Legislature(2001 - 2002)
06/20/2002 01:20 PM Senate JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE JUDICIARY COMMITTEE
June 20, 2002
1:20 p.m.
MEMBERS PRESENT
Senator Robin Taylor, Chair
Senator Dave Donley, Vice Chair
Senator John Cowdery
Senator Gene Therriault
Senator Johnny Ellis
MEMBERS ABSENT
None
COMMITTEE CALENDAR
REGULATORY COMMISSION OF ALASKA
PREVIOUS COMMITTEE ACTION
See Senate Judiciary Committee minutes dated 6/12/02 and 6/13/02.
WITNESS REGISTER
Mr. Joe Griffith
General Manager
Chugach Electric Association
P.O. Box 196300
Anchorage, AK 99519-6300
Ms. Dana Tindall
Senior Vice President of
Legal, Regulatory and Governmental Affairs
GCI
2550 Denali Street Suite 1000
Anchorage, AK 99503
Mr. Jimmy Jackson
GCI
2550 Denali Street Suite 1000
Anchorage, AK 99503
Mr. Marc Moderow
GCI
2550 Denali Street Suite 1000
Anchorage, AK 99503
Mr. Wes Carson
President & Chief Operating Officer
ACS
600 Telephone Avenue
Anchorage, AK 99503
Mr. Ted Moninski
ACS
600 Telephone Avenue
Anchorage, AK 99503
Mr. Leonard Steinberg
ACS
600 Telephone Avenue
Anchorage, AK 99503
ACTION NARRATIVE
TAPE 02-40, SIDE A
Call to order at 1:20 p.m. June 20, 2002.
[THE FOLLOWING IS A VERBATIM TRANSCRIPT.]
CHAIRMAN ROBIN TAYLOR: …Thursday. We have a quorum present,
that being Senators Therriault, Senator Ellis, Senator Cowdery,
Senator Donley, and Chair Taylor, a full Committee. We had left
off in the agenda having concluded item number three, which was
the testimony of the Commissioners of the Regulatory Commission,
and the next item up was testimony by Mr. Ron Duncan, President
of GCI. Senator Cowdery.
SENATOR JOHN COWDERY: Yes. I had talked, reading the testimony,
and if I could, ask, Chugach Electric was here last week, but
there was a question that I would like and Joe Griffith is in the
audience and if he didn't have to wait, I would like to call him
up at this time. And it pertains to the delay.
CHAIRMAN ROBIN TAYLOR: If you'd come forward please, Mr.
Griffith.
SENATOR COWDERY: It was said that the delays, the way I
understood, in reading, rereading the testimony, that a lot of
the delays that were, for action, was a request of the utilities,
so I'd like Joe to…
CHAIRMAN TAYLOR: Joe, I just remind you that you are still under
oath before the Committee, and if you can answer the question,
please go right ahead.
MR. JOE GRIFFITH: With pleasure. I want to stress again that we
have appeared before you, humble I think [and] exasperated and
perhaps a little fearful of what kind of a buzz saw we might get
into later for having appeared here at all, but that being
stated, we're going to try to give you a straightforward answer
to your question. The answer, the question, as I understand it,
is, is it true that most of the delays in the cases that we've
encountered is [a] product of the utilities? And the answer, I
believe, is generally, no. And again, I can't speak for the
other utilities. I will tell you only about my own experience.
It is true that if the participant asks for a delay, common
courtesy in these kind of processes is that you would allow them
to have that necessary delay. You wouldn't come in and oppose
the extensions that they normally ask for because there are
several contenders in these cases like my organization has. To
focus though upon these extensions entirely misses the point that
we were trying to make earlier. If the Commission really
believes that the problem lies in granting agreed-upon extensions
then we've got an even bigger problem than I thought we had. The
Commission, I believe, is in charge of these cases before it.
It's their responsibility to ensure that its adjudications don't
go on forever and don't get revisited repeatedly. I think that
this is particularly true in these hotly contested cases such the
rate case that we have before them as we speak. There is no one
other than the Commission in this position to keep these things
on track. They must make sure that the case is properly managed
and that these tough cases it can be very active litigation under
way, discovery, depositions, what have you. Then it must be as
aggressively managed, and we think this is the issue: the
management of the cases and not the time requested by any of the
utilities. I can cite chapter and verse of several examples.
I'll just leave this with you that shows that delays as such are
really not a product of the utilities themselves and they're
requesting delays for procedural matters. Our belief is that
it's a management issue, and certainly couldn't be blamed, at
this point, on utilities.
SENATOR COWDERY: Could you restate again some of the delay
timeframes that you've experienced? Has it been months, years or
what?
MR. GRIFFITH: I will pick a couple of examples here for you.
th
1998 test year, May 10, 2001 set for hearing. In May the
Commission extended the date to do more discovery on a particular
issue. The due date was September 2001. We finally received a
th
decision March 15, 2002. This then affected the 2000 test year
rate case that we were working on because you could never get the
final numbers on that particular case until you had the '98 test
year fully adjudicated. So, again, it's not the extension of
times that causes the delays. So what if you had six or eight
weeks. We're talking years here in some cases on these things,
getting them resolved. It's uncontrolled discovery. It's slow
decisions on the motion and it's, you can't let these issues
recur time and time again. Once they are litigated we think they
should be put to bed and not revisited. That was just one
example of several I cited to you in earlier testimony in the
case of the '96 test year. Rightly so, this Commission, the RCA,
can't be held fully accountable for the years it took to
adjudicate the '96 test year case, which you may recall I said
went on until two months ago, because they inherited that case.
It had already been, but it was under a settlement agreement so
had the utilities adhered to the settlement agreement and not had
to come back down to the Commission to resolve all the issues, we
would have been done with that one fairly quickly and fairly
shortly. As it was, we were required to virtually provide
repeated sequential rate cases. We use the term 'pancaked' rate
cases. So you had a '96 case open, but it's already 1999, so
what rates are you using, the right one? Before you get '96 done
'97 is working there, and '98, the clock is still ticking and
progressing, so under the circumstances at one point in time we
had as many as three separate cases open trying to determine what
the real rates are. Its an accounting problem. It's certainly a
staffing problem. And it's something that requires attention.
Added to all that was the fact that it was under settlement
agreement and really didn't need much adjudication anyway. We'd
already signed an agreement among the utilities that said, 'We
don't have to revisit these. We just had a couple of issues.'
And there are many other chapters and I shant bore you with
details unless you want to get into it further.
SENATOR COWDERY: I want to follow up on another thing, also
testimony from the Commission last week was that the losses, the
stated losses was not real losses. They said that…
MR. GRIFFITH: No, technically, they're not real losses because
we did not have authority to charge those kind of rates
[indisc.]…
SENATOR COWDERY: So they lost opportunities.
MR. GRIFFITH: …whole picture.
SENATOR COWDERY: Yeah. Lost opportunity is…
MR. GRIFFITH: Lost opportunities. That's true. It wasn't an
actual loss of cash, or cash out the door, it was just rates you
didn't recover and you don't get the right to go back and recover
those.
CHAIRMAN TAYLOR: That was the number, if I remember right, of
$276,000 a month that Chugach was…
MR. GRIFFITH: I think it was closer to $200,000 a month.
CHAIRMAN TAYLOR: Two hundred?
MR. GRIFFITH: Yes, Sir.
CHAIRMAN TAYLOR: And that's what's going on right now because of
cases that are pending.
MR. GRIFFITH: If they were to accept the longterm rates that we
had asked for then that would have been the case. As it was
we're operating under, currently, a 4% increase from that that we
had in 1994. So it does, it is a long period of time before you
ever come in for a rate case first. And we held these rates flat
for six or seven years before we even asked for a slight
increase.
CHAIRMAN TAYLOR: Senator Cowdery? Oh, Senator Therriault.
1:30 p.m.
SENATOR THERRIAULT: Thank you. Were you involved with the, on
the House side, in deliberations that come up with some language
trying to put into place some deadlines for decision making?
MR. GRIFFITH: I was aware of the language. I was not personally
involved in it. It was forwarded to me from some of the folks
who were putting it together, Senator.
SENATOR THERRIAULT: Was there somebody else in your organization
that was in, kind of dialogue with the House, any House staff?
MR. GRIFFITH: To my knowledge, no one in our organization had
any direct dialogue with any House members on that.
SENATOR THERRIAULT: Okay. And looking at the language that the
House came up with, was it a step in the right direction? Did it
not go far enough as far as some kind of structure that got to
decisions finality?
MR. GRIFFITH: I think any set of requirements that anybody were
to lay on the Commission would be helpful to them and to us as
well. The, I believe that proposal that you speak of also
suggested there should have been some oversight, the group also
looked at the effectiveness of their operation. I personally
believe that would be helpful as well to the utilities and the
Commission.
SENATOR THERRIAULT: Mr. Chairman, a couple of other questions.
With regard to parties that are involved in a rate case
requesting extensions, I would imagine that's very much the way,
similar to the way the court system works. If the two parties
are in agreement, a request, an extension is requested, you
agree, you wouldn't expect the RCA to say, 'No, we're keeping you
to the timeline that we've set out, even though you're in
agreement, we're going to keep to the original schedule.'
MR. GRIFFITH: Generally they do not do that. I think they have
the power to say that if they want to.
SENATOR THERRIAULT: Okay. Would you think that they should do
that?
MR. GRIFFITH: In some cases, perhaps.
SENATOR THERRIAULT: Thank you.
SENATOR COWDERY: One final question. We also heard complaints, I
had personal complaints, that staff makes recommendations, final
recommendations, to the Commission and then that the utilities
are normally not privy to that, to cross examine or give their
side of it until after the Commission, maybe the day before the
decision. Is that a fair statement?
MR. GRIFFITH: I think it is, Senator. Maybe it's not all bad,
but it works that way. Those five people need staff support.
SENATOR COWDERY: Oh certainly.
JOE GRIFFITH: They need good talented, capable, knowledgeable
staff that cover a broad range of information. Perhaps the staff
has been some source of a problem in the past. I don't feel that
we are shorted by the time factor associated with the staff's
dealing with the Commission. But I have again instructed my
staff, you go down and talk to those staff members down there,
you find out what they need, what they don't understand, and you
be sure that they're clearly understanding of what we have
brought forward and help them. Give them the mathematical
algorhithms, and the numbers, whatever it is to ensure that this
process moves along smartly. I think that's to all our
advantage. I don't think I would, I'm aware of what you speak
of, but I don't think I would say it's a major problem, our
inability to interface with their staff. Sometimes it gets to a
problem if they invoke ex parte rules on us. Then you can't
speak much.
SENATOR COWDERY: Is that, that ex parte, is that frequently,
or…?
MR. GRIFFITH: It depends on the party. I think that you
encounter those who fully believe that means you can have no
dialogue with people. I personally don't agree with that. I
believe that if, you should, the more dialogue you have in these
kind of cases, particularly when you're dealing with huge amounts
of numbers that make up a revenue requirement for a corporation
our size today, you have to have the dialogue. And if ex parte
contact issues stymie you something's wrong with the system.
SENATOR COWDERY: Thank you.
CHAIRMAN TAYLOR: As concerns ex parte contact, does Chugach own
any facilities where they entertain VIPs or people that might be
beneficial to their business?
MR. GRIFFITH: Well, we have a camp at Beluga that on occasion we
might have VIPs attend and we will serve them a meal, normally
that's the one that supports our facility at Beluga. That's the
closest we can come to a camp. Occasionally, I take what I would
call VIPs out there and feed them a meal. But that's, we don't
have fishing camps or things of that nature.
CHAIRMAN TAYLOR: Thank you. Anything further for this witness?
Joe, thank you for standing by on this.
MR. GRIFFITH: Thank you.
SENATOR COWDERY: I appreciate you…
CHAIRMAN TAYLOR: Charlie, who's going to represent GCI?
MR. CHARLIE MILLER: Ms. Dana Tindall, Senator.
[LONG PAUSE]
CHAIRMAN TAYLOR: Dana, before you begin, raise your right hand,
please. Do you swear the testimony you're going to give to this
Committee will be the truth, the whole truth and do you so aver
and swear?
MS. DANA TINDALL: Yes.
CHAIRMAN TAYLOR: Thank you. Go right ahead. Give us your full
name and who you represent.
MS. TINDALL: Hi, I'm Dana Tindall. I'm the Senior Vice
President of Legal, Regulatory and Governmental Affairs for GCI.
I am standing in for Mr. Duncan who apologizes that he's not here
today. He would have liked to be here today. We think that he
would have best represented the company, and would have best been
able to answer the broad range of questions that might possibly
be asked, but I will do my best. I would also like to say that I
have with me members of my staff in case there are technical
questions that, with the Committee's indulgence, I may be calling
to come up to assist me with the answer to my questions from time
to time. With that, I'll begin my testimony. I want to thank
you - Oh, also, one more housekeeping item, I do have a written
statement by Ron Duncan that I would like to submit into the
record at the close of my testimony, unless you would like it
now.
CHAIRMAN TAYLOR: That would be fine. You can either do it now or
then. It doesn't matter, Dana.
MS. TINDALL: Well, here.
CHAIRMAN TAYLOR: If you will just give it to Crystal she'll see
to it it's distributed to the Committee.
MS. TINDALL: Okay.
CHAIRMAN TAYLOR: Thank you.
MS. TINDALL: I want to thank the Committee for the opportunity to
testify here today, and say straight up front that GCI supports a
four-year extension for the RCA. We do this for four reasons.
One, the RCA, in our opinion, is a functional, professional
agency. Two, terminating the RCA will not fix the problems that
have been identified in these hearings. Three, terminating or
replacing the Commission or Commissioners will not change the
outcome of telecommunications decisions. And four, continuation
of the RCA is necessary for the consumer protection and business
stability. The first issue: The RCA is a professional agency.
There have been two independent audits, and only two, independent
audits of the RCA. One was by the National Regulatory Research
Institute, a nationally known organization that came out with a
glowing recommendation. This same group is the group that
audited the APUC that became the reason the APUC was terminated.
It was this group that labeled APUC dysfunctional. This same
group re-audited the RCA and found them to have corrected for the
most part the problems of the prior Commission and to find them
to be a functioning efficient agency. This was an independent
audit. The other audit that was done was by Legislative Budget
and Audit, and it too found that the Commission was a functioning
agency and recommended it be authorized for four more years. One
of the statistics by which we measure how well an agency is doing
is their appeal record. I believe you heard Chair Thompson
testify their appeal record is 90%. That's pretty good. This
Commission, although not perfect, is far superior to the previous
Alaska Public Utilities Commission. They are getting orders out.
