there have been contracts, they
certainly have been discussed at public meetings that I have
attended.
CHAIRMAN TAYLOR: Speaking of state contracts, isn't it
requirement of state law that - I think it's 42.04.050 (b)
because I looked this up because I'm concerned about it - that
any contract over $5,000 has to be approved by the entire
commission and that must be done at a public meeting, not just by
the chair.
MS. MCPHERREN: I think that statute talks to $5,000 for
consultants or expert witnesses and then anything else over that,
but there are other contracts besides those. We have the court
report, the MIO's project and numerous other contracts that as
far as I know - I don't know how they're approved to tell you the
truth.
CHAIRMAN TAYLOR: These are contracts with a state agency and
apparently not in compliance with that statute as far as you
know?
MS. MCPHERREN: Yes, as far as I know.
SENATOR COWDERY: Does the full commission make these contracts,
to your knowledge, that are approved, whether in public or out,
is it the full commission or just the chairman or is it both
ways?
MS. MCPHERREN: I don't know how they do it now. I know how they
did it at the APUC. It took three commissioners participating,
two after approving the contract. I'm not sure how they do it
under the RCA to tell you the truth.
CHAIRMAN TAYLOR: Under AS 42.04.070 (a)(2), the chair of the
commission is required to develop a time management system for
the commission. In your experience, has any such system ever been
developed?
MS. MCPHERREN: I think part of this MIS project that I mentioned
earlier is to include a time management element of it. That's
still being perfected today, but it's my understanding that the
professional staff still has to keep track of its time, at least
by industry, because that was part of the regulatory cost charts
amendments that you made in 1999. I believe that because the
electric and other utilities thought that the commission did too
much business for telephone utilities, you changed it and
required the commission to keep track of time by industry, also.
So, I think at least the professional staff are keeping track of
their time by industry.
CHAIRMAN TAYLOR: What I'm referring to is developing a time
management system that would establish deadlines for concluding
every matter that comes before the commission. That's required by
statute law. I really appreciate your testimony that in fact now
they are keeping track on an industry by industry basis, because
there is a lot of controversy by the telephone folks and the
water and sewer guys saying we're paying way too much because
they're spending a lot of time over on these other fellows'
problems. Now they are at least accounting for the cost of the
staff in a more appropriate manner. My question is merely about
establishing deadlines for matters coming before this commission.
We have testimony already today from the largest electric utility
in the state that matters that their budget depends upon are
still languishing after five, six years over APUC and RCA
matters. So, I'm asking if you know of any commissioner doing
what she's required to do by statute law, which is to establish
guidelines for the decision-making on cases?
MS. MCPHERREN: Yes, one of the first things I was tasked with
when the new commissioner came on board was developing timeliness
standards for everything that wasn't already required either by
the commission's statute or regulation and I did that. Those were
adopted I think in December of 1999 and in effect by May 2000. I
certainly understand there are a lot of utilities who think the
commission doesn't comply with those. I think one of the things
you could do to validate anyone's story is have the commission's
docket logs looked at from the inception of the case to the end
of the case because, like I say, I don't work on adjudicatory
cases and don't know, but we do have some extremely old cases
that are still alive right now at the commission.
SENATOR COWDERY: Earlier I asked about staff. It's my
understanding that statute required the RCA to promulgate
regulations for timelines by 1999.
MS. MCPHERREN: Yes. We did that.
SENATOR COWDERY: And that was done?
MS. MCPHERREN: Yes. There are certain deadlines that are already
prescribed in statute. For example, rate cases already have
statutory deadlines set out - generally six months for the large
utilities. The commission, however, can extend those deadlines
for good cause and I assume that's obviously what happened in
some cases. They've extended the extension period for good cause;
they've extended periods of reconsideration while they work out
conditions for reconsideration. So, they have extended deadlines
and, I assume, like in the Chugach case, they have had to extend
any suspension period that went beyond six months.
CHAIRMAN TAYLOR: Let me just ask you this, because Senator
Cowdery had asked earlier witnesses about temporary tariffs or
temporary rates that are only good for six months to one year. In
fact, there are temporary rates that are still in effect that are
over three years old and that would be the ACS/GCI. Much of that
controversy focuses on a temporary rate decision made about three
years ago and no one has ever made a final decision on it.
MS. MCPHERREN: I can't speak to that one, but I do know that the
Chugach one falls in that regard. I don't know about the ACS rate
case.
CHAIRMAN TAYLOR: I have before me regulations, I guess, that were
established in the earlier part of 1999 and I tell you there's a
fascinating comment in here. The commission assures the public
and commenters that it us well aware of the intent behind its
statutory mandate to adopt timeliness standards and believes that
any attempt to circumscribe such standards by meaningless
findings of good cause would most assuredly invite swift reaction
in front of the legislature. In fact, good cause is the loophole,
maybe not big enough to drive a truck through - that the
commission utilizes to continue any matter that it is not ready
to adjudicate. Can you comment on that?
MS. MCPHERREN: That certainly the vehicle they've had to use for
continuing a case. To the extent they set out what that good
cause is and it satisfies the parties in a case, then I don't
think there's any controversy. If, however, they extend something
for a good cause and the utility under consideration has a
problem with that, then I think there is a problem with what good
cause constitutes.
SENATOR COWDERY: Good cause is a problem. That's a big word to
me. If you say something can't get done by a deadline that could
be good cause. We have deadlines to meet and it seems to me the
big problem we had with APUC and they said they needed more staff
and now the deadlines are further out now than they were then. I
have a hard time.
MS. MCPHERREN: I understand that unless someone in the industry
is concerned as well - like I said, I don't deal with that aspect
of the commission's work. You could look at that and satisfy
yourselves in that regard.
CHAIRMAN TAYLOR: Ms. McPherren, you were with the APUC in 1994
when that commission went into its what may be called its grace
period and has otherwise been called the wind down year and is
often referred to as termination year, depending upon what
adjective you want to use to convey what spin you want to put on
the story you're writing. You went through that process with the
APUC and I assume you were a senior staffer at that point and
intimately involved in the workings of that commission. Can you
tell what happened during that year?
MS. MCPHERREN: To the best of my recollection it was just
operated normally. I think the executive director was tasked with
developing plans for how he would start the wind down process,
but I think it was pretty much that cases that were there and
scheduled went forward. I don't remember turning any filings
away. That could certainly be checked, but I don't think we
dissuaded anyone. That doesn't come to mind, anyway.
CHAIRMAN TAYLOR: I've actually had that checked out by our legal
people. Jack Chenoweth has written a memo. All of you have a copy
of it - on not only what happened to the APUC, but what's
happened to about, I guess it's 1,200 - 1,400 times in state
history and to 10 different commissions three different times,
interestingly enough, with the Parole Board. If all hell is going
to break loose, I would think they would have something to do
with that, but interestingly enough they continued to function,
APUC continued to function and from the best we can tell, the
legislature took them up the next year and continued and extended
them and it wasn't for another four years before the RCA was even
created out of the hearings and reviews that had taken place. So,
as far as you recall, there was no major change in business. Jack
Rhyner does not have to worry, in other words, about whether or
not he's going to be certified and be able to have money
distributed to his little telephone company.
MS. MCPHERREN: To the best of my recollection, there was no
change in either the adjudicatory or regulatory side. I'm not
sure what the executive director actually had worked up as far as
personnel. That of course you could certainly ask Bob Lowe who
was executive director at that time. I don't know what he
developed as far as staffing.
CHAIRMAN TAYLOR: He probably had to have some kind of backup plan
that says if the legislature doesn't approve us in their four-
month session, we have to cancel this lease and fire a lot of
people, because they would at that point have to shut down. But,
as you know, going into the grace period on the current RCA does
not mean that they will have to shut down anything that they are
currently doing. In fact they might resolve some things.
SENATOR ELLIS: On that point Jim, thank you for being here. Do
you think there's any danger of losing skilled or experienced
staff during the wind down year or death spiral or however you
want to characterize this period? During the wind-down year,
sunset year is there any danger of your losing experienced staff
at the commission?
MS. MCPHERREN: But, I'd like to say no. However, a lot of people
at the commission are totally new. There are a lot of new staff
at the commission who are probably certainly thinking about
whether they want to stay there. I certainly think that would be
of concern especially to people in the support staff who don't
have a great deal of money anyway, would probably start looking
for positions.
SENATOR ELLIS: Because of the uncertainty?
MS. MCPHERREN: Yes.
CHAIRMAN TAYLOR: Are there a lot of people working for the
current governor doing the same thing?
MS. MCPHERREN: Absolutely.