Not everybody may like the orders, but they are getting them out
and you are free to appeal. Chair Thompson is well regarded
amongst her fellow state Commissioners nationally. She sits on a
national federal/state joint board for universal service. And
this position is critical for the State of Alaska. It means a lot
of money to telephone companies in Alaska. The situation we have
here with this RCA and the possibility of not reauthorizing the
RCA is not even remotely similar to when the Legislature, in my
opinion, decided to terminate the previous Alaska Public
Utilities Commission. That Commission, again, had negative
audits. It had almost the entire utility industry as detractors,
and not one entity that I can recall stepped up to defend them or
support them. In this case, we don't have that situation. We
have a mixed bag. We have apparently some timeliness problems,
but we have quite a few supporters of this Commission, in
particular, 13 lawyers who practice before this Commission, all
signed on to a letter and I think that that is the only thing
that those 13 lawyers have ever done together before.
Terminating the RCA will not fix the problem that has been
identified.
1:40 p.m.
MS. DANA TINDALL: It is not surprising that utilities are upset
with the RCA. In my opinion, if there were utilities that were
not upset with the RCA, if everybody was happy, the RCA would not
have been doing its job. The RCA's job is to regulate utilities
in the consumer interest. Many of these lost profits the
utilities complain about are rate increases that the RCA did not
permit them to visit upon ratepayers. It is no more surprising
that utilities complain about a regulatory agency than it would
be if teenagers were to complain about their parents or homework.
It is the nature of the beast. Furthermore, delays by the
Commission are often the result of parties and also the due
process process itself. Parties don't have to just ask for
delays in order to delay a proceeding. Parties can refuse to
comply with discovery, which can delay the proceedings forcing
extra hearings where a hearing officer or the Commissioner tells
them they have to comply with discovery, and then they refuse to
comply again. This goes on for quite a while and can stack up to
a lot of delays. The parties themselves may file a new filing
that substantially changes their case, causing the need for
further hearings, further briefings, and this too delays cases.
Some of the complaints that I've heard in this hearing for the
past, I guess we've been going two days now, so other complaints
I've heard, seem to me much resulting from due process.
Something that although is a pain to deal with if you're on the
other side and you're not receiving due process, you're pretty
upset in that case, too. Due process is necessary and important.
We're dealing with a lot of money here, and obviously the ability
to appeal these cases, if due process is not followed the case
falls apart. There is a long learning curve for new
Commissioners. Getting rid of these Commissioners will simply
further delay and exacerbate the problems that people stated
here. These Commissioners have been in place I believe three
years now, two and a half years, three years. You know, it took
them a while to get up to speed and they're there. Were we to
replace these Commissioners or not have a Commission at all, it
would not fix the problems of delay that we heard here in this
hearing. Lastly, there's no need to terminate this Commission in
order to fix the problem. I encourage the Legislature and GCI
would be happy to participate in coming up with timelines and
fixes too, that have been stated to be problematic to the
Commission. Terminating or changing these Commissioners will not
change the outcome of telecommunications decisions. The State
actions by the utility agency are dictated by federal law. There
is very little wiggle room. The Telecommunications Act weighs
out very clearly how the State regulatory agency must implement
the act. The State telecommunications act weighs out very clearly
how models are to be selected, and in what form they are and how
they are to be arbitrated. There is very little wiggle room.
Were the Legislature to get rid of this regulatory agency then
the Telecommunications Act would be enforced by the FCC and
federal court. Were the Legislature to replace these
Commissioners, if the new Commissioners were following the law,
the outcomes would be the same. If they were not, I would expect
that it would be overturned on appeal. Competition is the
federal national policy of this country. There is simply no
getting around it at a State level. I'd like to talk just for a
second about a couple of the cases that have been brought up and
cited as the problems of the RCA. One is burden of proof on the
rural exemption. The State Commission did not place the burden
of proof on the incumbent local telephone company, ACS, by
itself. It was ordered to by a State Superior Court of Alaska.
Later, a different State Superior Court judge looked at that case
again, reaffirmed that and reaffirmed that decision. The
decision to use the modified FCC model to establish the rates for
unbundled elements was based on the recommendation of a national
consultant hired by the Commission. GCI did not ask for that
model. GCI asked for a different model. This was the model that
we got and we made the best of it. And we, like ACS, had full
opportunity to arbitrate all of the input of that model. All of
the cases under the Telecommunications Act that have been cited
as a problem, looking at the rural exemption, placement of the
burden of proof, choosing the model, all of those decisions have
been appealed and they have all been upheld on appeal. Some of
those are now pending before a higher court. The Supreme Court,
the United States Supreme Court, has now upheld models that are
forward looking, hypothetical, long run in nature. This is the
exact same model that was used to set rates in Alaska. It is the
exact same model that has been complained about. Last week, the
RCA was needed for consumer protection and business stability.
Last week, there was a representative of [indisc.] who told you,
testified to you that not having, not continuing the RCA was
already creating problems. I believe he spoke fairly and truly
and I believe it is a significant issue. The uncertainty caused
by terminating the Commission will be a disincentive to
investment that will affect all utilities in the State whether
you're telecommunications, whether you're a small water or sewer,
whoever you are, if you're a utility that relies to any extent on
the public financing of capital, not reauthorizing the RCA throws
all that into uncertainty. We get constant inquests, constant
questions by investors and bankers about this very issue. As a
matter of fact, I may be late to tomorrow morning's hearings
because I'm asked to address a group of bankers about this very
issue. Continuing the RCA at this time is consistent with prior
legislative practice. Over the last 14 years, the RCA has been
routinely extended in Session, prior to its termination date.
th
And the RCA does terminate June 30, 2002. One example…
SENATOR COWDERY: Ma'am, you don't mean the RCA has been in
existence for 14 years, do you? You mean APUC has been extended?
MS. TINDALL: I stand corrected.
CHAIRMAN TAYLOR: Yeah.
MS. TINDALL: I apologize.
CHAIRMAN TAYLOR: You said 14 years?
MS. TINDALL: The State regulatory agency.
CHAIRMAN TAYLOR: You're not aware then that in 1994 APUC did go
into its wind-down year, and did go through a full grace year
period when it was reenacted in '95?
MS. TINDALL: Senator Taylor, you took the words out of my mouth.
That was my next bullet.
CHAIRMAN TAYLOR: Okay.
MS. TINDALL: 1994. But, I have a little story to tell about
that. I am embarrassed to admit that apparently GCI had
something to do with that. And what happened, I was on maternity
leave at the time, and folks at GCI sought to get a couple of
amendments made to the legislative, to the statutes. And if any
of you have watched the reauthorization of the regulatory agency
over the years, you might know that if no one tries any
amendments it usually got through pretty clean. If someone tries
to do a couple of amendments things get balled up. Well, things
got balled up in 1994, but it was worked out and in the last few
hours of session it simply slipped through the cracks. It was an
accident. No one expected it to happen. And it was the, GCI
became the object of great ridicule at the Alaska Telecom
Association meeting that year and our own Jimmy Jackson got the
label of 'Sunset Jackson.' He did receive the oosik award for
that. So, you're right, it did happen, but I think that
everybody understood that it was an accident, from our point of
view.
CHAIRMAN TAYLOR: Do you think people had to meet with bankers at
the time and had to threaten small telephone companies with
failures to do certification on their essential services, $70
million? Do you remember the Chairman at the time doing all
that?
MS. TINDALL: Like I said, it was pretty generally understood
that it was not the Legislature's intent to sunset the
Commission. It was simply an accident and it was pretty well
understood that they would be quickly reauthorized at the
beginning of the next legislative session, which they were at the
beginning of the session, for four more years.
CHAIRMAN TAYLOR: What's your understanding of what we're doing
right now?
MS. TINDALL: I'm not sure what we are doing right now. I don't,
I don't think I have a full understanding.
CHAIRMAN TAYLOR: Well, maybe you weren't in attendance during the
hearings last week, but I think I stated it very clearly that as
far as I know there is not one single person I've heard of in the
Legislature that intends to terminate this Commission. Nor is
there anyone who intends that any Commissioner should be
replaced, both of which have been the focal point of your
discussions. And I'm asking, who is it that's telling you that
these things are going on? Because it certainly is not coming
from anyone in the Legislature.
MS. TINDALL: That's good news.
CHAIRMAN TAYLOR: Well, it's not good news. This has been the
news throughout. It's a question to you. Who is telling you
that people are going, that Commissioners are going to be
terminated or replaced, or that the RCA is going to be
terminated? Who's told you that? What's your source for that
information? Maybe you could tell us that?
1:50 p.m.
MS. TINDALL: As head of the Department for Governmental Affairs,
I employ a number of lobbyists who talk to various people and
while I have not had a Legislator tell me directly, that is my
understanding. In addition, in my judgment, my professional
judgment, this is just my opinion, based on the fact that I do
not think that you can change State law to fix any of the
telecommunications decisions, then it made logical sense to me
that the next alternative would be to terminate the Commission.
CHAIRMAN TAYLOR: So your source, the answer to my question, I
guess, your source is your lobbyists?
MS. TINDALL: Yes. Oh, also Mr. Duncan, and this is hearsay, I
don't have direct knowledge so I have to say it's hearsay, was,
basically that is what he was told by investors on Wall Street.
It's surprising to think that, and you know, Anchorage's and
Alaska's business gets all the way to Wall Street, but I guess we
had made some news here.
CHAIRMAN TAYLOR: Well, the surprising part to me is that is a
total and complete fabrication, that the only people who are
spreading that rumor are you and Nan Thompson. I've not heard a
single person in the Legislature indicate they wanted to
terminate RCA. The only indication was that if we went into a
grace period, wind-down, sunset year that the next Legislature
and governor would immediately take up that issue and resolve it.
But apparently your source of your information is your lobbyists.
Now that would be Mr. Kito and who else?
MS. TINDALL: My lobbyists are Sam Kito, Reed Stoops and Ashley
Reed.
CHAIRMAN TAYLOR: And they reported this back to you, that people
in the Legislature - now the House had passed this thing what 35
zip? That people in the Legislature wanted to terminate
individual Commissioners and wanted to terminate this agency?
They reported that back to you?
MS. TINDALL: I think the report that that was what ACS
[indisc.].
CHAIRMAN TAYLOR: What's ACS got to do with this? They don't have
a vote down there any more than you do.
MS. TINDALL: That's good news too.
SENATOR THERRIAULT: Mr. Chairman…
CHAIRMAN TAYLOR: I'm just, but you honestly believe that that is
what is actually happening? That somebody intends to terminate
the Commission?
MS. TINDALL: My opinion, I think that is a possible outcome.
CHAIRMAN TAYLOR: Senator Therriault, go right ahead.
SENATOR THERRIAULT: Well, I guess I would have to agree pushing
one step closer to the end date makes that more of a possibility.
And, Mr. Chairman, I did hear a member of the Legislature say
that that was a possibility. Perhaps, I think, I was so shocked
at the time that I think the exact words were, 'We have to get to
the point where we just terminate or replace some of these
Commissioners.' So, I did hear that in the building.
CHAIRMAN TAYLOR: Continue, I'm sorry.
MS. TINDALL: In summary, the RCA is important. It's important
for the consumers of the State of Alaska. It's important for
business interests. It's important to continue the RCA without
uncertainty, and then do the work to put in the timeline to fix
any problems with the RCA. And that concludes my testimony. And
again, I gave Ron Duncan's testimony to you…
CHAIRMAN TAYLOR: I just got some information here.
SENATOR COWDERY: I'd just like to tell…
CHAIRMAN TAYLOR: Go right ahead, Senator.
1:55 p.m.
SENATOR COWDERY: …the reason I was late, and I think Senator
Taylor was using my office, we received some e-mails and answers
that we requested last hearing by 2 o'clock. And I think, I
haven't read them all and I don't know if the Chairman has or
not. But anyway, that was why we was late is that some of the
things had come in. I have some questions on, we talked about,
last week, does GCI or any affiliate of GCI own a lodge here in
Alaska?
MS. DANA TINDALL: Yes.
SENATOR COWDERY: Who is the actual owner?
MS. TINDALL: I believe GCI is, has ownership.
SENATOR COWDERY: The corporation?
MS. TINDALL: Let me say I am not positive on that, but I believe
GCI is.
SENATOR COWDERY: And where is it located?
MS. TINDALL: It is located on the Agulowak River.
SENATOR COWDERY: And how does a person get out there?
MS. TINDALL: A person goes to Dillingham and then gets picked up
by GCI's turbo Beaver.
SENATOR COWDERY: Oh, I see. So they, GCI has their own private
plane to ferry people to the lodge? Do they ferry people from
Anchorage to there too at occasion?
MS. TINDALL: Have on occasion.
SENATOR COWDERY: How many rooms, approximately, rooms does the
lodge have? Is it a large lodge?
MS. TINDALL: No, it's more like a large family cabin. It is, it
has four rooms.
SENATOR COWDERY: Are there fishing guides on staff there?
MS. TINDALL: No.
SENATOR COWDERY: No, no fishing guides. Can a member of the
public make reservations to the lodge?
MS. TINDALL: No, it's not a public lodge.
SENATOR COWDERY: Oh, it's not a public lodge. Does the lodge
maintain boats and things for their guests, things of that
nature, to go fishing?
MS. TINDALL: We have three boats, three small fishing boats, you
know the little aluminum river guiders' kind of boats.
SENATOR COWDERY: So just the one Beaver is the only floatplane
that's out at the lodge?
MS. TINDALL: Yes.
SENATOR COWDERY: Are there records kept of the guests that stay
at the lodge?
MS. TINDALL: I don't think so.
SENATOR COWDERY: Does the, do you have any idea of the cost of
the lodge when they built it?
MS. TINDALL: No. I wasn't directly involved in the purchase of
the lodge. This was, I do, and again it's hearsay, but I'll tell
you what I know, subject to correction by everybody at GCI who
will jump on me if I'm wrong. It was purchased out of the Neil
Burt [ph] [indisc.].
SENATOR COWDERY: Oh, I see. Do you have a handle on the
operational costs of the lodge per season?
MS. TINDALL: I don't know.
SENATOR COWDERY: Do you know the operating expenses, are they
taken as a deduction, a tax deduction of some sort?
MS. TINDALL: I don't know.
SENATOR COWDERY: Can you find that out for us?
MS. TINDALL: Sure.
SENATOR COWDERY: I'd appreciate that. I'd like to know who
takes the deduction. Is it personal? And that gets back to who
owns the lodge, I suppose. You know, if it's just GCI. To the
extent that the costs are a deduction, what extent are the,
what's the business purpose of the lodge, to your…? I mean, if
they're deducting expenses, it's obviously a business…
MS. TINDALL: Yeah, and I don't know what the tax treatment of the
lodge is. And so, I just, I don't go there. I married an
account recently who's appalled at my…
SENATOR COWDERY: But you could find that out for us?
MS. TINDALL: …My focus on detail. Yes.
SENATOR COWDERY: And could you also, do you know what, say in the
last three years, how many State employees have been out there,
made it out there to the lodge?
MS. TINDALL: I do not know that.
SENATOR COWDERY: Can you find out for us?
MS. TINDALL: I can try. I am not sure what kind of records we
keep, but I will certainly try to find that out for you.
SENATOR COWDERY: Well if it's a private lodge and State
employees, I think that…
MS. TINDALL: I assume that there have been APOC filings.
SENATOR COWDERY: And could we have a copy of that, if that's
appropriate, of the APOC or whatever. I was just wanting to get
a handle on how many State people have been out there. And if
you could distinguish if it's higher, higher level ones,
Commissioners or that type, or just who they were. I would…
MS. TINDALL: Okay, we'll try to provide the names and [indisc.].
SENATOR COWDERY: And also if they've made multiple stays out
there. You know, more than just one time.
MS. TINDALL: Okay.
SENATOR COWDERY: And also, do the State employees pay for the
trip?
MS. TINDALL: I will find that out as well.
SENATOR COWDERY: And if they bring family members, are that paid?
MS. TINDALL: I will…
SENATOR COWDERY: And what approximately rates per day per person
that would be appropriate.
MS. TINDALL: I do know that under the terms of the, we don't
charge for the lodge, the, we're not permitted to, it is not,
because it's not a commercial fishing lodge. And so State
employees I believe, I'm not sure how that works, who they
reimburse, but it's all in APOC filings.
SENATOR COWDERY: So, under public disclosure rules, that should
be some place, right?
MS. TINDALL: Yes.
SENATOR COWDERY: And if we could find that.
MS. TINDALL: Yes.
SENATOR COWDERY: Do invited guests sometimes pay, even though you
don't charge?
MS. TINDALL: They do whatever they're required by State law.
SENATOR COWDERY: Yeah. There's, I think they're required to pay
under the ethics and fair…
MS. TINDALL: And that's what they do. I don't run the lodge and
I don't get…
SENATOR COWDERY: And if you could find out, I asked for this a
little earlier, how do you go about calculating for the charge of
a person? I'm a pilot myself and I know that one of my dream
airplanes was one of those, but they're up to a million dollar
planes, maybe even yours is even more. So if you charged, I
suppose it's a uniform rate, you would charge everyone at the
same price.
MS. TINDALL: Senator, I am happy to provide you with all of this
information…
SENATOR COWDERY: I'd appreciate that.
MS. TINDALL: …but I simply don't know.
The reason, you know, we talked last week about the Chair,
Chairman Thompson's spending some stay there in 2000. Has she
stayed there more than one occasion?
MS. TINDALL: No.
SENATOR COWDERY: Just one. It was stated that she stayed a
couple of days. That was the general thing. Is that to your
knowledge what it was?
MS. TINDALL: I believe she stayed two nights. She got in late
the first night and stayed another night and left.
SENATOR COWDERY: And she brought her children?
MS. TINDALL: Yes.
SENATOR COWDERY: Is that two children, three children, one child
- well, I guess that children indicates more than one?
MS. TINDALL: She has two children.
SENATOR COWDERY: Two children.
MS. TINDALL: At least she brought two children. I don't have
personal knowledge.
SENATOR COWDERY: Did you know how she got to Dillingham, where
she was picked up?
MS. TINDALL: I think she flew commercial because she got in late,
very late.
SENATOR COWDERY: Well, in other words, GCI didn't fly her out
from Anchorage?
MS. TINDALL: No.
SENATOR COWDERY: Okay. She said she paid $1200. I believe that's
what we got in the mail today, or delivered. And that goes back
to who came up with the number? How do you establish rates? And
did that include the airplane, I guess, shuttle from Dillingham?
How far, approximately how far is Dillingham, the lodge from
Dillingham?
MS. TINDALL: Half hour by Beaver.
SENATOR COWDERY: Floatplane, right?
MS. TINDALL: Yeah, yeah. It's a lot longer by the little
[indisc.].
SENATOR COWDERY: I guess we could compare the total charge to
other fishing lodges, that's kind of a high end, out in that Wood
River area. I think a lodge is sometimes, I had some guests that
went out to one of them lodges, about a thousand bucks a day per
head, I don't know what they were doing. Where would we find an
invoice or receipt for the $1200 that Ms. Thompson paid?
MS. TINDALL: I don't know, when I check and see what kind of
records we have, I would have to look for that.
SENATOR COWDERY: Could you furnish that?
MS. TINDALL: Sure, I can look for it, sure.
SENATOR COWDERY: Did Lisa Sutherland accompany the Chairman there
on that trip? In the summer of 2000?
MS. TINDALL: Lisa got out earlier. She arrived earlier so she
didn't fly out on the same flight or anything like that.
SENATOR COWDERY: When I asked, I think the last, did Lisa pay for
her trip?
MS. TINDALL: I believe she did.
SENATOR COWDERY: When I asked last week on this to the Chairman,
she said that she didn't know if Lisa paid. And then when I, and
then later on she said that she paid the same as Lisa. So I
don't know [indisc.] question about the amount. It wasn't paid
at the time. It was paid about a month or so later. Is that my
understanding.
MS. TINDALL: I don't recall.
SENATOR COWDERY: She went out in July, and I think that the check
that we got was some time in August. That was the date on the
check. And she originally stated that originally she took the
trip, she thought it was a gift and that then later she changed
her mind and decided that when she paid a month later. Did, what
was the thought of GCI? Did they consider that a gift or did
they just let her guess?
MS. TINDALL: It was up to her how she wished to treat it. My
immediate thought is that everything needs be above board and
lawful and she felt more comfortable paying for herself and not
charging the State fund, so that was fine.
SENATOR COWDERY: Occasionally, we get invited to the North Slope
and this and that and some trips, and when that occurs, whoever
gives it has to file a declaration that we have. That's why, I
know she's not a Legislator. But, who else was at the lodge, can
you recall, at the time she was there?
MS. TINDALL: Lisa Sutherland, Jimmy Jackson, and…
SENATOR COWDERY: Jimmy Jackson is the attorney for?
MS. TINDALL: Jimmy Jackson is an attorney who works for me in my
department. Bill Phillips, who is an attorney from Washington,
D.C., who works for GCI.
SENATOR COWDERY: And also…
MS. TINDALL: And my children.
SENATOR COWDERY: Oh, your children were there too?
MS. TINDALL: That's why her children were there.
SENATOR COWDERY: I see, yeah.
MS. TINDALL: To keep my children company.
SENATOR COWDERY: Did GCI have any dockets pending at that time
before the board?
MS. TINDALL: We always have dockets pending, but we didn't
discuss any of them.
TAPE 02-40, SIDE B
SENATOR COWDERY: Do you know what the dockets were?
MS. TINDALL: Two years ago? I can't say for sure. But I would
be happy to provide you a docket sheet from that date.
2:10 p.m.
SENATOR COWDERY: I'd appreciate that. Your lobbyists, are they
salaried or contracted or how do you do it? Without getting into
terms of how much or anything. Are they on salary? Are they …
MS. TINDALL: My, the…
SENATOR COWDERY: Your three lobbyists.
MS. TINDALL: The three lobbyists we mentioned before?
SENATOR COWDERY: All your lobbyists.
MS. TINDALL: They are all, I think, paid on a flat rate fee.
SENATOR COWDERY: And they're all registered in the State of
Alaska as lobbyists. I assume.
MS. TINDALL: Unless they're strictly a federal lobbyist.
SENATOR COWDERY: To your knowledge, is anyone else lobbying for
GCI beside the three that we just talked about?
MS. TINDALL: Dan Coffee [ph], I believe, is registered under, as
a lobbyist. However, he hasn't lobbied for us in Juneau, we use
him primarily for municipal lobby. Not that I know of.
SENATOR COWDERY: And you understand that under Alaska Statute
24.45, I believe, 051, every lobbyist is required to disclose any
gift over $100, is that your understanding, in value that he or
she made to a public official?
MS. TINDALL: Sounds like the law.
SENATOR COWDERY: Yeah. Has, to your knowledge, has any GCI
lobbyist ever disclosed a trip to the lodge as a gift in any
report filed with the APOC?
MS. TINDALL: To my knowledge, I don't believe so.
SENATOR COWDERY: You don't believe they've ever reported?
MS. TINDALL: I don't believe any of those three have ever
reported a trip to the lodge.
SENATOR COWDERY: So, it's your understanding under that, that
GCI is required to disclose also any gifts over $100 in value
that is made to a public official or in it's lobbyists employee
report, employer report.
MS. TINDALL: We're required to disclose…
SENATOR COWDERY: File, disclose.
MS. TINDALL: …gifts to lobbyists?
SENATOR COWDERY: No. You stated earlier, everybody's under
contract.
MS. TINDALL: Right.
SENATOR COWDERY: So, the question, is it your understanding that
under the statute that GCI is required to disclose any gifts
exceeding $100 in value that he or she made to any public
official in its lobbying employer report.
MS. TINDALL: I recently just became aware of that.
SENATOR COWDERY: Has that been done or you don't know?
MS. TINDALL: I think we're probably delinquent.
SENATOR COWDERY: Could we, okay. I would appreciate that, a
little bit more depth than that, if you could. You said you
thought you had did that?
MS. TINDALL: No, I think we're delinquent on that.
SENATOR COWDERY: Oh, I see.
MS. TINDALL: I'm preparing to go to APOC and do my mea culpas on
that and pay my fines.
SENATOR COWDERY: Has GCI ever disclosed a trip to the lodge as a
gift to any APUC or RCA employee?
MS. TINDALL: I don't, APUC or RCA employee, we've only had one
Commissioned employee out there, and we did not disclose that
because I was not aware [indisc.].
SENATOR COWDERY: And that wasn't disclosed.
MS. TINDALL: But I believe Chair Thompson did that.
SENATOR COWDERY: It was, it's your understanding it was an
oversight that you should have disclosed that, or you don't think
you have to disclose that?
MS. TINDALL: I think it was an oversight and we should have
disclosed it.
SENATOR COWDERY: I don't want to hold us up. Robin, I'll let you
or someone else talk here.
CHAIRMAN TAYLOR: I'm kind of surprised, Dana that in answer to
Senator Cowdery's questions, you didn't know if any other State
employees have been out there in the last three years. If they
had how long they stayed, or if in fact anybody else charged them
any fee. You couldn't remember any of those things. But you
have a very specific memory of the trip that the Chairman of the
RCA took with her children out there. Why is that? That you
know about what time she arrived, what time she left, who all was
there, even naming the other parties that were there at the time.
MS. TINDALL: Because I was involved with the trip the Chairman
took out there and had not been involved with any other trips
that State employees took out the lodge.
CHAIRMAN TAYLOR: Okay. Who invited the Chairman to go out
there?
MS. TINDALL: Well, you know, that is a very good question.
Technically, well, I'll tell you what happened. Bill Phillips,
our attorney from Washington, D.C., called me and said that
Senator Stevens was giving the telecommunications issue to his
staff person, Lisa Sutherland, who was a, had not dealt with
telecommunications issues before and that the Senator would like
us to give her a background she needed to have, what we call
Telecom 101. Which, as you know, I've provided to some of you.
In chatting with Bill I thought because the Chair and I have a
very arms-length relationship that it might be, I'm sorry,
because Lisa and I have an arms-length relationship, I don't have
an arms-length relationship with the Chair, that it might be
better to have a neutral third-party expert give Lisa Sutherland
the Telecom 101, and it might be treated as less biased, if you
will. And Bill thought that was a great idea. I think he went
to talk to the Senator and Lisa about it, they thought that would
be a great idea and they said, 'Great. Let's put it together.'
So, who did the invitation come from? I guess it came from all
of us. It was my idea to have Nan give Lisa the what we call
Telecommunications 101. The purpose of Nan being there was
strictly to provide background to Lisa Sutherland on telecom
issues. Just on the basic issues of how a phone call works, how
universal service works, how access charges work. And so I am
very well aware that Nan was late. We started that morning with
our white board and markers with Lisa, and Lisa is a very
aggressive learner so I wish Nan had been there. But she was
late, she didn't get there until dinnertime and by that time we'd
gone through Telecom 101.
2:15 p.m.
CHAIRMAN TAYLOR: Yeah, I'm trying to get a handle on this. Your
attorney, who you employ as a lobbyist in Washington, D.C., heard
that, heard that Ted had decided to give Lisa this area to work
on?
MS. TINDALL: I think he was talking to Senator Stevens and Lisa
jointly.
CHAIRMAN TAYLOR: And your attorney decided, how does Lisa get
out here? Who invites her?
MS. TINDALL: We did.
CHAIRMAN TAYLOR: Who is we? You?
MS. TINDALL: GCI.
CHAIRMAN TAYLOR: Who's GCI? Who invited her? Some human being
had to pick up the phone or say something to her, I'm sure.
MS. TINDALL: Bill Phillips invited her on behalf of GCI.
CHAIRMAN TAYLOR: Okay, and then you invited the Chairman?
MS. TINDALL: Yes, with the agreement of the Senator and Lisa
that it was a joint effort.
CHAIRMAN TAYLOR: I want to make that real clear. When you're
saying, 'With the agreement of the Senator and Lisa that it was a
joint effort,' are you testifying under oath that Ted Stevens set
this up so that one of his staffers can go to an exclusive lodge
in Alaska and be instructed by one company on Telecom 101? Is
that what you're saying? Because if it is, I'm real curious
about that.
MS. TINDALL: Subject to confirmation from Bill Phillips, I
believed that Senator Stevens was aware and condoned Lisa
Sutherland coming to Alaska, coming to our lodge and getting
Telecom 101 from us. And I think he probably thought it was
useful because he has come out and done the same thing and he has
brought other Congress members out to our lodge to do the same
thing as well.