CHAIRMAN TAYLOR: I wanted to ask you, just as a matter of form,
there are certain statutes that impact both commissioners and
senior staff and that's AS 39.52.50 and AS 42.04.060 and what I'm
referring to there, I'm not trying the baffle anybody. That's the
ethics laws - the conflict of interest laws. Have you ever had to
fill out one of those reports yourself to your superiors for
having taken or received benefit?
MS. MCPHERREN: Absolutely not.
CHAIRMAN TAYLOR: Are you aware of any commissioner or any senior
staff person during your tenure that told you or informed you
they had to fill out such a report?
MS. MCPHERREN: Not to my recollection. No.
SENATOR COWDERY: Who is the - I assume that if there were reports
made on that subject, they would have to be forwarded to that
person's superior.
MS. MCPHERREN: Yes.
SENATOR COWDERY: And who would that be?
MS. MCPHERREN: If it's senior staff, it would be the chairman.
She is the person...
SENATOR COWDERY: Who comes after the chairman?
MS. MCPHERREN: I think the governor. I would certainly think that
or maybe you. I don't know that part of the law very well.
CHAIRMAN TAYLOR: One last thing, I want to thank you on behalf of
this legislature for the 30 years you put in as a state employee.
I really appreciate that dedication and that longevity. I wanted
to ask you, however, did you have a couple of years left to go
before you retired?
MS. MCPHERREN: No. I could have gone at 30 years. I wasn't 55. I
had 30 years in and under all the circumstances, I decided it was
time to go.
CHAIRMAN TAYLOR: I'm sorry we've lost you over there and I
appreciate very much what...yes, go ahead, Senator Donley.
SENATOR DONLEY: I wanted to understand something from earlier.
Thanks for being here, Jeanne. I may have misunderstood, but in
1999 there was a decision regarding access fees. Was that about
telephone access?
MS. MCPHERREN: Yes, telephone access charges.
SENATOR DONELY: Which attorney general was involved in it?
MS. MCPHERREN: No, I wasn't talking about the assistant AG. I
was talking about staff, the PAS, not being a party - the staff
advisory people actually being involved and the utilities being
upset because they didn't have an opportunity to be able to
cross-examine those people who actually work for the commission.
I think that's sort of been a standard criticism in several
cases, actually.
SENATOR DONLEY: So, whenever those fees were set. Did that happen
in 1999?
MS. MCPHERREN: Actually, access charges were assessed at our
annual - they're set annually. That's what the intrastate
carriers pay to the local exchange carriers to use the loop, so
we do that annually.
SENATOR DONLEY: Is there somebody from the Department of Law
directly involved in that process or is it the commissioners
themselves that make that decision?
MS. MCPHERREN: I don't know about currently. You do have to ask
the commissioners that question.
SENATOR COWDERY: In 30 years you've seen a lot of administrations
and commissioners. Have you ever in your tenure ever had any
knowledge or heard of anything where the governor, whatever
governor, had got involved in any of the decision-making
recommendations?
MS. MCPHERREN: No.
SENATOR COWDERY: Thank you.
CHAIRMAN TAYLOR: Jeanne, I want to thank you again on behalf of
all of us for your years of service. Thank you for attending
today. I found that letter Senator Ellis, and I think Jack is
also here, if you want to talk with him. I was going to call my
next witness, Mr. Stancliff. Jack, do you want to come up? Oh,
when I called him last night and was talking to him, he was
laying on some ice he said and he's doing therapy on his back. I
hope it goes well. Maybe you could run copies of that off for
everybody.
SENATOR ELLIS: Mr. Chairman, is it your plan to take some other
public testimony after Mr. Stancliff.
CHAIRMAN TAYLOR: Yes, if we have time.
SENATOR ELLIS: When we get to the end of the agenda, I think
there are other folks in the audience who would like to testify.
CHAIRMAN TAYLOR: First off, do you swear that the testimony you
are about to give to this committee to be the truth, the whole
truth and nothing but the truth?
MR. DAVE STANCLIFF: I do. Thank you, Mr. Chairman. For the record
my name is Dave Stancliff. I'm here today representing myself. I
have no personal, professional or legal affiliation with the RCA
or any interest group large or small involved with these
proceedings. I am not now, have never been or intend to be an
attorney. I may be an associate. Who knows?
At no point has any elected official or member of any special
interest groups approached me or in any way suggested that I
testify or in any way influence these hearings. My views and
opinions are based on a series of events I dealt with in an
official capacity as a legislative assistant. I felt that at the
very end of the testimony, at least, I want to be square with the
facts.
I'm of the personal opinion, after having dealt with both the
APUC and RCA on at least one matter while I was working for
Representative Ogan, that some reform would be in order and it's
unfortunate, perhaps, that we have to reach this degree of
tension to have some reform. At the time I was working for
Representative Ogan, I received a call from a homeowner in a
small subdivision out in the Valley called Crimson View and that
homeowner was asking us to look into why the APUC at the time
was, in fact, dragging their feet on a case that they had before
them for quite some time. The case involved a small water system.
These homeowners and the developer had gotten together and they
had put in a well system and they had put in a water system that
DEC had approved and they had built, designed and paid for this
system based on a limited capacity use, that being their
subdivision.
The developer essentially sold off two sections of the original
property and a new developer became involved. That developer
looked at the water system that was there and decided that he
could work a deal to use that water system to provide water to
new lots and homes that he wanted to develop in the area. So, to
make a long story short, he and the homeowners disagreed. He,
then, through is attorney, went to the APUC and asked the APUC to
intervene. In the documents that I scrutinized, the APUC
originally said they didn't want to be involved in it. That is
was their turf and then subsequently changed their mind. The
homeowners group had to employ a legal counsel and a series of
hearings and procedural moves ensued. And a year and a half into
the process, and at considerable expense, these homeowners were
basically broke; their homeowners' association was out of money
and they could to get any movement one way or the other from the
commission. At that point they called us. When we looked at
existing statute, it was quite clear that the legislature and
even the commission at some point had decided that small
telephone and utility electric companies - those grossing under
$50,000 a year, were not really what they were set up and
designed to oversee nor did they have the staffing and funding.
There's a lot of the small utilities throughout Alaska. We
thought, well, perhaps we could add small water utilities into
that list in statute. And so, Representative Ogan, at the time,
introduced a bill to do just that. Originally, the reaction to
the bill was it doesn't make sense; it's not good public policy;
certainly APUC has bigger fish to fry than small subdivision for
people in the Valley. About a week into the process, we started
getting calls that told us that somebody was involved in the
henhouse and it happened to be a lobbyist who was basically
convincing the committee members that this bill wasn't such a
good idea. I approached that lobbyist who said he was, in fact,
doing a favor, he wasn't officially under contract, he was just
doing a favor for friend. That friend just happened to be the
same developer that had filed with the APUC.
So, now the legislature has the issue in front of them and of
course we laid the issue out. About that time, the RCA was being
formulated legislatively and the commission was under some
pressure because the questions of confirmation. I don't think
they really wanted to have this issue in front of them and they
were happy to put everything into a neutral mode. I say neutral
only because under today's law, I think if the commission so
desires at some point to reinvolve themselves with other
utilities of this size, they could probably do so.
As you know, I have been involved in the question of establishing
central panels in the state of Alaska for some time because it
just makes good sense if you're going to have a hearing that the
hearing officer where there's an AG for APUC or any hearing
officer, those hearing officers ought to be unbiased and had not
later be involved in judicatory process. Had that been in place,
we might have avoided this particular situation, but I think
reform is needed and we should establish at least this one part
of reform - that small water utilities, in fact, be exempt, just
as electric and telephone are, and that these small groups just
don't have the finances, the little guys don't have the ability
for protracted and bureaucratic litigation that ensues when the
APUC is involved or RCA. I'm not suggesting to this committee
that the RCA was improperly or the APUC was improperly
influenced. I'm not suggesting that at all. What I am suggesting
is, and I think we've heard it here earlier today, that when a
regulatory commission is either overworked or doesn't have the
proper process or for whatever reason things are slowed up, it
gets terribly expensive for small groups of people who are
involved in that. So, my suggestion here today is that (a) we
take a look at regulating and reforming the commission so that
those types of things don't happen. My personal opinion is that
when you have a commission that can take undue amounts of time
and has the power to tie things up, someone else who wants to
challenge you and who can get the issue before that commission
has a great advantage if they have deep pockets and good
attorneys. And, so, I thought it might be valuable to the
committee members to consider at least one aspect that might need
reformation as you look at this, Mr. Chairman.
CHAIRMAN TAYLOR: Interestingly, our state auditors found the same
thing. The first recommendation they made was RCA should either
require smaller water and sewer utilities to be certified or
establish a meaningful exemption system by regulation and that's
exactly the same thing you're calling for here. Our auditors
didn't completely whitewash this operation. They did find
problems and that was one of them and I'm glad you brought it
before us. I'm disturbed at your concluding comment that a person
- because apparently your water system was not regulated prior to
the time this person seeking an advantage forced you into a form
of regulation.
MR. STANCLIFF: That is correct. It was very small. I think there
were between 25 - 30 homes and DEC had approved the system based
on that amount and had overseen every inch of the water system.
Interestingly enough, when the new water system was put in, DEC
signed off on it without even looking at it and there were
reports that the system was designed out of spec, that is using
smaller diameter pipe off the leads to the home. It should be one
inch and they were using three-quarter inch. The other problem
was that there just wasn't enough water in that well under
certain conditions to handle everything. And so, I've worked for
the legislature a long time and I'd be the last person to suggest
that people in powerful positions don't have perhaps a little
more influence than others, but this appeared to me to be a very
convenient institutionalized regulatory system for this
particular person's use and they knew how to use it quite well. I
am sure if we had not intervened and introduced the bill and the
timing with the RCA hadn't happened, they might have actually had
to declare bankruptcy and in terms of the system or concede use
to the developer.
CHAIRMAN TAYLOR: According to our auditors, at least half of the
water and sewer systems, smaller ones, in the state today are not
regulated and don't come under any regulation. They found 65
water systems and 65 sewer systems that were operating without
RCA certification, but apparently that's just until some guy
wants to put in a subdivision next to one of them and if he files
with RCA, then RCA takes up the matter, and then some staffer
advises the commissioner to do it and the regulating just gets
done.
MR. STANCLIFF: That was one of the aspects that really kind of
raised our eyebrows. Why was the particular - what was so
different about this particular system and was the person in
position of considerable influence to somehow be able to convince
an unbiased commission where they shouldn't perhaps have been
able to? Those are questions that probably can never be totally
answered. The other troubling part of it was to have a lobbyist
volunteering behind the scenes - we didn't legislate the process,
because we tried to bring some semblance of balance within the
electrical, water and telephone and that was added into the
process, too.
Representative Ogan ultimately withdrew the bill and the RCA
issued a, what I consider to be, a loosely worded statement that
they didn't have any more interest in pursuing this particular
matter at this particular time.
SENATOR COWDERY: You just now testified about a lobbyist. Is that
lobbyist here today? Was he?
MR. STANCLIFF: I believe I might have seen him earlier. It was
Mr. Ashley Reed.
CHAIRMAN TAYLOR: I want to thank you for your testimony. It's
fascinating so far today. This thing's been hyped from day one.
There's some kind of huge telephone wars. I haven't heard from
the telephone companies yet. We're going to get into that
tomorrow, but we've certainly heard from the largest electrical
utility in both sales and generation in the state. And we've also
heard from small sewer and water operators. It seems a lot more
complex and involves a lot more depth than I believe anyone
intended for it to be given. The process has been orchestrated
for whatever political reason to bring up back to Juneau.
SENATOR COWDERY: I talked to Mr. Roth earlier and he has been
hanging around and has got to go to Washington D.C. tonight. I
was wondering if it would be appropriate that we ask him if he
had any comments on anything that was said here today?
SENATOR ELLIS: Mr. Chairman if he's preparing to do that, do you
have a sign up list or would you mind asking for a show of hands
of people who would like to give public testimony?
CHAIRMAN TAYLOR: We'll be happy to set up a sign up list for
tomorrow following those who have been invited.
SENATOR ELLIS: Okay, number six says testimony by others who may
be called by committee. You called Mr. Stancliff. You're now
asking Mr. Roth to testify again. Do you intend to take any other
testimony today?
CHAIRMAN TAYLOR: I wasn't intending to but, if you like, we could
sit here and take some more testimony, John. I don't see a reason
for that, but I do understand commitments to get out of here
about 4:00 or 4:30.
SENATOR ELLIS: Mr. Chairman, I expressed earlier at the beginning
of the hearing that you put public testimony from other people
not on your list of witnesses or people that you choose to call,
if time allows and there are a number of people who are concerned
- some of them have put their comments in writing because they
are concerned that we may never get to them.
CHAIRMAN TAYLOR: I have a pile of people from all across the
state both supporting and opposing this extension that have put
their comments in writing because they couldn't travel from
McGrath to get here to explain.
SENATOR ELLIS: So, let's hear from Mr. Roth again, and then it
sounds like there's probably going to be about 30 minutes for
anyone else in the room who might like to testify.
CHAIRMAN TAYLOR: We'll take whoever would like to sign up. Mr.
Roth, your testimony is recorded. I remind you that you are still
under oath.
MR. FURCHTGOTT-ROTH: Mr. Chairman and Senators, it has been
fascinating hearing the witnesses today. I think this all
indicates the complexity of the matter before you. It doesn't
change my view that - I don't have any particular opinion what
the ultimate decision you have to make, but it certainly does
inform me just how complex the matter is before you.
SENATOR DONLEY: Tomorrow we get into telephone issues and this is
all pretty much a matter of first impressions to me and learning
as we go here. This adoption of the model - I guess tomorrow I
want to ask - the thing I would like to know is - I just want to
clarify that there's no federal requirement that Alaska adopt the
state model as suggested by the federal commission? It's up to us
as a state to decide what model we want to adopt, but they
encourage us to adopt some model, is that it?
3:55 p.m.
MR. FURCHTGOTT-ROTH: The commission has established guidelines
for pricing principles that are based on something called total
elemental long run incremental costs [TELRIC]. They do not
require states to adopt a specific model. No.
SENATOR DONLEY: Whatever model the state would adopt has to be
within those pricing principles?
MR. FURCHTGOTT-ROTH: Yes.
SENATOR COWDERY: We talked earlier about the small utilities, you
know, and in your experience, what is a small utility? Are all
utilities in Alaska considered a small utility? You know we have
Fairbanks being rural and we have urban, you know, Anchorage and
Juneau. What considering the overall experience you have, is a
small utility?
MR. FURCHTGOTT-ROTH: Small is in the eyes of the beholder. I'd
make two observations. By Washington standards, large
corporations can have some advantage with the process that the
gentleman who just spoke about the water situation. One company
can come in and bottle up the whole process. That goes no at the
FCC as well. The testimony from the electric utilities is a very
poignant reminder. I can't tell you how many companies have I've
spoken to in this country who say they've got a lot of problems
with the FCC, that they are afraid of retribution and they won't
come forward. That's inherent in the regulatory process. It's
particularly true of small companies. Particularly true. It's a
very difficult situation. That's part of the administrative
liberty that I spoke about.
CHAIRMAN TAYLOR: Can you tell me what impact does it have on a
utility in, say Fairbanks or Juneau, that has been classed as
exempt because it was rural or small and now if that
classification is removed, what does that do? Does that open them
up to competition? Does that set them up so somebody can file and
go through the process with them?
MR. FURCHTGOTT-ROTH: Mr. Chairman, during the passage of the 1996
act, there were senators from those states including Senator
Stevens from Alaska who went to extraordinary lengths to get
certain language put in the Act and much of that language was in
Section 254 and particularly coming with provisions to insulate
small companies from what was perceived to be potentially harmful
effects from the Act. My job as a House staffer was not to allow
any of this language in the Act. The Senate prevailed. I worked
very closely with Senator Stevens' staffer at the time, Earl
Comstock, to come up with the language. The House wanted to allow
competition, to allow anyone in America to go in and invest their
own money to provide telecommunication services. Senator Stevens
and others were very concerned about the effect this would have
on small companies that were just barely making it in small
communities. There was a [indisc.] determination of who would
allow the [indisc.] to cease was given to the states under very
specific language about the burden of proof. The language that
was put into the statute was not there by coincidence. I can
assure you the language that was there was not put in by the
House. It was put in there specifically by the Senate, which had
a very particular interest. What the specific effect would be on
a particular company, Senator, I can't tell you. I think that's a
fact specific determination. It's a determination that's supposed
to be made in each instance in which the rural exemption is
removed, albeit you can generalize and say...
CHAIRMAN TAYLOR: But, isn't the RCA body that is left with the
decision of whether or not there shall be a rural exemption and
if there is a rural exemption and that has a protectionist
impact, if you will, upon that one utility in that community that
is providing that service, then an application by a competitor
should have that rural exemption removed and then [indisc] the
RCA reacts and says, 'Yes, it's removed. Now, let's have a big
rate fight over it.' I think that probably has a rather negative
effect on the guy who's been out there providing that service for
many years. Maybe I'm missing something in the mix-up.