CHAIRMAN TAYLOR: Okay, and you brought the Commissioner? You
invited her?
MS. TINDALL: Yes.
CHAIRMAN TAYLOR: That was your testimony. And you invited her
because she has kids about the age of your kids and they would
have somebody to play with?
MS. TINDALL: No, I invited Chair Thompson because she is a
neutral third-party expert and I thought that she could give an
unbiased presentation of the issues. I happened to be a single
mother at the time. I had a babysitting problem. I needed to
take my children out there and I needed to work. As long as I
was taking my children out there and I had invited Chair
Thompson, I invited her to bring her children along.
CHAIRMAN TAYLOR: When Chair Thompson testified, she stated that
originally she thought the trip was just a gift, but then
afterwards, some time afterwards, apparently in August, the trip
was apparently in July, she changed her mind. Did anyone at GCI
talk with her? Did you, in particular, talk with her about the
ethical ramifications of that trip? And whether or not she
should report it? And whether or not she should pay some amount
of money?
MS. TINDALL: My understanding of Chair Thompson's testimony was
that she thought she would be discussing more telecommunications
policy issues and it was a legitimate function for her to do. At
the end of the trip she decided it had been more fishing than
telecommunications policy, which is, of course, because she was
late and she missed the Telecom 101. She asked me, I think, to
the best of my recollections, she asked me what - I think she
told me that that's what she had decided to do and asked me to
provide her with a number of what would be a good estimate of the
expenses. And I may have put that number together, I don't know.
CHAIRMAN TAYLOR: When Senator Cowdery was asking you, I'm
surprised to hear you came up with the number because what was,
do you have any idea what the number was based on or was it just
something you picked out of the air?
MS. TINDALL: I'm not sure it was me that came up with the
number. I remember having the conversation with Chair Thompson.
She wanted the number. I can't remember if I then called
upstairs and said to someone, 'Give me a number,' or if I said to
Bill Phillips, 'What have we charged other people,' and he got
back to Nan. I simply don't remember.
CHAIRMAN TAYLOR: You do believe though that you had cases pending
at the time in front of her?
MS. TINDALL: Yes.
CHAIRMAN TAYLOR: Did she ever recuse herself on any of those
cases?
MS. TINDALL: There was never any discussion of any of those
cases, or any State telecommunications at all. There was only
background, how a telephone network worked, how universal service
funds work, and then there was discussion of federal subsidy
money that Senator Stevens wanted to send to the State to the
telecommunications industry to support a broadband network. And
that was, those discussions primarily took place between Lisa and
Nan. So, in my opinion, and I believe in the Chair's opinion,
there was no need to recuse herself.
CHAIRMAN TAYLOR: Well, there obviously was some need or she
wouldn't have come up with the phone call to you saying, 'I don't
feel real good about this trip. Give me a number on what size
check I should send to GCI because I'm going to have to report
this.'
MS. TINDALL: Senator Taylor…
CHAIRMAN TAYLOR: Which she did.
MS. TINDALL: Your memory of what happened is much better than
mine. I think that what she said is, 'We didn't discuss as much
telecommunications policy as I thought we would. I'm
uncomfortable charging the State.' There was never an issue of
being uncomfortable because she had been out there with me, to my
knowledge.
SENATOR COWDERY: Do you mind if I ask…
CHAIRMAN TAYLOR: Go right ahead, Senator. I'm sorry, Senator
Therriault.
SENATOR COWDERY: That's all right go ahead.
SENATOR THERRIAULT: It seems to me, and Mr. Chairman I thank you
for having these proceedings videotaped, I'm in the process of
going through the tapes from the previous week. I have not gone
over this particular section testimony, but I do have a staff
person who took good notes and did brief me on it, and so I'm
glad we got back to the discussion on this. It seems to me that
the discussion, and I myself have had this situation where you
are invited somewhere, you think it's going to be a matter of
legislative education. After the fact you find out that it
wasn't, and you then ask, you make a call, say, 'It wasn't what I
thought it was. According to the law, I have to reimburse for
this because the event's already taken place.' And it doesn't
surprise me that it looks like it was about a month later. I know
that for that ourselves, Legislators, having to report even
report the gifts, the values of the gifts, even if they are
legit, we still have to report that, quite often we're getting
right up to the time deadline and I'm making calls back to the
company saying, you know, 'I've got to get that information
because I've got a deadline to turn it in.' So, it seems like,
there really isn't any inconsistency. Again, I haven't [indisc.]
the videotape. But from what my staff told me what the Chairman
said that after getting there she determined that the educational
part wasn't what she had originally thought, and from Ms.
Tindall's testimony, it was because she was late, she missed that
part of the trip. She felt uncomfortable and then took it upon
herself to make a reimbursement to the company. That's the exact
same steps that I've taken as a Legislator when that has happened
to me. And I've written a check after calling the Ethics
Committee to double-check, and then verifying that, yes, you
probably should reimburse. I've called the company, asked for
exactly how much I should reimburse, and then I've written a
check. So I don't, I guess I don't quite understand where there
is any kind of shenanigan going on here. It seems like the
Chairman took the steps that any Legislator would, and in fact,
the very steps that I have.
CHAIRMAN TAYLOR: Did you have a question in there for her? I
thought you…
SENATOR THERRIAULT: Well, I did. With regards to the lodge,
Senator Cowdery was talking about, well, how you came up with the
price. Who did the cooking? Who did the cooking at the lodge for
the two and a half, three days that…?
MS TINDALL: There was a cook the lodge.
SENATOR THERRIAULT: Were they gourmet meals, or…?
MS. TINDALL: We're usually on diets, so we try not to make it
gourmet.
SENATOR THERRIAULT: So, as far as trying to estimate the cost,
and if you're going to compare to some of these lodges out there
that have chefs and pastry chefs, I would expect that probably
the fare at your four bedroom cabin doesn't quite compare to the
fare that you'd get at a $1,000 a day lodge. Is that correct?
MS. TINDALL: I don't know. I haven't been to lodges that I've
paid for.
SENATOR THERRIAULT: Thank you.
CHAIRMAN TAYLOR: Could you give us your title again? When you
started off I tried to write it all down, but it was kind of
long.
MS. TINDALL: Yes, it's kind of long. Senior Vice President of
Legal, Regulatory and Governmental Affairs.
CHAIRMAN TAYLOR: Legal, Regulatory and Governmental Affairs.
Right? And how long have you held that position?
MS. TINDALL: I've been Senior Vice President for eight years.
Prior to that I had the same responsibilities but I was Vice
President for a number of years. I've basically done the same
thing for 17 years but had a title change.
CHAIRMAN TAYLOR: This position requires you to be pretty well
aware of regulatory affairs and State laws involving regulatory
affairs. And, in fact, you work with attorneys and you're the
one that works direct with the lobbyist on occasion, aren't you?
For your company?
MS. TINDALL: Yes.
CHAIRMAN TAYLOR: Both Mr. Duncan, I assume, and yourself are
intimately aware of what your lobbyists are doing. They probably
report to you, huh?
MS. TINDALL: For the most part. Sometimes they simply report to
him.
CHAIRMAN TAYLOR: Do you know if GCI has ever disclosed in any of
their quarterly reports on the employment of lobbyists, do you
know if GCI has every once disclosed taking a State official out
to that lodge, any State official?
MS. TINDALL: I don't know.
CHAIRMAN TAYLOR: Senator Cowdery asked you if you knew whether or
not the trip given to the Chairman - let me back up on that one
first. You said, in talking to Senator Therriault, that you
thought that the Chairman's testimony had been that she didn't
want to charge the State for it. Right?
MS. TINDALL: And you know, I should say, I don't know what her
reasons are. Nan did not discussion her reasons with me.
CHAIRMAN TAYLOR: I'm curious though, why would she be, you're the
one who did apparently come up with the number, the $1200, to
tell her to pay the company. Why in the world would she be
paying the company if she didn't want the State to pay for it?
Had the State paid for any part of it?
MS. TINDALL: I don't understand your question.
CHAIRMAN TAYLOR: Well, shouldn't her check have gone to the
State if the State was paying for it? Why would her check go to
your company?
MS. TINDALL: I never personally received her check.
CHAIRMAN TAYLOR: You know who did, or what happened to that
money?
MS. TINDALL: No.
CHAIRMAN TAYLOR: Could you find that out for us?
MS TINDALL: Sure.
CHAIRMAN TAYLOR: I think you testified earlier that you believed
that the lodge was a business expense owned by GCI.
MS. TINDALL: I think I testified that I didn't know.
CHAIRMAN TAYLOR: I would imagine, from your position, as Senior
Vice President in charge of these affairs that you would probably
know that, because you use the lodge frequently in the summer,
don't you? Not you personally, the company.
MS. TINDALL: The company uses the lodge frequently.
CHAIRMAN TAYLOR: And what is the purpose for which the company
has the lodge?
MS. TINDALL: To entertain customers out there. We entertain
business associates. We entertain - there've been FCC
Commissioners out there. And there have been members of the
United States Congress out there.
CHAIRMAN TAYLOR: And these FCC Commissioners, while they were out
there, did you have cases pending before the FCC too?
MS. TINDALL: I don't know. I think we were probably
participating in [indisc.].
CHAIRMAN TAYLOR: From your position as Senior Vice President of
Legal and Governmental Affairs, you might have access to that
information and could provide it to the Committee, that GCI was
entertaining FCC Commissioners at their lodge which they maintain
for business purposes during the period of time when they had
matters pending before those FCC Commissioners.
MS. TINDALL: I said that I didn't know whether we did or not,
but I'd be happy to…
CHAIRMAN TAYLOR: But you could find that out for us. Thank you.
If you would please. I'd appreciate it. And you also said, in
answer to Senator Cowdery's question that you thought you
probably did have, GCI had, matters pending before the Commission
when Nan Thompson, the Chairman of the Commission, was invited by
you to come out to the lodge for a couple, three days with the
kids. Right?
MS. TINDALL: Yes.
2:30 p.m.
CHAIRMAN TAYLOR: Then when he asked you, 'Did you report these
things?' you said you were sure she did. How did you know that
she did?
MS. TINDALL: My understanding at that time was it was incumbent
upon her to report this. I did not understand and it is a
failure on my part that GCI needed to report [indisc.].
CHAIRMAN TAYLOR: And do you know who she reports to?
MS. TINDALL: I assume she reports to APOC.
CHAIRMAN TAYLOR: No, she reports to her immediate supervisor.
That's why we didn't have a copy of it and couldn't obtain a copy
of the report because it wasn't public record. She reported to
the Governor.
SENATOR DONLEY: Under the executive ethics act.
CHAIRMAN TAYLOR: Right. And, by the way, for my colleagues,
there's a different standard, a totally different standard within
that statute for public officials, especially public officials
that have quasi-judicial duties and responsibilities and it's a
different standard, and it's a different definition from what we
might be either entitled to or not entitled to as Legislators.
That's why there is some concern. Senator Cowdery, go right
ahead.
SENATOR COWDERY: Yeah, I was just following up on what had
occurred to me that if I heard the testimony right that Nan,
Nannette or Nan I think is the short, thought that she was going
to be in to more State business but when she went out there and
it turned out to be somewhat less, and so, that she had decided
then it wasn't really business, so that's why she paid for the
assessment. Is that a fair statement, what I am saying?
MS. TINDALL: That's a fair statement of my understanding…
SENATOR COWDERY: Yeah, that's what I mean.
MS. TINDALL: …of what went on.
SENATOR COWDERY: So with that in mind, Mr. Chairman, I wouldn't
expect you to know, but if it wasn't on State business I would
like to find out if you could, have staff, if leave slips were
requested for the time that she was out there.
CHAIRMAN TAYLOR: You want to ask staff to check that?
SENATOR COWDERY: Yeah, we'll have to, well, send that in for…
CHAIRMAN TAYLOR: You mean as a State employee whether she took
personal leave?
SENATOR COWDERY: Yes, something like that.
CHAIRMAN TAYLOR: Yeah, I think we can check that. I'm concerned
about what you said earlier. You called it a 'arms-length'
relationship with the Chairman. What exactly do you mean by
'arms-length?'
MS. TINDALL: We don't have a personal relationship. She is a
Commissioner.
CHAIRMAN TAYLOR: Well, I thought you said when you went out to
the lodge and you were kind of planning this trip or putting it
together with Bill Phillips as to who was going to be there and
so on, that you said you had a babysitting problem and you knew
she had kids and that this would work out better.
MS. TINDALL: Yes.
CHAIRMAN TAYLOR: Do you associate with her or had you associated
with her in other social settings to you know these things?
MS. TINDALL: No. I have not had, had not had previous social
contact. I think, you know, occasionally before a hearing starts
and the Commissioners are hanging around, and everybody's hanging
around, you know, we try to be polite, I mean, as a utility you
try to be polite to Commissioners. I try to be polite to
everybody and you introduce yourself and you tell them a little
bit about yourself.
CHAIRMAN TAYLOR: I guess that, it just seems to me that you
probably have had, have you ever been out to dinner with her?
Have you ever taken her out to dinner?
MS. TINDALL: During this legislative session, she came to dinner
at the condo GCI was leasing in Juneau along with several other
staff members and that's the only other social contact I have
ever had with her.
CHAIRMAN TAYLOR: I requested from the Commissioner, and she just
delivered here a few minutes before the hearing, e-mails that she
had mailed back and forth not only with you but with others that
she was recruiting to assist her in the early extension of the
th
agency. And in it, on Monday the 18 of February we have a
conversation between yourself and Nan where you say, 'Nan, we
have a Tuesday night dinner scheduled with the staff,' that's
you're staff, I'm assuming, not her staff.
MS. TINDALL: Legislative staff.
CHAIRMAN TAYLOR: With legislative staff?
MS. TINDALL: Yes.
CHAIRMAN TAYLOR: Oh, okay. But these were legislative staff
you've invited to dinner?
MS. TINDALL: Yes.
CHAIRMAN TAYLOR: So these aren't her staff?
MS. TINDALL: No.
CHAIRMAN TAYLOR: Okay. 'We have Tuesday night dinner scheduled
with the staff, if you are interested. I am currently waitlisted
on planes for Tuesday. Don't know if I will get on but the dinner
will take place anyway. I'm working on trying to get Ron to drop
me in Juneau on the jet on Tuesday. If I get a ride do you want
one?' Is this this 'arms-length' relationship you're talking
about?
MS. TINDALL: Yes.
CHAIRMAN TAYLOR: Did you take her to Juneau?
MS. TINDALL: No.
CHAIRMAN TAYLOR: On the jet?
MS. TINDALL: No.
CHAIRMAN TAYLOR: Have you at any time?
MS. TINDALL: No.
CHAIRMAN TAYLOR: Have you taken her other places on the jet?
MS. TINDALL: I personally have not even invited her at any other
time nor have taken her at any other time on the jet.
CHAIRMAN TAYLOR: Did GCI have cases pending in front of the
Commission in February?
MS. TINDALL: We always have cases pending.
[LONG PAUSE]
SENATOR DONLEY: Mr. Chairman?
CHAIRMAN TAYLOR: Yes?
SENATOR DONLEY: I had a couple of questions, whenever.
CHAIRMAN TAYLOR: Go right ahead. No. I'm just trying to catch up
with the paper work here.
SENATOR DONLEY: Ms. Tindall, hi.
MS. TINDALL: Hi.
SENATOR DONLEY: I think, probably about 15 years ago, you gave me
Telecom 101 too when I was Chairman of the Labor and Commerce
Committee. It's been a long time since then and I was just
wanted, maybe you could help me understand some of your earlier
testimony on a few issues. Number one, the first was the idea
that changing the Commissioners would make no difference. Is that
linked to your explanation that under the federal guidelines and
I think what we're talking about is the access charges here,
right? Is that what we're alluding to?
MS. TINDALL: No, under the Telecommunications Act of 1990.
SENATOR DONLEY: Right. But there's very little wiggle room on
the federal guidelines. Is that, when you were talking about
that, I just wanted to understand more of what you were talking
about there. I was thinking that it was somehow related to this
issue of what the model that gets adopted for the use, for the
access. Maybe you could explain that to me some more?
MS. TINDALL: Yes. The model that has been discussed in these
hearings is, is not the access rates, well, it's to access ACS's
network, but we call them unbundled elements.
SENATOR DONLEY: Well, could you…
MS. TINDALL: Unbundled elements.
SENATOR DONLEY: Unbundled elements?
MS. TINDALL: Yes.
SENATOR DONLEY: Could you tell me again what that means?
MS. TINDALL: When the Congress passed the Telecommunications
Act, they wanted to jump-start competition, and they didn't want
to have new competitors have to build a whole new network
[indisc.] local [indisc.] to come in and compete. And so what
they said is that the incumbent telephone companies, the ones
that are already out there, that have been regulated as
monopolies, have to un-bundle their networks and price out
separately each component of the network, like the loops, and the
switch and, you know, all of that, so that a competitor coming in
only has to pay for what they use of that network.
SENATOR DONELY: Okay. All right.
MS. TINDALL: So the model basically un-bundles the network and
sets a price for each of the components of the network.
SENATOR DONLEY: Okay.
MS. TINDALL: Okay. And it's what type of model values are set
by federal law.
SENATOR DONLEY: Okay. Now, my, I haven't really dove into these
areas in quite a few years. The decision on that, obviously, the
Commission made a decision to adopt a model, isn't there a range
of flexibility there though in how they adopt that model that
would still be consistent with the federal guidelines?
MS. TINDALL: The federal guidelines. What kind of federal
guidelines? Well, first of all, the companies are required to go
through mediation for 135 days and if they reach agreement on
pricing then you don't have to do anything.
SENATOR DONLEY: Oh, really?
MS. TINDALL: yeah.
SENATOR DONLEY: Okay.
MS. TINDALL: That never happened. So then, under the
Telecommunications Act, you have 135 days arbitration. The
Commission is responsible for the arbitration. And they're
responsible…
SENATOR DONLEY: Our Commission, RCA is.
MS. TINDALL: The State…
SENATOR DONLEY: The State Commission.
MS. TINDALL: …under the Act is responsible. The State
Commission is supposed to select a model that will fit forward
looking long run total cost, total long run, let's see, they're
total element long run incremental costs. And what that means is
[indisc.]. So, in economic terms, what that means is if you're
dealing with the long run then you're dealing with a hypothetical
situation where it is assumed that all the technology is the most
efficient technology possible at the lowest cost possible.
You're not dealing with the actual network that's sitting in the
ground. And so, what you are modeling is this long run, total
element long run incremental cost, that one. That's what you
price out and that's why you need a model. So, yes, as long as
the model complies with those requirements, that is a total
element long run incremental cost model, then they have somewhat
of a range. There's only two or three national models out there
that would actually do that, and then if you don't choose a
national model then you have the option of choosing a homegrown
model that one of the parties before you developed.
SENATOR DONLEY: In, on the first day of our hearings we had
testimony from the former Commissioner who was acknowledged, who
has acknowledged that he was frequently in a minority position on
the issues, but he also said that the model that was adopted for
Alaska was not designed for the geography or the topography of
Alaska. It's very, it was designed for a very different type of
landscape and density of population. When, so I just want to get
this back to the issue of just how much flexibility the RCA has
in this process. They chose to adopt a model that wasn't really
consistent with, wasn't designed for Alaska, but they do have
some flexibility under the federal guidelines, right, to make
some changes to that model so that it would more appropriately
fit our particular circumstances here?
MS TINDALL: Yes, and that's exactly what they did. They
modified the model to make it a TELRICd model, and…
SENATOR DONLEY: Wait, wait. What was that?
MS. TINDALL: TELRIC, I'm sorry, total element long run
incremental cost.
SENATOR DONLEY: Total…
MS. TINDALL: Element long run incremental cost. That [indisc.]
FCC guidelines, and they also modified the model to make it fit
in Alaska. Now the model is just the structure. What's really
important to a model, one of the inputs that go into it, and in
that proceeding ACS determined the input that it wanted to
arbitrate to discuss, and, and make changes to. And we
arbitrated a lot of inputs and those inputs were all modified to
reflect, Alaska, Alaska costs and Alaska situations, topography,
whatever, where it was appropriate. Were it, someone coming into
the market in Anchorage, Alaska to build a network would actually
face these costs and it was Alaska costs.
SENATOR DONLEY: Well see, this is different from what I
understood in the testimony from the first day, which was, you
know, and this is all new to me, understanding this, was that
they just adopted a standard model that was out there that had
been developed on the national level, and it wasn't then
subsequently modified for Alaska conditions. So you're, you're
explaining that it was modified for some of those conditions?
MS. TINDALL: It was modified.
SENATOR DONLEY: Okay. First of all, you said you were in an
economist. Are you an attorney?
MS. TINDALL: No.
SENATOR DONLEY: Okay. All right. Then some of the other
questions I wanted to ask you, I was hoping…
MS. TINDALL: I can bring up any, if there are technical
questions, telecommunications questions, I have…
SENATOR DONLEY: Well, let me tell you the question I wanted to
get at. In your testimony you mentioned that the decision to use
the model, or similar models, had been upheld by the U.S. Supreme
Court, and there had been, has there been any State, Alaska court
upheld that model yet, or is that, is that part of the ongoing
litigation?
MS. TINDALL: I believe the answer is yes and ...
MR. MARC MODEROW: Ongoing litigation.
MR. JIMMY JACKSON: Ongoing litigation.
SENATOR DONLEY: Okay. Right. And I guess, as a lawyer myself,
one of the things that I've noticed, well that we know, is the
courts use pretty high standards of review for regulatory
decisions. When the people are sitting in other agencies, sitting
in quasi-judicial, they're not going to usually overturn them
just because they think 51% says they, you know, of the balance
might be against them. They give them a certain deference here
and I was wondering if somebody could articulate for me what the
standard of review for courts in these kind of regulatory
decisions. I didn't know if there was something specific in the
federal law that dictated that because you're dealing, you know,
I've never dealt with the federal communications act. I don't
know if there's something special or if it's just a standard
default review standard for an administrative decision here in
Alaska.
CHAIRMAN TAYLOR: Can you answer the question, Dana?
MS. TINDALL: No.
SENATOR DONLEY: I wouldn't, she's not an attorney, Mr. Chairman,
I…
CHAIRMAN TAYLOR: Right. Who have you brought to the table with
you?
MS. TINDALL: I have on my left Jimmy Jackson, he's the regulatory
attorney for GCI, and on my right is Marc Moderow, who is the
director of state regulatory and [indisc.].
CHAIRMAN TAYLOR: You're both attorneys?
MR. MODEROW: I am, your honor.
CHAIRMAN TAYLOR: Both licensed to practice in Alaska?
MR. JACKSON: Yes, sir.
MS. MODEROW: Yes, sir.
CHAIRMAN TAYLOR: You don't need to be sworn. You're testimony
will be taken as under oath.
SENATOR DONLEY: Gentlemen, let me try to explain what I'm trying
to understand here as much as possible and that's just because a
particular Commission's decision wasn't overturned may not've
really made it the, you know, the best public policy, you know,
because the court's going to use a standard of review. Depending
on the court's standard of review, the court may, you know, first
of all, I don't know if the court's the best person to be
deciding public policy in the first place. That's supposed to be
our branch of government. And second, they're going to give,
they're going to defer to the expertise of the Commission, too,
and I wanted to better understand just what that standard of
review is when it comes to these types of regulatory decisions
and how that's affected by the, you know, federal law.
MR. JACKSON: Senator Donley, through the Chair, I think maybe
that I will start and Mr. Moderow can follow. It's certainly
depends on what the issue is. The standard of the review, if it
is a question of law, then there's deference to the
administrative agency by a court. If it's an area which falls
particularly within their area of expertise, then their sort of -
if it's supported by substantial evidence I believe it's the
standard [indisc.] deference to the administrative agency.
SENATOR DONLEY: So is there any modification in the standard
rules that we would use for any other Commission caused by the
federal act when it comes to these kinds of decisions, the
communications area?
MR. JACKSON: The decisions would have to be consistent with the
federal act. The particular issue that you're talking about in
regards to the model, I believe that that decision is on appeal
to the federal courts because it is under the federal law. And
it's not just a model, it's the entire result with the Fairbanks-
Juneau arbitration, which includes the model as part of that
whole case. That has been on appeal to federal court. The other
issue we started talking about immediately but which is on appeal
has to do with the burden of proof and the…
SENATOR DONLEY: Yeah, that was my next question.
MR. JACKSON: And that is a, of course, a matter of law. And as
Ms. Tindall pointed out, that decision was initially made not by
the Commissioners but by Superior Court, which ordered the
Commission to assign the burden of proof to ACS, the incumbent.
CHAIRMAN TAYLOR: Okay now, Mr. Jackson, maybe you can help me,
and Dana, Ms. Tindall, feel free to jump in here because it was
your, in part of your testimony raised this question with me.
You said the State Superior Court had ordered that burden of
proof on local telephone companies and I don't really understand
what all that encompasses when you say the burden of proof was on
the, I understand the concept of burden of proof very well, but I
just don't know how it specifically related to your testimony and
to the telecommunications issues.
MS. TINDALL: Let me, let me take a, I'm responsible for the 140
foot use. Let me take a stab at that and then they can get
technical with you. Under the Telecommunications Act, telephone
companies with less than 150, does that sound right, are
considered rural for the purposes of the Act. What that means is
that they have an exemption from having to unbundle their network
unless the State Commission decides to terminate that exemption.
SENATOR DONLEY: Let me call that. So, that exemption would mean
they don't have to let anybody else use their lines.
MR. JACKSON: Right.
MS. TINDALL: Yes.
MR. JACKSON: I'm sorry. I'm going to break in as a lawyer. I
think we need to be very specific. What it says is, is that if
they meet certain size criteria, and I would need the Act to
verify exactly what the size criteria, I think there are actually
several, if they meet the size criteria they are rural and they
exempt from the unbundling requirements until they get a bona
fide request from a potential competitor, at which point the
State Commission shall determine whether or not the exemption
should be revoked, ended. Revoked may not be the word in the
statute, but it is, the language of the statute which I would
love to put in front of you because it's actually fairly curious
language, but it says they have the exemption until there is a
bona fide request from a particular competitor at which point the
Commission shall determine whether or not the exemption, the
exemption should continue or end. At that point, there are
several standards such as…
TAPE 02-41, SIDE A
MR. JACKSON: …the undue economic burden on the incumbent if they
had to un-bundle. And so the burden of proof question was
whether or not it's the burden of them to show it would be unduly
economically burdensome on them or whether the burden on us to
show it would not be unduly economically burdensome on them.
SENATOR DONLEY: Well, you know, from a public policy point of
view, from the Legislature's point of view, you know, I obviously
have concerns with some of the things we've read about in the
paper and I think in the record there's some issues about, that
the reimbursement costs, or the cost of using line is in such a,
is at a level that the contention's being made that nobody wants
to build new lines. And so then that becomes a real concern
because we want the public to have access to telephone service
and if, you know, if this model was the problem that's, you know,
causing that, there might be dozens of other reasons why it would
be back and forth, but just, I'm trying to, as much as possible,
understand how we got to the point where some people were
concerned that they weren't able to get service, you know, wire
service.
MS. TINDALL: Well, there's a couple of issues embedded in that
question. With all due respect, the notion that no one wants to
build a network, a competitive network, is an assertion that has
been made by our competition. GCI is fully, is in the process of
building a competitive network and fully plans to utilize it.
And when we do we will no longer pay ACS that money for the lines
'cause we won't be using their lines. So, I, that assertion is
simply not true.
SENATOR DONELY: But, I'm sorry. Wasn't there, there was a
recent article I read in the Daily News and I think we also had
some testimony here that there was a new subdivision somewhere, I
don't remember exactly where, but they were upset, they were
concerned because they weren't getting wire service. You know,
the offer had been made to them for some sort of wireless service
but not wire service. And I mean, that's obviously concerning
everybody. I mean, we want people to be able to reasonably get
that kind of service to their homes.
MS. TINDALL: Well, first off, let me say that's a good reason to
keep the RCA because they have the power to order that, but
secondly, GCI is in the process of developing a network. At that
time, I'm not sure what exactly subdivision they were talking
about, but I know that this issue has come up a couple of times
before and we did not have the order processing system in place
such that we could provide wire telephone service to that area,
to the neighborhoods that I'm aware of. Marc, you may want to
chime in.
MR. MODEROW: Well, GCI, the act was structured so that you could
buy piece parts. And one of the scare stories was do we want to
trench everybody's front yard? And I think, going back to your
Telephone 101, that last mile, the last copper wiring to the
house. In some states and in many parts of the country,
essentially, people are, the competitors are [indisc.], and so
this type of arbitrage, you've heard the word terrible arbitrage,
is almost 100% occurring, it's the use of the entire network.