MR. FURCHTGOTT-ROTH: No sir, you're quite correct. The specific
concern at the time of the passage of the '96 Act had to do with
what was called cherry picking. Competitors would come in and
pick off the most valuable customers and the incumbent would be
left with the highest cost, lowest revenue customers and there
would be a spiral out of control. Whether or not that is how it
would play out is again a fact specific determination. That's
what the law said. It's not something we can easily get around.
CHAIRMAN TAYLOR: I guess I'm asking how did we get around it up
here when two communities that had been defined in one fashion,
the definition changes. Wasn't there supposed to be a finding?
MR. FURCHTGOTT-ROTH: Yes sir.
CHAIRMAN TAYLOR: Was there a finding?
MR. FURCHTGOTT-ROTH: It's my understanding, and I 'm sure you can
get some witnesses who know the details of this better than I,
but what I understand is that under the APUC there was initially
a proceeding - there are multiple proceedings on this. One of the
proceedings placed the burden of proof on the commission and they
were to make a clear determination and subsequent proceeding,
place the burden of proof on the incumbent, which again enabled
the rate determination and based on that, the competitor was
allowed in. This is an issue that has been reviewed in the
courts. This is not something that we've had some precedent. The
Eighth Circuit, an Iowa utilities board found that the FCC had
improperly placed the burden on the incumbent. The Supreme Court
overturned much of the Iowa utility board's decision, but did not
overturn that specific part. In accordance, the Eighth Circuit
decision was it consolidated here. That is to say there were
multiple cases all around the country; the court system decide to
consolidate them in the Eighth Circuit and do a finding on the
entire country. It's not just the geographic area that pertains
to the Eighth Circuit. My understanding is that there is
litigation around this, but I'm not the person that knows the
details to that litigation.
CHAIRMAN TAYLOR: In other words, tomorrow we should be asking
whether or not the RCA is currently in compliance with the
Supreme Court decision and the remainder of the Eighth Circuit
Court decision, which is still valid, which is who has the burden
of proof and what type of hearing do you have to have to decide
to say that another small community in the state and somebody
decides to compete, makes a filing and who, then, has the burden
of proof to decide whether they are a small town rural and, thus,
an exempt utility or not exempt and open for competition.
MR. FURTCHTGOTT-ROTH: Senator, let me clarify this. This rural
exemption applies only to certain parts of the Act, particularly
the unbundled elements part. The Act is quite clear. If you or I
want to take our own money and invest it in equipment that we own
ourselves and provide telecommunication services, we have the
right to get air connection under 251. What we don't have the
right with the rural exemption is to be able to lease certain
equipment from the incumbent company. So, this is really not so
much narrowly a question of can someone come in and invest your
own money and provide their own service. We, in the House, were
able to get that part in. What this has to do with is what are
the additional obligations of the incumbent telephone companies.
That's the issue that's before you; it's not about whether anyone
can come in and compete with their own money.
CHAIRMAN TAYLOR: I understood that. If anyone wants to have a
water system, everybody can build their own system, but if they
want to come in and leach off the blood of the very system that's
operating in that community, they have to [indisc.] - an
interesting subject that has not come up yet today. We've heard a
great deal about competition in its various forms and we've heard
a lot about regulation and about how that either is or is not
working depending upon who is testifying. One question I have is
why in the world why don't we have competition in cable TV in
Alaska and is there something that's preventing cable TV from
being freely open and competitive in this state? If so, where are
you aware of within the FCC or in other state regulations why I
am paying $90 some bucks a month in Wrangell to get a lousy
system of cable TV and I can't get anybody to come in there and
compete.
MR. FURCHTGOTT-ROTH: Mr. Chairman, cable television providers
around America, including GCI, today face competition from two
satellite-based multi-channel video distribution providers,
Direct TV and Echo Star. Those are companies that invested their
own money, built their own satellites, purchased their own
programming. Under the 1996 Act, actually it was the 1992 Cable
Act, Congress said anyone who wants to can come in and build a
competing cable television system. State and local government
cannot prohibit that, but what we found is very few owner-
builders. There are a few on the East Coast; especially a company
that's called RCN, but in much of America, you're quite right.
There is competition, if you will, from the satellite.
CHAIRMAN TAYLOR: But don't we have within the law of the State of
Alaska a requirement that and I think the only part of cable TV
that RCA does regulate and that's the area within which that
person may operate. I think it's an anachronism left over from
when we as a state regulated quality of service, cost of service
and geographic zoning or areas. When the federal government
preempted us and said you cannot regulate quality or cost, they
did not preclude the states from regulating geographic areas or
zones...[END OF TAPE 02-36, SIDE A]
TAPE 02-36, SIDE B
CHAIRMAN TAYLOR: ...in which those systems would be offered. I
think because of the very high rates we're paying, they purchased
every single cable TV system in the state until they owned them
all. And then the rates went up accordingly to pay off the huge
capitalization 'cause I guarantee you in Wrangell I ain't seen
any new lines being put on the poles. I'm still using 20-year old
gear and paying through the nose for it, because that company got
bought and sold three or four times before it was eventually
accumulated into one large carrier. So, I'm very curious about
competition in that field and to find out whether or not we're
going to have any opportunity of that if we're going to have
competition in other fields. Any further questions for Harold?
Thank you very much for being here. I appreciate it very much.
I have some people who have signed up. I told John we'd get to
those. The first is Eric Yould from ARECA. Eric, come forward.
Eric, raise your right hand and swear the testimony you're about
to give this committee is the truth, the whole truth and nothing
but the truth?
MR. ERIC YOULD, Executive Director, ARECA: I do. Thank you very
much, Mr. Chairman and members of the commission here, panel. I
am Eric Yould. I am the executive director of ARECA, which is
trade association for the electric utilities industry in Alaska.
My association represents utilities that generate 90% of
wholesale generation throughout the state, large utilities and
small. Large includes Chugach Electric, Golden Valley Electric,
Anchorage Municipal Light and Power. Mid-size are Kotzebue, Nome,
Dillingham, Cordova, and so forth and so on. I really very much
appreciate Chugach Electric coming before you today, because I
would say that they do express the concern that many of my
utilities have about the trepidation of coming before a committee
such as this and testifying when at a later date they may find
themselves before the commission and perhaps receiving judgments
that would be somewhat biased. I say that in the spirit of
wanting to see change within the commission. I think that Chugach
Electric did a very good job of indicating that their sole
purpose is to speed up the process and I think that is exactly
what ARECA would like as well.
Mr. Chairman, ARECA was here and did participate when changes
were made to the old APUC. Many people told us for similar
reasons that I've just mentioned here we shouldn't get involved,
because if changes didn't take place, then we would be before the
APUC and hence we shouldn't get involved, but we felt it was
important enough that we should get involved and we participated
very sincerely, and we have a number of elements of the new RCA
that are elements that we are able to get enacted in law and
we're very proud of that. But there were a number of good things
that were done in 1999. For instance, the board itself had
changed. Frankly, it needed to be changed. It was really
ensnarled in politics and I think that the new board, which, by
the way, ARECA had the opportunity to participate in and at least
giving our advice on whether they should be members of the board
is a good board in, on a person-by-person basis. I don't want to
give you the impression that things aren't ensnarled, because
they are. But it is a good board. The legislation required more
hearing officers. The legislation required, or allows for smaller
adjudicatory size bodies rather than all five commissioners. It
could have let's say three commissioners adjudicate. It requires
the development of a management information system, which I can
tell you really has not been done yet; should be done. It's
something we want done, and I hope that it will be done. I know
they're getting close on a management retrieval information
system, but I have to tell you that from what I've seen yet it's
not a management information system yet that will help them
manage their workload. They have put in place a time accounting
system which I have to tell you the legislature has told the old
APUC for years that they should put in place and they finally did
put it in place, and I congratulate them on that. They're
allowed to bring in outside consultants. They are required to
come up with a new formula for how they allocate charges for the
RCC, the Regulatory Cost Charge is something that we wanted.
Once again, it was supposed to have been done by regulation. It
still hasn't been done. It should have been done by now. They
will… Pardon?
SENATOR COWDERY: What were you just referring to?
MR. YOULD: The regulatory cost charge should have been put in
place…
SENATOR COWDERY: Oh, by regulation.