GCI has aggressively actually entered the facilities base in the
competitive world. We have deployed all of our own switches.
Now, one thing about this that does is we are allowed to offer
different and varied services over someone who just uses incoming
switch. We very aggressively have deployed our own transport, we
go around the city with our own fiber, we go into the switching
offices with our own fiber. But we do use the last mile, we do
buy the copper thing that everybody is worried about having to
replace. So, the thing that there is no competition and that
there is no deployment of facilities, is just plain wrong. In
fact, Gci is aggressively deploying its own facilities and has
plans to use its own network to deploy and replace that last
mile. So, the decision by the incumbent to refuse to deploy
facilities a subdivision was entirely theirs. It wasn't caused
by ours. Maybe they didn't want to do that. They didn't want to
build it because the federal law would the mandate that we are
able to use it. That was their decision.
SENATOR DONELY: Yeah, that's why I'm trying to understand this
because if the Commission, and I wanted to ask these questions of
the Commission, but because its pending before them and they
said, 'Quasi-judicial, we're not allowed to engage in that.'
But, so I understand it, you're in business, you know, and you're
not the Commission, but our concern, I think our, our overall
concern has to be that, that Alaskans get delivery of telephone
services. And if the Commission has adopted a model here that's
so restrictive on the costs that it makes it so that the
companies that they are ordering to go provide the wire service
don't want to do it because its not economical to them, I mean,
something, it sounds to me like there's something wrong with the
model.
MR. MODEROW: There is one differentiation, and I think it goes
with your question. I've been the one who's actually tried these
cases at the factual level. The first thing you have to remember
is that this TELRIC is a methodology. It's a method of looking
at and [indisc.] costs. And the methodology has been set by
Congress, it's been set by the FCC, and that is what was recently
upheld by the United States Supreme Court. No matter what this
Legislature does, you can't change that methodology.
SENATOR DONELY: Right.
MR. JACKSON: Now, the model is a subset of that, the model is
the actual mechanic of implementing the methodology. And as Dana
I think correctly testified, there are several generic
hypothetical models that operate [indisc.]. And then some
Commissions, some other State Commissions, have used what they
call homegrown model. But really, the most important part of it
is the inputs, and that is that the inputs have to reflect the
conditions within your jurisdiction. And the thing that the, the
kind of misconception that everybody has been hearing in the
press from, obvious, wherever you hear it is that we are only
using a national model. That's not true. The model was: a)
modified to particularly cost elements as opposed to; b) a
universal service. It was particularly modified to reflect a
network that would be built in Alaska. Several of these key
components were modified based on profiles [indisc.] ACS. And
then finally the cost inputs were modified. A) ACS, as being the
only other party that's really arbitrated, one of those, they're
the only company that's had one of these take place, chose which
cost components they wanted to contest. They were allowed to
contest them. And many, in fact, almost all of these were
changed to reflect Alaska's conditions. They b) the most easily
understood is for instance, nationally certain pieces of
telecommunications gear are put in small portable cabinets, and
in Fairbanks, they actually build buildings around these
particular pieces of equipment because it gets too cold to work
on them in the winter. You can't just go and open a metal
cabinet and work on them there. So, those kinds of things were
made and the input was actually tailored to the Alaska specific
conditions. Nearly every one that was tested was modified for
Alaska labor, for Alaska shipping, which were, everybody's
experts agreed, those were the major components of price
differences other than just the component cost. So the
methodology is cast in stone. It's the FCC rule that's been
upheld by the United States Court. The model decision is allowed
some leeway by the State Commission and the State Commission did
as Ms. Tindall said. It didn't choose what we wanted. It didn't
choose what ACS wanted. I chose what its own consultant
recommended. It was actually then modified by the parties in the
arbitrations and used by the Commission.
3:02 p.m.
MS. TINDALL: And let, let me just add to that. The resulting
rates from the model, the rates were set as a result, that GCI
paid to ACS for their loops, just their loops, as a percentage of
embedded costs are higher that the nationwide average. And we
have the [indisc.] that we would be happy to provide you with.
CHAIRMAN TAYLOR: Alaskans…
MR. MODEROW: And I can make one small factual. The model that
we [indisc.] about a lot and you're talking about the situation
in Anchorage, I'd like to point out the model has not been used
in Anchorage. The model, this infamous model, that has been
complained about was used in the Fairbanks and Juneau
arbitration. The Anchorage UNE rates predate that and did not
come from that model. They came from an arbitration between APU
and GCI, and at that time even APUs requested rate was I think
only $14 and some odd cents, and it ended up $13.85. That is
now, the Anchorage arbitration is now being redone and the
modeling question is now coming up in Anchorage to set a new
rate. But this rate that allegedly lets people not installing
the copper facility - we did, in fact, install some coaxial cable
facilities, which will be used for telephone in the future in
those subdivisions. But ACS declined to install copper. But
that rate did not come out of this model is what I'm trying to
clarify. The actual adjudication where this model was in the
arbitration for Fairbanks and Juneau. Now, the Anchorage, the
actual the Anchorage interim rate, which is only in the interim
right now until the Commission finishes its current procedure.
CHAIRMAN TAYLOR: Let me interrupt you there. How long has it
been an interim rate?
MR. MODEROW: The current interim rate was established I believe
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in, in October 25, 2001. That was, the model because it had
been previously approved by the Commission, was utilized to
establish that interim rate.
SENATOR COWDERY: In October? Oh, excuse me.
SENATOR DONELY: I think I have a much better understanding now.
I mean, the first, you know, the first day of testimony we heard
a lot of discussion about this model. I wasn't really familiar
with it. I'm starting to learn, starting to understand it
better.
MR. MODEROW: We're well into Telecom 202 at this point.
SENATOR DONLEY: Yeah, yeah. No.
SENATOR ELLIS: Mr. Chairman, I don't remember from listening to
a videotape of Mr. Roth, was it?
CHAIRMAN TAYLOR: Um-hmm.
SENATOR ELLIS: That he gave any indication that he knew that the
model had been modified.
SENATOR DONELY: Yeah, I didn't, I just, I don't remember that.
I didn't get that impression. That's how I'm trying to figure it
out.
MR. MODEROW: In its original format it was utterly incapable of
producing unbundled network prices, because it averaged
everything, and it just dumped it into a big basket. It didn't
parse them out completely. Those types of modifications were
made by the parties in front of the Commission as part of the
arbitration.
CHAIRMAN TAYLOR: Okay. Oh, go ahead.
SENATOR DONELY: The other, I mean, we're coming down to, you
know, some pretty fundamental questions about the functioning of
the RCA and one of the other questions that has come up
throughout all these hearings is this, is the level of regulatory
burden that currently exists in Alaska. We've got a lot of the
small utilities saying, it's just, you know, excessive for us,
you know, small water and sewer and other even large electrical
co-ops saying that, you know, 'It hurts us because we're a co-op.
We're not in it to make money in the first place. We're supposed
to be serving.' From the telephone point of view, GCI's point of
view, are there, how do you feel about the level of regulation
that's occurring? Is it too much? Too little? Just right? You
know.
MS. TINDALL: Let me, let me make a generic statement about the
level of regulation and then apply it specifically to GCI's point
of view. Regulation in a utility's case that does not face
competition and is, in essence, quid pro quo because they don't
face competition. That is, instead of having to compete and
worrying about competing and losing customers to competition,
these utilities, the electric utility, the water and waste water
utilities instead have a different business environment where
they have the opportunity to earn a guaranteed rate of return,
and with that comes regulatory oversight. So, from a policy
point of view, you might consider that when you're thinking about
these things. Obviously, if you've got, in our economic system
in this country, we don't really believe in monopoly as the best
way to offer goods and services. We believe in the competitive
system. But when you have a situation where you have a monopoly,
it has to be regulated to protect the public and that is the
purpose of the state regulatory agency and that was a lot of the
burden you hear the beefing about. You know, hey, I'd like to
have a monopoly and not be regulated, too. Wouldn't we all?
But, but in our system we don't believe that's the best way to
offer these services.
CHAIRMAN TAYLOR: That was a generic statement. Would you now
please apply that to GCI's cable system?
MS. TINDALL: GCI's cable system, I was just going to get to the
competitive model and I think GCI's cable system would fall under
the competitive model. In, under, in telecommunications and in
cable, I'll deal with telecommunications first, with your
indulgence, Senator.
CHAIRMAN TAYLOR: Go ahead.
MS. TINDALL: In telecommunications you've don't have a pure
monopoly situation, you have competition. And in that instance
the regulator, State regulator, and the FCC has done this, try to
make a determination on who has market power and who doesn't and
regulate accordingly. You are only theoretically supposed to
regulate to the amount necessary for the amount of market power
you have. Okay. GCI and ACS are, for local purposes regulated
the same with one exception, well, maybe two exceptions, and that
is that ACS is free to lower rates, free to modify its rates.
But if it raises it rates, it has to file a rate case.
Theoretically, ACS is not supposed to use its market power to
bundle services, but that has not been enforced by the RCA,
something [indisc.]. However, the RCA made a provision with this
idea of you only regulate as much as there is needed to be for
market power, and that is that the utility can come in at any
time and petition to be deregulated as a non-dominant carrier.
ACS has not done that in Anchorage. I'm not sure why. GCI would
probably not oppose that if they were to do that. But they have
not done that. And they have the ability to come in and get
deregulated in any of the [indisc.] if it can make the showing
that its market power has decreased. I don't feel, I guess at
GCI we get disappointed with the Commission [indisc.].
Occasionally we think they're too slow. We'd like to, you know,
you know, our marketing department is always ticked off that they
have to wait two weeks or whatever before we can get a tariff
approved, that don't let them go out and market tariffs 'til they
get approved. They're always ticked off about that. That we
have to, you know, there is some regulatory burden. This is not,
telecommunications is still not a fully competitive market such
that there's no need for regulatory oversight and it may not ever
be, given the fact that networks need to connect. If you're an
ACS customer and I'm a GCI customer, we have to be able to call
each other. And unless there is some oversight to force that
interconnection and the charges that go back and forth for that
interconnection the public will suffer, no matter how much
competition there is. And so, likely just because of the nature
of telecommunications networks, we will always need some
regulation, but this Commission has made provisions for lessening
that regulation and over time and is always reviewing these
decision. As far as cable regulation goes our cable business
does face competition, but once again unfortunately, this is a
federal issue. Under the Telecommunications Act the no tele…, no
cable but basic may be regulated. I think that the numbers you
cited on Wrangell, the amount you pay, you have a full package
complete with HBO and Showtime and all of that, and that, by
federal law, may not be regulated by a state jurisdiction at this
time. Now, every once in a while, I have to…
CHAIRMAN TAYLOR: Which means you're a monopoly in this State on
cable systems by any, almost any definition.
MS. TINDALL: No, Senator. I don't believe that's what I said.
We do face competition…
CHAIRMAN TAYLOR: Well, that's what I said. Maybe you can explain
what kind of competition you do face in cable networks that
you're operating in Alaska.
MS. TINDALL: We face competition from satellite networks,
[indisc.], satellite dishes. We've face, there's a wireless
provider, I believe.
CHAIRMAN TAYLOR: Because of the RCA, and because of State law, I
cannot go out and start a cable company and put in fiber optic in
Wrangell and compete with you, can I?
MS. TINDALL: That is not my understanding. You can.
MR. JACKSON: If you apply for a certificate and get one the same
way we applied.
CHAIRMAN TAYLOR: Yeah, I apply for a certificate and get one.
The certificates are limited geographically. There are specific
areas within which you are allowed to operate. It's a
certificate of need and necessity.
MR. JACKSON: Yes, Senator. You would need to get a certificate
just as we have to have a certificate and as we had to have a
certificate to compete with the local phone competition against
ACS. But if you come and apply for a certificate, there's every
reason to believe you would be granted it even if it was in an
area that we already serve.
CHAIRMAN TAYLOR: Um-hmm.
MS. TINDALL: If they're not branches [indisc.].
MR. JACKSON: They're not exclusive certificates.
MS. TINDALL: They're not exclusive certificates.
CHAIRMAN TAYLOR: How many have, how many new certificates have
been applied for the last 20 years in competition with you boys?
MR. JACKSON: Senator, we have not had it for 20 years but as to
any of the companies, I…
CHAIRMAN TAYLOR: Well, no, but you bought, you guys bought out
every single company in the state that did have cable system from
what I can tell.
MR. JACKSON: At one point in the fairly distant past I believe
there were some competition in Anchorage for different systems,
I'm not positive of that, but other than that, you're correct.
There have been no other applications for competing systems, not
because they can't do it but because it's probably not an
economical thing for them.
CHAIRMAN TAYLOR: Well, not economical, to get in competition
against someone who holds a monopoly position in that field and
is not regulated due to federal law.
MR. JACKSON: We are, Senator, we are regulated as basic rate in
Juneau.
CHAIRMAN TAYLOR: That's the only place because a petition was
taken up against you by the citizens of Juneau. That's the only
town in the whole State that applies to.
MR. JACKSON: Yes, Senator. It was taken up against Cook
Cablevision…
CHAIRMAN TAYLOR: Right
MR. JACKSON: …before GCI owned it, it was not taken against GCI.
But monopoly is usually associated with monopoly power and the
ability to raise rates above normal levels. When we most
recently had to, when we wanted to raise the rates in Juneau for
the basic package, under the federal guidelines, which are
mandatory, the rate which we were allowed to increase to in
Juneau was well above the rate that we felt market forces allowed
us to charge. In other words, we justified as the Commission a
rate well above what we were asking to charge because we knew
that if we raised all the rates, we would lose customers and it
would not be a desirable thing to do. Cable does compete against
satellite. Cable also competes against Blockbuster Video and any
other form of entertainment that you might chose to do on a given
evening.
CHAIRMAN TAYLOR: Understood. But you aren't regulated by the
Regulatory Commission of Alaska except for a rate increase in
Juneau. Right?
MS. TINDALL: That's correct.
MR. JACKSON: Under federal…
3:16 p.m.
CHAIRMAN TAYLOR: That's correct. Good. And under federal law
you are exempt and the statement that Senator Donley was making
to you was, explain to me how this competition works, and you
gave us a generic answer on competition and then tell me that
you're competing on the cable side with satellite.
MS. TINDALL: I don't understand.
CHAIRMAN TAYLOR: That's, that's hardly a responsive answer, I
think. You are not, in fact, you are under investigation right
now by the Justice Department for compliance with the Clayton and
Sherman Acts.