MR. YOULD: ...by regulation. They were required to put in
timeline regulations as Senator Cowdery brought up and, as a
matter of fact, they did. I would have to say that they were
pablum. They didn't have much teeth to them. Timeline amendments
that ARECA amended to the legislature this year which did get
included in House Bill 333 have a lot more teeth in them and we
strongly support those timeline amendments and hope you all would
consider them as well. But nevertheless, with all these changes
it is our opinion that the regulatory commission still is very
much mired down. ARECA itself, roughly 28 months ago, submitted
a docket to the RCC that should have been very simple, having to
do with joint pole use. I think it was R005, and it still has
not received final adjudication. And it shouldn't take 28 months
or longer to do a simple regulation such as this. It's just -
and frankly, I think the reason it even got attention this year
is because they are up for sunset review this year.
Nevertheless, individually, I think that we do have a good set of
commissioners, but I do feel that, and my industry certainly
feels that, the process needs to be severely overhauled. My
board of directors has adopted a resolution and my board, as I
mentioned, consists of all of the electric utility members that
are members of ARECA itself, that basically supports a, in this
case, no more than two-year sunset review extension. Frankly,
they'd rather have only a one-year, but when it looked like this
freight train was coming down the track and it was going to be
four years we decided to opt for two years and hope that we could
actually and sincerely get two years, but I can tell you that my
board would be happier with a one-year sunset extension. But,
during that period, certain things have to take place and these
are those things: establish a dialogue with regulated utilities
to discuss reform of the regulatory process. To the commissions
credit they have started that process. They have had two bench
and bars, which allows them an informal setting in which they can
talk to the industry and, hopefully, that will lead to some
changes. That's good. But in addition they are to prepare an
annual report to the legislature addressing the following: how
the RCA will reduce the backlog of cases and other matters
pending before it; how the RCA can revise its process to assure
that fewer issues must be tried in the trial-type setting; how
deadlines for adjudication and other approval processes can be
incorporated in the RCA procedures to produce better and timelier
decisions; identify areas for which the RCA is currently
responsible for regulation that provide the highest public
benefit in an area in which regulation produces lower public
value; and then finally, recommend areas regulatory oversight
that may be eliminated.
Mr. Chairman, this is basically what my board of directors would
like to see. We think that it's very appropriate that the
regulatory commission is under review. We're very much aware
that Legislative Budget and Audit in reviewing this present
commission recommended a four-year sunset review. I was
consulted during that process and certainly none of my thoughts
and feelings are reflected in that document, and I can certainly
tell you that Chugach was consulted, and frankly, I would
question whether their thoughts are in that document as well,
especially, based on what you heard from them today. Mr.
Chairman, this is my testimony. I'd be more than happy to answer
any questions, which you might have.
CHAIRMAN TAYLOR: Senator Cowdery.
SENATOR COWDERY: Thank you. If we, you know, would allow this
thing to sunset, just let it go away, we have a year before it
would actually go away. We've heard testimony earlier that
probably the world is not going to come to the end if we allowed
the sunset. Could we count on you to work with this, the
Judiciary Committee or whatever appropriate committee, to adopt
rules or something for the next one because you guys are the
experts? You guys put up, we here, we have to make tough
decisions sometimes, and sometimes they are not popular, but
that's what we got elected to do and I would ask you, hopefully,
that you work with Senator Taylor and myself. I know Senator
Taylor is taking a lot of pressure, and I commend him for holding
this hearing. I know he's done a tremendous amount of work to
get where we are today. So, I'm not saying what we're going to
do, but I'm just saying I don't think we're going to solve this
problem in any special session. In a short time, I think we need
to solve the problem by solving the problem, not extending the
problem, so... Anyway, I hope that we can count on you, and as
more of a statement, I hope that...
MR. YOULD: I can respond to that very shortly.
SENATOR COWDERY: Please.
MR. YOULD: And that is that in 1999 we were more than happy to
work with the Senate in trying to effectuate changes that we
think were good for the RCA, or the subsequent RCA, and frankly,
even this year when it was hoped that all we would have would be
a one line extension that says, 'The RCA shall be extended for
four years' we dug right in and said 'Wait a minute. Let's get
some timelines in there.' And we were very happy that we were
able to work with Representative Mulder. I and Commissioner
Thompson worked together and came up with some timeline
amendments that maybe we'd like to see be maybe even more
restrictive but, nevertheless, they're a heck of a lot better
than what we have right now. And so we're not afraid to work
with you. We want to work with you. And we beg to work with
you.
SENATOR COWDERY: You don't think the world would end if we don't
extend it though?
MR. YOULD: I think there's been a lot of arm waving and yet, I
think that you heard testimony from another person today that
when it happened before the world didn't come to the end, and
frankly, despite the arm waving that has taken place, I think
that this is a very ethical commission. I don't think that
they're truly going to make happen what some people say will
happen. I think that they will try and ensure that business
continue to take place because they know that we need a
regulatory commission for the state of Alaska, and that it's not
going to go away so why wind it down.
SENATOR COWDERY: Thank you.
CHAIRMAN TAYLOR: I just wanted to review these changes with you.
I was taking notes as quick as I could.
MR. YOULD: I could give you my notes here, Sir.
CHAIRMAN TAYLOR: If you've got them typed up I would appreciate
having them so we could distribute them to the committee members…
MR. YOULD: Sure.
CHAIRMAN TAYLOR: ...because I think you made some very good
points, and I did note during the legislative session as it wound
down, that, and this was all done in that last couple of weeks,
that the House had taken the Governor's bill, where the
Governor's total bill basically changed one number. It changed
the number 2002 to the number 2006. So basically, the Governor's
bill was a one-number bill.
MR. YOULD: Correct.
CHAIRMAN TAYLOR: And then you guys came in and worked with the
House and you added three or four pages I guess, maybe more, of
timelines to say, 'Hey, if you're going to extend at least give
us some definitive timelines instead of this regulator timeline
thing that's never taken place.' My concern, I guess, was that,
and I still have this and I'm going to share it with you and just
ask for your comments - that may be fine for the small utilities.
I don't know that that solves the problems testified to by the
largest electric generator in the state. And I don't know if
that solves the problems testified to by a fellow working with a
little tiny water and sewer system, and the difficulties they're
facing. And I don't know if it even solves all the real problems
that you and your membership has. But it was a freight train
leaving town and at least we got a jump on the caboose here and
get some changes made. And basically, that's how it landed over
on my desk.
MR. YOULD: I certainly agree with your comment. As I mentioned,
one of the things that ARECA wanted three years ago, or two years
ago - whenever we made the input - was a management information
system. And this is s system that basically will force the
commission to try and project out into the future when certain
actions should take place on various cases. And granted they
have a hard job in knowing how many complainers they're going to
have, or how many interveners and that sort of thing, but
nevertheless, they can still take their best shot at saying,
'Okay, as soon as we get to this process, or the end of this
process, let's schedule the next hearing or the next procedure
within X number of timeframe and so you have a pert diagram that
basically allows you to project out in the future how you're
going to manage each individual docket that you have before you.
I mean engineering companies do it all the time. Big business
does it all the time. I don't see any reason why the RCA can't
do it as well. And this is what the president of the board of
Chugach Electric Association is saying as well. Let's start
managing these dockets. I don't think they're being managed.
They are just not being managed. Yes, there are certain
constraints that take place, but the dockets are not being
managed. At some point the docket manager needs to say, 'On such
and such a date we're going to get going,' but this is one of the
problems that I see, is internal management.
CHAIRMAN TAYLOR: A mantra I keep hearing being chanted right
now. The mantra at the end of the session was, 'One year clean.'
Remember that? Everybody running up and down the halls: One year
clean. One year clean. Well, one year clean just meant strip
everything off that ARECA had put on it. Strip everything off
that the Senate might want to put on it as I passed out of my
committee, a task force to review these people, take a look at
them for one year. One year clean. Now, the mantra 'four years
clean.' Yank everybody back to Juneau. Cram it down their
throats in a special session. Do it as quickly as we possibly
can, and it's four years clean, which means you're right back
where you were before you went to see Representative Mulder and
other people and talk to them about at least put some teeth into
this thing on some timeframes. And I guess my concern, Eric, is
I think that was done under intense pressure at the time to get
something on there. There was probably compromise involved too.
Is that really the only thing ARECA wants on this thing for
changes?
MR. YOULD: No, I think that the comments of the president of the
board of Chugach are what we want. I think we want to see some
internal management controls put in place that are going to get
these dockets through the system a lot faster and not cause large
utilities to pay a half a million dollars a year that gets passed
onto the rate payers.
CHAIRMAN TAYLOR: Should we try to do that in the next couple
days?
MR. YOULD: No.
CHAIRMAN TAYLOR: ...with people campaigning and stuff?
MR. YOULD: Can't do it.
CHAIRMAN TAYLOR: I appreciate that. Would you feel more
comfortable on behalf of your constituents, your members of
ARECA, if this matter were just deferred until the next
legislative session where it can be taken up in regular and new
form by a new governor and a new legislature? And, by the way, I
don't intend to be there. I have to lose to get back there,
so...
MR. YOULD: In a letter that I sent to all legislators on May the
th
20, that's exactly what we suggested, that either give it a one-
or a two-year sunset or, if you can't do that, then we would
rather see it carried over to the next legislative session.
CHAIRMAN TAYLOR: Any further questions? I really want to thank
you for coming forward, Eric. I appreciate that very much.
SENATOR COWDERY: And your great organization.
CHAIRMAN TAYLOR: And your testimony. If you could give that
to...
MR. YOULD: I don't have testimony, but I have some literature
right here.
CHAIRMAN TAYLOR: ...if you have those, because I wrote out about
six different changes you wanted to see, and if you could give
those...
MR. YOULD: Sure.
CHAIRMAN TAYLOR: ...to Annette we'll have those run off. John, I
know you have to run and I'm assuming others do too, but in
deference to my colleague, I can't think of anybody that can
present better advocacy on behalf of the public than my old
friend, Steve Kohn, who's been sitting by actively awaiting the
call. We may have to break earlier on you, Steve...
MR. STEVE KOHN: You just tell me when.
SENATOR COWDERY: I'd like to say, I've got to leave. It was
nice to have my counsel here, my wife.
CHAIRMAN TAYLOR: I should have introduced Juanita. She has a
better attendance record at Judiciary than the chairman does, you
know. And you have some good friends here from Texas too, as I
understand it.
SENATOR COWDERY: Yeah, I have Bill Spahn and his wife, Darlene.
They're up here from Texas for seeing Alaska, and I intended, we
have some things planned for tonight. They got here yesterday,
and I've put in my day here. I think I was here...
CHAIRMAN TAYLOR: Early on.
SENATOR COWDERY: ...eight o'clock this morning, or just shortly
after, so. Anyway, I'm sure you can carry on. You still got a
quorum.
CHAIRMAN TAYLOR: Right. Thank you, John.
SENATOR COWDERY: And I'm not running out on you, Steve. It's
just...
CHAIRMAN TAYLOR: Steve, raise your right hand, please. The
testimony you are about to give this committee will be the truth,
the whole truth and nothing but the truth as you affirm and
swear?
MR. KOHN: Fine.
CHAIRMAN TAYLOR: Go ahead.
MR. KOHN: Mr. Chairman, Senators. Now I know what the good
cause was. We're having this hearing in the month of June. It
shows some folks from Texas how we do our business.
CHAIRMAN TAYLOR: Well, that's right.
MR. KOHN: I want to thank you…
SENATOR COWDERY: [Indisc.] about the little state of Texas a
little bit.
MR. YOULD: They need to know.
MR. KOHN: Thanks for bringing the kind of attention you are
bringing to the Regulatory Commission of Alaska. I don't
remember… Oh, I'm Steve Kohn. I'm the Executive Director of
Alaska Public Interest Research Group (AKPIRG). We look out for
the consumers. We've been involved in consumer advocacy and even
utility advocacy for about 30 years. In fact, before I became
the Executive Director, more than 10 years ago, AKPIRG actually
had a contract with the legislature and with the state to do
independent advocacy on behalf of the consumers. Later on we
lost that contract. It went to somebody else, and later that
idea was abolished. And so there is no state funded utility
advocacy except for what we've been calling in this hearing 'PAZ'
or 'PAS' which is the public advocacy section. And it's that
section I want to focus on a little bit because I think there
could be a kind of meeting of needs here in terms of the problems
that have been articulated by the utilities when we get to that.
I do support continuation of the Regulatory Commission of Alaska.
I was involved in hearings and monitoring events in the old APUC
period. I knew those people well. I worked with those people,
those commissioners and staff. I worked with these commissioners
and staff, and I think everyone has agreed who has come up here
that no one is talking, speaking ill of the talents or expertise,
or ethics, or competence of anybody involved in either of these
regulatory schemes. One thing that has changed though globally
and, well, more than one thing - I mean there have been amazing
changes in the need for ongoing monitor of utilities because
obviously we're talking about first, let's say
telecommunications. We're going from the old system set up by
the military to Alascom to Alaska, which is on the cutting edge
of local competition in the three major cities, something that
many of the other Lower-48 places haven't even come to enjoy.
That is to say we're seeing on the ground competition where many
of the other baby Bells have been in ongoing litigation and many
of them haven't even seen local competition occur. And so, for
the good, for the bad, and for the in between, and all the
problems that the consumers have, the utilities have, and
everyone else has, the shakeouts, the definition of what
government's role should be is occurring here. In things that
you wouldn't even imagine, like in garbage collection, refuse
collection. We have a big operation, waste management, come up
here and systematically pick off the garbage collection
businesses creating effectively in many places a monopoly on
something as fundamental a garbage collection, something that we
all view as a reliable thing. And at some level, the Regulatory
Commission of Alaska, along with having experts on board to deal
with telecommunications, needs to deal with garbage collection
and the problems raised by everybody in that regard, from all the
different locals.
Electricity, my gosh, the legislature, I know, has looked at
electricity. We got, we were part of that band wave for
deregulation for quite some period. I worked with ARECA when we
thought that competition out in the Bush, as your expert has
suggested, would lead to actual, you know, cherry picking,
exactly the phrase he used, I've used that phrase myself, would
lead to taking away by a would-be competitor only a few of the
cherries, leaving the rest of the system to kind of stand on its
own - pretty darn hard to do if you pluck away a big business or
a school or a library. We've dropped that subject of
deregulation in light of the shakeout in California. It's become
a little more questionable but it was talked about today. Now,
in other words, this entity handles a lot of very fundamental
things that people take for granted: telephone, electricity,
water and sewer, and garbage, and on and on and on. So that I
recall in 2001 telecommunications - 2001 conference put together.
No, it was 2000. Holy smoke, it was. But it was back in the late
'90s and that Commission, which involved utilities and consumer
advocates, actually came out with the notion that for its
purposes, universal service, if you start with the consumer, but
in some ways tracking your staff expert, these, some of these
services are so essential and so keyed to the exercise of
political and economical rights that maybe, just maybe, universal
service needs to be entrenched in our Constitution as a
preexistent right of individuals so that they can earn a living
in the new economy. Well, I don't know if that word is such a
good word anymore. But, earn a living wherever they live, rural
or urban, using that technology, have access to the phone, have
access to on-line education, all these, so many fundamental
services are related back to this infrastructure.
So, is it important then that there be an ongoing monitoring by
the, at least that of the activity, so that the individual
Alaskans can enjoy their political liberties, their economic
liberties, their rights, even in this new dereg - somewhat
deregulated environment? I think the answer has to be yes because
of the connection back to so many fundamental things that are of
concern to businesses and individuals too. And in other words,
the development and progress of our whole state is key to this,
and, of course, we have amazing problems. Senator Stevens not
only brought you up, brought your staffer up, but brought up FCC
several times to take, introduce them to Alaska, and I can recall
maps that show, that had a big blank in the rural areas. They
had not a clue what the level of telephone penetration was.
Their notion of a divide was based on some studies in urban
America. They had not a clue what the divide really was here and
what the challenges were. And I was somewhat concerned to hear
what I thought was implicit criticism of the use of universal
service to fund schools and libraries because I think those in
Bush Alaska will tell you that in many cases that's anchored a
level of service that at least they could build upon. In terms
of subsidies, because we can't leave - if we leave out 265 rural
communities we're in a world of hurt.
But now, to go on quite rapidly because the hour is more than
late, if we look at, it isn't to say that I would not like to see
some closer look at the inner workings of the RCA, the Regulatory
Commission. This public advocacy section that we were talking
about as the residual representative of the consumer is
tremendously understaffed. Maybe that's a cause of one of these
big delay issues. It's certainly probably because why they don't
take freestanding positions as independent parties subject to
discovery. These were two things raised by the utilities. In
other words, if you're going to have an even playing field you
gotta have enough folks to carry the water. This is all being
done for the consumer in the public interest. You need more than
one engineer. You need more than a couple of accountants to deal
with all the different issues in a timely and expeditious manner
in all these different utilities. So that needs to be looked at.
Maybe there needs to be a relook, and I'm certainly not
advocating any interest on the part of AkPIRG for an independent
freestanding consumer advocate. Go back and look at that
situation. But that person would not be a generalist like
myself, who is almost like you the sense of, or I'd say I am like
you having to scramble to understand all the jargon, and all the
technical stuff. It would be an explicitly funded and staffed
entity that would be on a parity with the expertise the utilities
can bring in, and maybe that would make things happen faster, and
in a better way. But the staffing issue is essential to stopping
delay. We're - I've learned now from this hearing that there's
extra staff from APUC, but I fail to see how that has really
helped the consumer within this process, and apparently
inferentially it hasn't helped the others.