MR. JACKSON: That is not correct, Senator.
CHAIRMAN TAYLOR: When did that cease?
MR. JACKSON: There was never an…
MS. TINDALL: Down, down.
CHAIRMAN TAYLOR: Let me, are you aware of an investigation that
did take place? And apparently one that's been concluded?
MR. JACKSON: I would be happy to answer your question. I think
Ms. Tindall is the appropriate person to address your question.
CHAIRMAN TAYLOR: Ms. Tindall.
MS. TINDALL: The investigation was for the potential acquisition
of undersea fiber optic cable in the WCI bankruptcy case. As a
standard title of what they were investigating with the [indisc.]
to acquire this cable that would come under the Clayton and
Sherman Acts. In no way were the being investigated for
[indisc.] antitrust violation.
SENATOR THERRIAULT: The sale of that, those [indisc.] to another
entity, has that sale gone through?
MS. TINDALL: That bankruptcy is, is still open. We expected it
will be closed this week.
SENATOR THERRIAULT: Okay, and so the case or docket or whatever
the Justice Department has open, that remains open until sale to
another entity is concluded because, in fact, you could renew
your attempt to purchase or you could partner with another firm
to purchase.
MS. TINDALL: That's correct.
SENATOR THERRIAULT: So, this ongoing investigation is just
keeping that open just in case GCI reasserts an interest in the
[indisc.].
MS. TINDALL: That is correct.
SENATOR THERRIAULT: Thank you.
CHAIRMAN TAYLOR: Its interesting that the Justice Department,
Nancy M. Goodwin, Chief of Telecommunications and Media
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Enforcement wrote back to me on June 18 and said, 'Thank you
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for your letter dated May 21, 2002 requesting that the
antitrust division expand an existing investigation involving
GCI, Inc.' They also referred to it as an 'existing'
investigation, not a concluded one, not one that has terminated,
but an existing investigation.
MS. TINDALL: I believe, Senator Therriault just clarified that.
Until the bankruptcy is closed, which we expected it to be this
week, but is now delayed due to a secret deal between two of the
bidders that just came to light, actually, one of the bidders had
an outside deal that just came to light, the judge had not fully
decided to approve the closure, but the, as soon as the bidding
procedure is closed, the investigation at the Justice Department
will be closed. It is in a [indisc.] state right now.
CHAIRMAN TAYLOR: Who's assured you that the investigation will be
closed within the, which member or officer in Justice Department
has told GCI that this investigation will conclude with the
bankruptcy?
MS. TINDALL: Parker Erkman [ph].
CHAIRMAN TAYLOR: Parker who?
MS. TINDALL: Erkman.
CHAIRMAN TAYLOR: What's that person's title or position?
MS. TINDALL: He is, I'm not sure of the exact title, but he is
head of the investigation.
SENATOR DONLEY: Mr. Chairman, before we lose the…
CHAIRMAN TAYLOR: Yes.
SENATOR DONLEY: …two gentlemen who are attorneys here. I just
want to make a note. So the burden of proof, the standard for,
regarding local telephone companies. What's that standard again?
You said it was undue hardship or what was it?
MR. JACKSON: One of the standards is whether or not there would
be an undue economic burden on…
SENATOR DONLEY: Undue economic burden.
MR. JACKSON: …the incumbent and that is not the only standard.
MR. MODEROW: That is one. The second one would be whether it's
technically feasible, whether the request is technically
feasible. And the last one is whether it would, it's consistent
with the universal services principles that are listed elsewhere.
MR. JACKSON: And then you said the standard of review. That…
SENATOR DONELY: The burden's on the local companies to contest
and say that it doesn't meet one of these standards?
MR. JACKSON: Right, according to our Superior Court judge. And
that was reviewed and the standard review was a total review
under the law. It was a legal question so they didn't have any
deference to the Commission…
SENATOR DONELY: And our State Superior Court was utilizing the
federal act in making this determination?
MR. JACKSON: And State law. It was, it was appealed on two
grounds, both under the federal act and under State law. And the
decision was under State law. [Indisc.].
SENATOR DONELY: And then back to this standard, the standard of
review to RCA decisions? Mr. Jackson, what was that standard
again?
MR. JACKSON: If it is something which is in their expert area of
technical expertise, it is, I should have the Attorney General
answer this question, actually it's whether or not there is
substantial evidence to the records to support their decisions.
SENATOR DONLEY: Substantial evidence.
CHAIRMAN TAYLOR: Isn't that abuse of discretion?
MR. JACKSON: It's not precisely an abuse of discretion standard.
I think it is somewhat higher than that, but it…
CHAIRMAN TAYLOR: It's even higher than that.
MR. JACKSON: No, meaning, Senator, I think I use higher in the
opposite sense than you are. There must be substantial evidence
in the record to support it. I believe that means that there
needs to be more than evidence than, to support their decisions
than there would be under an abuse of discretion standards. But,
you may well be right.
CHAIRMAN TAYLOR: These subtleties within the definition is so…
SENATOR DONLEY: And then they audit.
CHAIRMAN TAYLOR: …and get lost in our Supreme Court I think.
SENATOR DONLEY: Let me explain what I think. This is important
to me as an attorney to understand. I want to understand the
review that takes place so I understand how much the court was
deferring to the judgment rather than, you know, basing it on…
MS. TINDALL: Oh, oh, oh. Let me clarify something.
SENATOR DONLEY: Sure.
MS. TINDALL: At the time the Superior Court made this ruling the
APUC had placed the burden of proof on us to make this showing.
We appealed that and the justice was, in remanding it back to the
APUC, stated that the State regulatory Commission must place the
burden of proof on the incumbent.
SENATOR DONLEY: Let me, what that…
MS. TINDALL: It was very bold.
SENATOR DONLEY: Was, part of that was based on federal act, but
was part of it based on preference in Alaska statutes for
competition when anything, there's something in the Alaska
statutes?
MR. JACKSON: I actually, the Superior Court judge ordered on
remand that the, at that point, the APUC apportion the burden of
proof on the incumbent. So, it wasn't their decision. The court
imposed it. At the time, the federal law was still in uproar
because it was still being debated hotly and the federal law
wasn't settled. So, he made his decision based on State law, and
so the original decision on remand was made on the basis of State
law.
MR. MODEROW: If I can clarify that a little bit further. I
think what the State judge did is first of all, looked at the
federal law to determine whether or not within the language of
the federal law there was a clear indication of where the burden
of proof should lay. And he found that there was, that in the
federal law, there was no clear indication as to where the burden
of proof on this issue should fall. Having determined that they,
having determined that federal law didn't give them an answer, at
that point, he looked at general principal of the burden of proof
under State law and determined that the burden of proof ought to
be on the incumbent.
SENATOR DONLEY: Okay, thanks for letting me… I'm still trying
to understand the testimony we heard the first day of hearings.
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CHAIRMAN TAYLOR: Well, I'm trying to understand the 8 Circuit.
SENATOR DONLEY: Yeah, and that's where I just wanted to go to.
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We heard something the first day of these hearings about this 8
Circuit decision. I didn't fully understand that at the time.
Can you give me you all's opinion, understanding of that, what
your spin on that is?
MR. JACKSON: When the decision that I just described was made,
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there was, the 8 Circuit decision had not yet come out. And
let me reiterate what I just said, that our State Court judge had
looked at the Act and found that it did not give an answer as to
who the burden of proof ought to be on. He remanded it to the
Commission. The Commission was making its decision. During this
thth
time period, the 8 Circuit decision came out. And the 8
Circuit looked at the Act and came to the opposite conclusion of
our Superior Court judge, and they said, 'Yes, the Act intends to
assign the burden of proof to the potential competitor.' This
happened during the time it was back on remand, so the
Commission, at that point, made its decision. It went back to
Superior Court, to a different Superior Court judge. The
separate Superior Court judge had specifically decided that, one,
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the 8 Circuit opinion was nuts, and two, that it was not
binding on courts in Alaska.
CHAIRMAN TAYLOR: At whose recommendation?
MR. JACKSON: That was the appeal…
MR. MODEROW: Attorney General's. I mean it was an appeal by ACS
against the Commission's decision defended by the Attorney
General into which we were interveners, of course. [Indisc.].
CHAIRMAN TAYLOR: So you intervened and the State attorney
general who represents the RCA…
MR. MODEROW: Correct.
CHAIRMAN TAYLOR: …these people with whom we have arms-length
relationships, they're the ones who made that decision. Correct?
MR. MODEROW: A Superior Court judge made the decision.
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CHAIRMAN TAYLOR: On the appeal of their decision to accept 8
Circuit decision.
03:28
MR. JACKSON: When they made their decision they were under order
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to assign the burden of proof to the incumbent. And the 8
Circuit decision happened in this, it did not change the order of
the Superior Court of Alaska that they were operating under.
CHAIRMAN TAYLOR: No, I understand.
MR. MODEROW: And this is based, and we can furnish you volumes
and volumes of rates, this is based on the well enumerated
principal of the law of the State of Alaska, which Alaska is more
extreme, that the State is not bound to follow a Circuit Court
opinion, a Circuit Court of Appeals opinion, until it's been to
the Supreme Court. I think the, the subsistence appeals is one
of the great examples on that, you know, as a State we must
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follow, even the 9 Circuit which we're [indisc.] in. So I
think it's well founded in the law.
SENATOR DONLEY: Well, I'm trying to remember the first day,
right? And the point was made that somehow many different
circuits had this issue before them and it had been consolidated
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in the 8 Circuit, and that the Supreme Court, subsequent to
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this 8 Circuit decision, did not take it up. In other words,
gave its tacit approval to it.
MR. JACKSON: Senator, the Supreme Court denied cert, and I think
we all learned in law school denial of cert is not an indication
on the decision on the merits. If we want to suggest that a
denial of cert is an indication on the merits, the Alaska Supreme
Court has twice denied ACS its petitions for review on this
issue. If that's an indication of cert the Alaska Supreme Court
agrees with the Superior Court judges. But I'm not saying it is
anymore than I'm saying it isn't. [Indisc.] Supreme Court,
federal Supreme Court [indisc.].
CHAIRMAN TAYLOR: That issue is currently on appeal?
MR. JACKSON: To the Alaska Supreme Court, yes.
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CHAIRMAN TAYLOR: The 8 Circuit? Or, I mean the question about
burden of proof? That is on appeal?
MR. JACKSON: It's on appeal to the Alaska State Supreme Court,
yes.
SENATOR DONLEY: Thank you, Mr. Chairman.
CHAIRMAN TAYLOR: We've just got a couple…
SENATOR DONLEY: I think…
CHAIRMAN TAYLOR: I don't know…
SENATOR DONLEY: …got a better, much better, sense of what the
heck's going on now.
CHAIRMAN TAYLOR: Dana, you said, and your folks indicated, I
guess, that you own some switch gear? What is your telephone
company? Can you tell me what your telephone company is?
MS. TINDALL: I don't understand the question.
CHAIRMAN TAYLOR: Well, I mean, the telephone company I got in
Wrangell that's owned by my, I think it was owned by GTE, and I'm
not sure, Bob Grimm I think owns it now. It's a telephone
company. It's got an office with switchboards. Its got wires.
The wires run out to my house. I pick up the phone. I use their
telephone company. They hook up to someone else for long line
services to get me out of the State and hook me up with somebody
in California. What is your telephone company? Do you have such
lines?
MS. TINDALL: We have lines all the way to the last, what we call
copper loop. So we have, yeah, we have cable throughout the
service area.
CHAIRMAN TAYLOR: You're not running the telephone over cable are
you?
MS. TINDALL: In some cases. But we have - go ahead.
03:30
MR. JACKSON: I think, if I understand your questions, what do
you physically own to provide local service.
CHAIRMAN TAYLOR: Yeah. Switches or…
MR. JACKSON: We, as does, as do the incumbents, have a business
office with customer service reps. We have directory assistance.
We have operators. We have, going on from there, we have our own
switching centers which connect basically our local service to
the rest of the world. So we have our own switch, which provides
unique services from those of ACS. We also have what we call
remote switching centers or remote switches that are positioned
right next to the ACS meter switching centers. And we have our
own cabling or our own fiber optic cable that interconnects all
of those.
CHAIRMAN TAYLOR: Okay, you've got the fiber optic that
interconnects your switchgear.
MR. JACKSON: And… That's true.
CHAIRMAN TAYLOR: But you don't have a, you don't have a copper
line hanging in this town, do you?
MR. JACKSON: Yes, we do unfortunately.
CHAIRMAN TAYLOR: Where?
MR. JACKSON: We have, well, let me finish my description here.
We have the connectivity to our switches and then the vast
majority of places we utilize the last mile of the copper that's
buried in your front yard. To replace that we'd have to dig your
front yard up.
CHAIRMAN TAYLOR: Now, who owns that? You don't own that do you?
MR. JACKSON: In the vast majority of cases, no, ACS, ACS owns
that. Now in…
CHAIRMAN TAYLOR: So, you're a telephone company without
telephone lines. You've got a central office. You've got some
switchgear, and that hooks you up to the existing incumbent.
Right? And you use the existing incumbent's lines pursuant to an
order from the RCA.
MR. MODEROW: Pursuant to an act of Congress. That is correct.
Now, we do have one, your statement that we don't own a single
copper line is slightly in error. I don't know why the
subdivider decided not to deal with ACS. There were a lot
developers who were having trouble getting, getting ACS to
install wires in their subdivisions.
CHAIRMAN TAYLOR: Well, I read the same article you did.
MR. MODEROW: We have installed one subdivision…
CHAIRMAN TAYLOR: Oh, you have?
MR. MODEROW: …and we did install copper wires. We have
independent to ACS the…
CHAIRMAN TAYLOR: So, that's your, that's your telephone system,
so to speak, within Anchorage, is one subdivision where you've
got copper wire and the rest of it is switchgear, right?
MR. MODEROW: And trans, what is normally…
CHAIRMAN TAYLOR: And transformers.
MR. MODEROW: …known in the industry is transformer gear.
CHAIRMAN TAYLOR: Right, right. And the actual infrastructure
out there belongs to someone else that you then lease at a rate
set by RCA, and as you said, federal law. Right?
MR. MODEROW: That's correct.
CHAIRMAN TAYLOR: Okay. And can you tell me who owns Alaska dot
net?