There are two levels of this thing. In some instances we seem to
be talking about matters contained in the substance of regulation
and sometimes we're talking about the instrument for implementing
laws and regulations, and that's always complicated. And some of
the complaints seem to go really to the direction of the
substance of regulation, and so maybe this hearing is going to
result in a, in two different roads; one related to that and one
related to the other. I would argue as a matter of substantive
change that we are no longer in the protected monopoly mode, and
a statute that allows - that frees up any utilities from
application of the antitrust rules is an anachronism. Why?
Because if we are really and truly believers in competition we
want competition. We don't want, we don't want inordinate market
power being used by any entity, and I certainly have no favorites
here, using techniques and devices to make competition untenable.
Competition can work and can do wonders, and so there is a kind
of continuing policing role here.
I want to mention briefly that we voice concerns related to the
RCA to the expenditure of money on Lifeline for universal
service. Now Lifeline is one of the most basic things. It
allows an elderly person who may be too poor to even have long
distance to call up the doctor or a family friend and to live in
relative isolation during the Alaska winter. Thousands upon
thousands of Alaskans are eligible for it and don't even know
about it. We brought some of our volunteers over to some
hearings that were being held by an entity focusing on this and
said, 'Look, we'll hand out to injured workers - we'll hand out
to these people, information,' but we've seen little or no
movement. I mean, that's what the money is collected for. We're
concerned that consumer protection section take a hard look at
these smaller cases that are brought forward that are not brought
through the heavy, laborious petition process, and they'd be
looked at to see if they were reflective of larger cases. In
other words, if you get loads of consumer service complaints
against utility X maybe there's an institutional problem with
utility X, but frankly, after sitting in this hearing I realize
why the professional staff and the board may be loathe to pull
those things in. They don't even have enough time to satisfy the
needs of the utilities who are kind of on their case constantly
with their lobbyists and their technicrats. You know, if you go
- if you go and look at their office book, I mean, they have,
they have the staff, and so there is another problem that maybe
connects back to this same problem.
So, on the issue of cable deregulation, sure, there's an issue
there. It goes beyond a satellite, as was said, because we have
the DSL lines, and other things. What about that? What about
access to meaningful internet service? That is, not where there
is no meaning competition. What I don't like to see in this
deregulated world for the consumer is bullyboy tactics. And I
mentioned to you in my written testimony that when a utility of
its on volition all of a sudden quits serving, quits, saying
we're not going to extend lines because we're unhappy with that
regulatory process back there, and it leaves householders
stranded without any meaningful service, but we've obviously
discovered a problem that maybe was not anticipated.
CHAIRMAN TAYLOR: Well, you obviously found out that there was
another side to that story if you listen to it.
MR. KOHN: Yeah, there are definitely sides to every story.
CHAIRMAN TAYLOR: Can you imagine, Steve, being required by a
state agency to build lines into an area that cost you, out of
your back pocket, $50 a home? And then, the very same agency
turns around and says, however, your competitor gets to use those
lines that you've just now built, and compete against you, and
sell services into those same homes, but your competitor only has
to pay you $35 a month. Now tell me why anybody would ever be so
stupid to build that line? I wouldn't.
MR. KOHN: Why would a company make a business decision to buy
preexistent monopolies which were ATU here in Anchorage, and
these, and Fairbanks, and so and so, with that infrastructure? I
mean, weren't they somewhat aware that the nature of competition
that would emerge would involve some sort of equitable use of
their infrastructure?
CHAIRMAN TAYLOR: Not at a subsidized rate. Well, that's the key
- equitable. Equitable is the word you need to use, Steve.
MR. KOHN: Well, I think...
CHAIRMAN TAYLOR: The testimony we just had was known it wasn't
equitable at all, and that's why these lines aren't being built.
I wouldn't build them either if I knew I was going to subsidize
my competition and be out of pocket and lose money every month by
building the line. I think that'd be an economic disincentive,
you know. And I think we're seeing the results...
MR. KOHN: Well, I think...
CHAIRMAN TAYLOR: ...of those economic disincentives, I really do.
That's what you're talking about.
MR. KOHN: Well, Mr. Chairman, what I'm talking about is a
mutually held desire apparently in deregulation by utilities and
by consumers for competition. I was very happy that competition
emerged in the second two largest cities because their
designation is rural. They're no Kwethluk, I mean, Juneau is not
Kwethluk - and neither - neither is Fairbanks. I thought the
exemption was a canard, some sort of political thing that should
have been brushed away a long time ago. Now we get down to the
nitty gritty though of matters of competition. And in some
areas, I have to say, we are on the cutting edge. We are
defining the game. There aren't precedents. We often look at
the Lower 48. We are much further ahead on matters of local
telephone competition and so if you are struggling with these
answers, if the utilities are, if the regulators are, and the
staffers are I'm not surprised, because at the end of the day
they are writing the book. They will be going down and holding
the workshops as local competition emerges, saying look out for
this, look out for that. These aren't necessarily things that
the staffers and the congressmen were thinking about when they
used the word deregulation so it would open it up - let's see
what happens.
So to conclude, because I certainly do want to conclude, I think
the whole rationale of deregulation is to look out for the
consumer. I'm sorry. I think that's why there is an expense and
a burden. I certainly would look at the issue of delay from a
number of perspectives. Is the utility trying to conceal or
include in its rate, for example, and I'm not, certainly not
pointing any fingers here, expenses that really shouldn't be put
back on the back of their rate payers. For example, if that
utility in a competitive market was trying to grab off utility B
over here and spent a fortune lobbying and advertising
everything, none of which is going to really provide any ultimate
service or value to the rate payer, why should the rate payer be
paying for that? And so, in any event, it's incumbent on these
RCAs to discover and take a look at everything that goes into a
rate, and its fancy lawyers, who sometimes do, because they're
paid for this, delay the actual, delay the information from
getting to the Commission, it's kind of hypocritical for same
utility if they do, to come in and say, well, you know, we hate
these delays. They are costing us money. Right. Well, how much
are you spending on lawyers to create those delays? You know,
what are you doing about seeing to it that the consumer side is
fully staffed and fully equipped to carry its side of the burden
and to be expeditious. And so, the hearings are a valuable
hearing with or without good cause, I am glad they are going on.
This is a tremendously complicated area. The average consumer
takes so for granted these fundamental services, but they are
essential to their lives, more so than many other things the
government does, to the average person, to the business person,
and so I hope to be of help in offering sort of, somewhat of a
counter to comments made, out of self-interest, of course, of
others, and I thank you very much.
CHAIRMAN TAYLOR: Yes, and I hope you will continue to work with
us on this.
MR. KOHN: Of course.
CHAIRMAN TAYLOR: We still have another couple of weeks at least
to go through before we get into this…
MR. KOHN: Sure.
CHAIRMAN TAYLOR: ...situation in Juneau. And any, anything that
you can come up with that will better assist consumers in being
actively involved within the role of rate setting for
utilities...
MR. KOHN: Sure.
CHAIRMAN TAYLOR: I want to encourage you to do that, as I wrote
back to you. I really have always appreciated your good advice
and your great advocacy, and I believe there is a role that needs
to be played there to protect consumers in Alaska, and that's why
when the Governor says 'four years and clean,' I've gotta go,
'Wait a minute. Shouldn't we do something about making sure
consumers are taken care of, not just your political appointees
that you want to guarantee four more years to.' And that's why I
really appreciate you coming forward and helping us, and if you
have particular recommendations that you could write out or can
submit to us we'd be happy to have those, Steve, and thank you
very much for that.
MR. KOHN: Well, thank you very much for this opportunity. I
hope that I haven't delayed things overly much by talking now.
CHAIRMAN TAYLOR: Just got one more lady that I have signed up
here that I would like to get to so we can say at least we
covered this sheet. Kristi Catlin? Are you still here? Did I
say that name right?
MS. KRISTI CATLIN: Yes, you did.
CHAIRMAN TAYLOR: Okay. If you'd raise your right hand, please.
Do you swear the testimony you're about to give this committee
will be the truth, the whole truth and nothing but the truth, and
do you so swear or affirm?
MS. CATLIN: I do.
CHAIRMAN TAYLOR: Thank you. If you'll just give us your full
name, please, and tell us who you represent, or whatever.
MS. CATLIN: My name is Kristi Catlin and I represent AT&T
Alascom. I'm the Director of Government Relations. AT&T Alascom
supports...
CHAIRMAN TAYLOR: Excuse me. Do you have a copy of that?
MS. CATLIN: I do but it's written on. I'll bring you a copy
tomorrow.
CHAIRMAN TAYLOR: Maybe you could just give your copy to Annette
when you get done and that way we would have it in print form for
everybody here 'cause John isn't going to be here and so on.
MS. CATLIN: Certainly. AT&T Alascom supports the Department of
Administration's study to examine the telecommunications market
in Alaska. We also support the reauthorization of the
Commission. We believe that this Commission is in the best
position to help us because of their longevity in studying the
issues that they regulate. Let's not mistake a vote in favor of
extending the commission, however, for a vote of confidence in
every decision they make. We do not support every decision that
they make, but we believe that they are educated in the issues
and we do not believe that we have the time in this critical time
in this market to reeducate a new commission. The complex
telecommunications market is only one of the fields that the RCA
commissioners regulate. As you know, they also regulate water,
sewer, electric, gas, garbage and pipeline. Understanding all
the elements takes time, as I said. Drastic measures such as
sunsetting the Commission are necessary I believe some times, but
this is not the one. It's important to understand that with the
current state of telecommunications and market forces in this
state, reappointing a new commission would not necessarily serve
the best interest in the process. Decisions must be made this
year or else the telecommunications infrastructure of this state
may be in serious jeopardy. Reappointing another commission will
only extend the time to educate and then get quality considerate
opinions and decisions on behalf of telecon providers of this
state, and ultimately Alaska consumers.
CHAIRMAN TAYLOR: Kristi, have you heard from anyone of a desire
to either number 1, terminate the commission, or to reappoint? I
mean I appreciate the testimony about the current Commissioners
and their longevity, and their expertise. I think we probably
all agree with that. But I've not heard of anyone that has
suggested yet going out and getting a whole batch of new
commissioners. If you have, maybe you could tell us who your
source is and we can invite them to tell us why they think that's
a good idea 'cause I personally don't happen to think it's a good
idea, but maybe they do.
MS. CATLIN: Well, I'm glad to hear that.
CHAIRMAN TAYLOR: But, I mean, somebody has obviously suggested
that, or indicated that that was somebody's agenda around here.
As far as I know, it isn't. I mean, I haven't met anybody in the
legislature interested in either destroying the Commission, or
reappointing a whole new one.
MS. CATLIN: You're interested in having the additional time.
CHAIRMAN TAYLOR: I just want the next legislature to make their
decision on what they want to do, period, on it. I'd like not to
be involved to tell you the truth.
MS. CATLIN: It's been a hot seat, I know. No, we are going
strictly by the sunsetting and we would definitely hope not to
lose this commission. We do believe that… You look like you ate
a lemon.
SENATOR DONLEY: Well, I'm just remember... I think there's a
lot of misunderstanding about this sunsetting, Kristi.
MS. CATLIN: Well, that's possible, but...
SENATOR DONLEY: Yeah, even on, even on some news programs I've
seen where reporters have portrayed it as being as unless we act,
the commission's going to die. And that's just not true. I mean
there's a whole year here yet to go, so that's a misunderstanding
I think as permeated out through just a lack of knowledge about
how the sun set process works. So, it wasn't...
MS. CATLIN: Well, I've been through one before though. So,
understand I do know how it works.
SENATOR DONLEY: So, I didn't know whether you were really, from
your testimony, anticipating it was going to disappear like in
the next month if we didn't act, 'cause I actually heard some
reporters describe it that way earlier last week.
MS. CATLIN: No, I do understand.
SENATOR DONLEY: Yeah. Okay. All right.
CHAIRMAN TAYLOR: Go right ahead, Kristi.
MS. CATLIN: What is clear to AT&T Alascom is that the best way
to get the problems addressed is, one, to get the study done; to
reauthorize this commission; and three to get a commitment from
the commission to deal with the telecommunications market
structure issues within the first year. We need some commitments
to get things done that we will need to get done, and that's why
I mentioned earlier we really do need an educated commission, and
I know that we would have them for a year, but things don't
happen within a year in the regulatory arena, and we would like
to see this commission extended. Thank you.
5:00 p.m.
CHAIRMAN TAYLOR: You've heard the testimony of others, do you
oppose any of the suggestions, as an example, that ARECA made for
some timelines and maybe a task force to work with them made up
of the people within the industry to try and give them some help
on some of these things?
MS. CATLIN: No, I did hear the suggestions and I did not hear
any suggestions that I disagreed with. I felt they were well
thought out.
CHAIRMAN TAYLOR: Good. I hope you understand part of my concern
is that doing, taking a bunch of suggestions, even well thought
out as I believe they are too, and then crafting a bill in
another week and submitting that bill to the political pressures
of a special session, I've been around long enough I'm fearful of
the law of unintended consequences. I was here with Senator Drue
Pearce when we worked very hard on creating a thing called the
RCA that was going to be streamlined, that was going to have
timeframes and so on. And now it's three years later. We're
back at the same table. The resonance of the same problems seems
to be echoing in my ears, and I don't know that suggestions or
solutions that I might come up with, or ARECA might come up with
are necessarily really good things for this industry. And I
would hope that given some time and a group of people that really
know this complex industry to sit down and work maybe either with
the commission or as a task force to make recommendations to
them. I would hope they would come up with a better mouse trap
than something that might be created by a meat axe in legislative
session called during the middle of an election year. That's my
hope anyhow, but...
SENATOR ELLIS: Mr. Chairman, why didn't we work on this during
the regular session? I've never heard you answer that question.
CHAIRMAN TAYLOR: There was no desire to even on the part of the
House. They waited 'til the last week or two, brought ARECA
down, rammed some timelines into it and shot it over to us. As
far as I knew it was going to be like a whole series of other
boards and commissions. We're just going to let this one spin
off to the next legislative session and the next governor.
SENATOR ELLIS: Mr. Chairman...
CHAIRMAN TAYLOR: I haven't heard one reason yet for not doing
that other than Tony Knowles won't be there to twist arms.
SENATOR ELLIS: There was a Senate Labor & Commerce bill, the
House bill coming over was not the only vehicle. We could have
worked on this issue all through the regular session. I thought
it was incumbent on our committee to do so.
CHAIRMAN TAYLOR: We could have and we could have spent that time
- there was absolutely no desire on the part of anybody I talked
to to do it because they knew there was a full year of grace
period left available for this Commission, and that they would be
taken up during that period. And this is not the first time
we've done it with this very same Commission. So, I didn't,
honestly, John, I did not have anybody come to me saying this is
really a red hot rock issue and we've really got to get on it so
let's hold lots of hearings. The only discussions I had with
anybody, and I guarantee you Senator Stevens will verify this,
when we talked about scheduling it, I said, 'Ben, have you heard
from anybody? Is this thing clean or is there a whole series of
under-the-rock problems out there that are going to come flying
out at us as soon as I schedule this thing?' And as soon as I
scheduled it my phone went into meltdown. One little utility
after another scared to come forward and talk in front of the
RCA, but willing to pick up the phone and say, whatever you do,
throw this thing down, and let's have a full and fair hearing
during the next legislative session cause nothing started ginning
up until right at the very end and that's when people got a
little excited about it. That's why we're all sitting here
today. And I can apologize to all of you and to John for not
taking it up, but there's another entire legislative session in
four full months with a new governor and a new legislature, and
if various special interests in this room are real concerned
about what the next legislature may do, I suggest you go support
the heck out of the candidates that you want to elect. That's the
process we go through here. That's the best explanation I can
give you, John, and I do feel some regret about that. I wish I
had taken it up, but these are the circumstances we now find
ourselves in. Kristi, have I cut you off in any way here? Was
there some concluding remarks you wish to make because I wanted
to give you that opportunity if there was?
MS. CATLIN: Well, yes, after that. I would like to encourage
you to consider extending the Commission, even if it's for less
than the period recommended by the Governor. My [indisc.] is
getting up to a deadline again, and we need stability, so that
would be my final statement.
CHAIRMAN TAYLOR: Well, thank you very much. Appreciate you
coming in. You said you'd been through it before. Were you
working for one of the utilities when APUC went through the wind
down year?
MS. CATLIN: Yes, and I was also there in '84 or '85 when it
happened prior to that. I've worked for Alascom for 20 years.
CHAIRMAN TAYLOR: You must have started off violating child labor
laws. Thank you, Kristi. I appreciate it.
SENATOR ELLIS: No campaigning allowed, Mr. Chairman.
CHAIRMAN TAYLOR: Well, I'm afraid we're losing our quorum. I
want to thank you all for participating today. We'll start up
tomorrow morning at 10 a.m.
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