MR. JACKSON: Excuse me, Senator. What is Alaska dot net? I
mean…
CHAIRMAN TAYLOR: It's a partnership between your company and the
Alaska, or the Anchorage Daily News. That's how you read the
newspaper over the computer in the morning.
MS. TINDALL: I think Alaska dot net…
CHAIRMAN TAYLOR: Maybe it's Alaska dot com.
MS. TINDALL: …is owned by ACS.
MR. MODEROW: Alaska dot net is owned by ACS.
CHAIRMAN TAYLOR: Well, what do you call the network that you
guys are operating under with, I mean, I've got it here some
place. You made a…
MS. TINDALL: GCI dot net.
CHAIRMAN TAYLOR: GCI dot net? Or ADN dot net, or what is it?
You announced you were partners with the Anchorage Daily News.
And that's appeared pretty obvious to me from the coverage we've
been getting around here, but…
MR. JACKSON: Senator, I, I did, there is, you, there is a
partnership for GCI, I don't know whether partnership is a
correct legal term, and I know very little about this subject,
but there is some sort of service for information which is, which
involves both GCI and Anchorage Daily News. I don't know that
any of the three of us know much about that.
CHAIRMAN TAYLOR: Well, maybe Dana could that out for us and let
us know what the profit was just last year, and how much was
shared between the Anchorage Daily News, because that's what the
announcement said was that you both would be selling advertising
and you both would be recruiting other people to use it and that
you would split the profits.
MS. TINDALL: We'd be happy to provide you with that.
CHAIRMAN TAYLOR: Good. Thank you. Senator Cowdery.
SENATOR COWDERY: We've got other ones sitting here and some
public people but, earlier on you said that you were going to
file with APOC, whatever, for not reporting these lodge trips or
something to that effect. So you, GCI understands it's been
violating these laws, now understand that you've been violating
Alaska's laws by not reporting these trips of public officials to
your lodge. Do you understand that?
MS. TINDALL: My attorney just tells me that we are looking into
the law on that. If there is a requirement for us to file and
we've been in error, we will make a full disclosure to...
SENATOR COWDERY: I understand that. But you don't, so you're not
convinced yet until you look into it that you we're required to.
Is that what you're saying?
MR. JACKSON: We're not denying we are. We just, it is not
something that we've adequately had advice on, I don't think, at
this point.
MS. TINDALL: The only person I had look into it was not an
attorney.
SENATOR COWDERY: That's all. I don't want to belabor it. I would
hope that you comply if you need to be.
CHAIRMAN TAYLOR: Questions? Senator Therriault?
SENATOR THERRIAULT: A little bit of follow-up. If I remember
Senator Cowdery's line of questioning and whether you had
lobbyists and whether lobbyists had filed reports, the lobbyists
don't own the facility though. So if there was to be a report, a
required report, it wouldn't be on the lobbyist because the
lobbyist can't give away something he doesn't own. It would be
perhaps a requirement of the company, not the lobbyist.
MS. TINDALL: That's what we're looking into. Let me clarify that
I said to my knowledge no lobbyists are required to report on
that. Sam Kito, Reed Stops and Ashley Reed, to my knowledge, he
may have been out with another member of the company but to my
knowledge none of [indisc.] them have had, I'm not…
SENATOR THERRIAULT: I wouldn't think there'd be a requirement but
that they as an individual file anything because they don't own
the property.
MS. TINDALL: We, we…
CHAIRMAN TAYLOR: Senator Therriault, there's confusion there. The
form that's actually required is a employer of lobbyist form, not
the lobbyist, but the, actually GCI has to file a quarterly
report on what they pay lobbyists and how those lobbyists break
out those costs as a public record. So it isn't any report that
Mr. Kito or Mr. Stoops would have to file. It's the actual owner
of the lodge and the owner who is employing these lobbyists and
once you've employed a lobbyist, you then have to fill this stuff
out and the provision provides, 'Report the date and nature of
any gift of more than $100 in value made to any public official
during this reporting period.' And that's the form I think that
you were not talking about, going to APOC and doing a few mea
culpas on and getting it cleared up again. You see, I think, if
forms like that are filled out and your competition is aware of
the fact that you're entertaining certain public officials like
Commissioners from the RCA, then they have notice and they can
step up and ask people who have gone to your lodge for whatever
purpose, a business purpose apparently, to recuse themselves and
to step down. We have that right with judges and these people are
acting as judges. And sadly, because you didn't file the form,
and because the forms that were filed by Ms. Thompson were never
made available publicly, no one else in the world knew this and I
don't know how many decisions have been made by her since then
involving your company. So I hope you will comply with the law
and go in and do these filings in the future because it's through
that disclosure that people will learn whether or not they should
be disqualifying people from sitting on certain cases.
MS. TINDALL: It is my intention that GCI be fully compliant with
the law.
CHAIRMAN TAYLOR: I appreciate that Dana. Thank you very much and
I appreciate your candor on it too. Are there other questions?
Senator Cowdery.
SENATOR DONLEY: I just hand one more.
CHAIRMAN TAYLOR: Go right ahead, Senator Donley.
thth
SENATOR DONLEY: This 8 Circuit decision - was the 9 Circuit
consolidated into that?
th
MR. MODEROW: I believe there was a 9 Circuit case that was
consolidated into that issue.
MR. JACKSON: There were multiple Circuits that got consolidated.
th
I do not know if there was a 9 Circuit, I guess. I, if I were
taking an exam and had to give an answer, I would say I don't
think they were but that would be largely a guess.
SENATOR DONLEY: If you don't know, you don't have to…
th
MR. JACKSON: If there was a 9 Circuit decision consolidated in,
it was on another issue within the Act. There was not one on that
issue.
SENATOR DONLEY: Okay.
CHAIRMAN TAYLOR: Senator Cowdery.
SENATOR COWDERY: I'd just like to, this was handed, I think
delivered in my office about one minute before the meeting.
CHAIRMAN TAYLOR: We've had several things handed to us.
TAPE 02-41, SIDE B
SENATOR COWDERY: Anyway, these are just, these are handwritten, I
think they're probably [indisc.] and they're concerned about the
rulings of RCA and some of them are pretty salty [indisc.]
straightforward but, I was sitting here when I was listening to
the others ones reading them but this came in today, just for…
CHAIRMAN TAYLOR: I've got to have the secretary make copies and
get them distributed.
SENATOR COWDERY: …make that available to all…
MR. JACKSON: Senator, if we can save you some copying there's
already about 30 copies of Mr. Duncan's statement here if you'd
like.
CHAIRMAN TAYLOR: Fine. If you'll just give that to Crystal
she'll just put it in all our packets as part of the official
record. Are there further questions?
SENATOR COWDERY: No.
CHAIRMANT TAYLOR: Thank you very much. I know we've asked for a
whole series of things and hopefully our staff have notes for you
Dana. To the extent we could it would be nice to have those
before the special session starts.
MS. TINDALL: We will do our best.
CHAIRMAN TAYLOR: We start up next Monday about 11 o'clock or so
and I'm sure we can't hold a hearing prior or won't be holding a
hearing prior to 11 o'clock but I would assume that because of
the work we've done, we'll probably end up with this thing and be
holding hearings on it during the special session so if Mr.
Duncan wishes to supplement his testimony or if there's further
information that we need or you've offered to provide, if you
could get it to us as soon as possible we'd appreciate it. Thank
you.
SENATOR ELLIS: Mr. Chairman, on the subject of things to be
included in the public record, there was a packet from last week
that included a letter from Don Scherer [ph]. I wanted to make
sure that gets into the public record. It may have already been
submitted or could you make sure that's included?
CHAIRMAN TAYLOR: I think it is John. I've tried to put everything
that's come in here…
SENATOR ELLIS: I'm saying that also for the benefit of staff who
are following up on these things.
CHAIRMAN TAYLOR: Sure, sure. Right. Well, like here's a whole
pile of these things too. We've got two from Homer Electric. ACS
was up next. Who is here to represent them?
MR. WES CARSON: Mr. Chairman, I'm Wes Carson. And with the
Committee's permission, I'd like to have Leonard Steinberg and
Ted Moninski with me.
CHAIRMAN TAYLOR: Sure.
MR. CARSON: Thank you.
SENATOR COWDERY: Grab another Chair there someplace.
CHAIRMAN TAYLOR: Yeah. Gentlemen, our time will be limited in
that I've already told staff and everybody else they could go
home about 4:30 so we'll take what we can today and then take you
up, finish you up tomorrow, if necessary. Would you all please
raise your right hand? Do you solemnly swear that the testimony
you are about to give to be truth, the whole truth, and nothing
but the truth before this Committee and do you so swear and aver?
ALL: We do.
CHAIRMAN TAYLOR: Thank you.
3:43 pm
MR. CARSON: Mr. Chairman, members of the Committee, we appreciate
this opportunity to testify before you and we would like to
express our appreciation for the initiative you've taken to hold
these hearings. We think these are important issues that need to
be aired. We have a concern that the regulatory status quo is
not acceptable. And this is based on basically four issues.
They relate to: first, the public interest; second, the
regulatory process itself; third, is telecommunications law and
policy; and then finally, financial and investment implications
of our regulatory policy of the State. With regard to the public
interest, we believe…
SENATOR DONLEY: Could you, I lost number three. I was writing as
fast as I could.
MR. CARSON: Number three is telecommunications law and policy.
SENATOR DONLEY: And number four was?
MR. CARSON: Financial and investment implications of regulatory
policy on the State.
SENATOR DONLEY: That's a mouthful isn't it?
CHAIRMAN TAYLOR: Go right ahead.
SENATOR DONLEY: Sorry to interrupt you.
MR. CARSON: That's all right. With regard to the public
interest, we believe that in order to protect the long-term
interests of the State and its citizens, regulatory policy must
foster both fair competition and continued investment in
telecommunications infrastructure. We recognize that the
regulatory challenge is daunting and the industry is very
complex, but that doesn't excuse the Commission from competently
exercising their authority to regulate and to deregulate in a
manner that properly serves the long-term public interest. With
regard to the regulatory process, the process must be fair and
open, impartial and the Commission must render decisions that are
consistent with the law. Ted Moninski, our Director of
Regulatory Affairs will address these issues in some detail. The
Commission should be required to hold evidentiary hearings and
we'll talk about some of the issues with the Open Meetings Act.
They need to establish fair rules and follow them, and they need
to abide by the law, and be accountable for their decisions.
With regard to telecommunications law and policy, interconnection
agreements and rates, which we've heard quite a bit about
already, are the drivers of local telephone competition in this
State. If the terms and the rates are not properly set there
will be a long-term consequence for Alaskans. Leonard Steinberg
will focus his remarks on this issue of interconnection
agreements and other matters. Basically, a regulatory regime
that subsidizes competition and encourages the competitor to
'game the system' may result in some short-term price advantages
for the consumers, but will effectively destroy any incentive to
invest in the long-term. Competition is good, but the providers
of telecom services must operate in an environment where their
viability is not called into question.
In terms of the finance and investment, ACS has the invested
substantial amounts along with its predecessor companies to build
and upgrade the network that serves about 75% of this State's
population. We connect those people with each other and the rest
of the world. These companies have invested to provide State-of-
the-art technology to Alaska, and in return for that investment
we should be able to generate adequate returns. This will insure
that ACS is a financially sound organization with continued
access to capital so that we can continue our investment in
facilities to serve Alaskans. While competition has been good
for the consumer, particularly in the short-term in terms of
rates and choice, the ramifications of the kind of competitive
policy we believe our regulators are pursuing are resulting in
ACS suffering long-term, negative financial consequences that
will affect our ability in the long-term to serve Alaskans, and
to attract investment. And a natural consequence of that is it
will affect the ability of the State in its businesses to attract
investment.
The ACS family of companies includes a long distance company,
which in fact, is regulated by the Regulatory Commission of
Alaska with regard to intrastate long distance, or in other words
point-to-point within the State. We have a wireless company. We
have an Internet company and others. But the companies we'd like
to focus the Committee's attention on today are the ACS four
local exchange companies, or the local telephone companies, often
referred to as LECs, L-E-C. They build and maintain the Public
Switched Telephone Network in the State and serve about three
quarters of the State's population. And these are the companies
that are subject to the most intense regulation by the RCA.
Specifically, they are: ACS of Anchorage, Inc., that's the former
ATU; ACS of Fairbanks, Inc., that's the former FMUS, or Fairbanks
Utility, Municipal Utility Service; ACS of Alaska, Inc., which
serves Juneau and several other communities; and ACS of the
Northland, Inc., which serves our highest cost properties around
the State. It's very important to distinguish these ACS
telephone companies from the Regional Bell Operating Companies,
or the RBOCs, that provide service in every one of the other 49
states in the Union. Alaska is the only state not served by an
RBOC, and it has never been served by an RBOC. We at ACS are
very different from these RBOCs. The Telecom Act of 1996
recognized that RBOCs were to be treated differently from other
companies, recognizing that they are significant in terms of
their resources, their market power and their size. The United
States Telecom Association reports that there are nearly 200
million telephone lines in the company. Verizon owns
approximately one-third of those and SBC Communications owns
almost another one-third. Together, the RBOCs control about 87
percent of the country's telephone lines. The Telcom Act
specifically imposes certain obligations on the RBOCs,
recognizing their size and power.
SENATOR DONLEY: When you say 'telephone lines' do you mean the
wires that like come into my house?
MR. CARSON: Exactly. The copper loop that's been referred to as
the last mile, and it is the connection from your house to the
central office switch.
SENATOR DONLEY: Okay.
MR. CARSON: The Telecom Act specifically provides the mechanism
to exclude from certain obligations under the Act for companies
that own less than two percent, 2/100ths of the total lines in
the company recognizing the lack of size and power of these
companies. These are the so-called 2% companies, all four of the
ACS companies taken together represent less than 2/1000ths of the
total access lines, or telephone lines in the nation.
A related concern relates to the authority to provide long
distance services. The Telecom Act authorized all local
telephone companies to provide long distance within their areas
with the exception of the RBOCs. Again, a recognition of the
market power of the RBOCs. They were prohibited from providing
instate long distance service until they opened their networks to
competition, and they have to meet all 14 points of a checklist
that was developed for that purpose. And this was for them the
quid pro quo, opening their networks was the quid pro quo for
providing long distance service. Another specific distinction
between the RBOCs and any of the larger companies is the so-
called rural exemption that you've heard some about today, and
that was discussed during the earlier sessions of this Committee.
This relates to companies that operate in high cost areas. Three
of the four ACS telephone companies were designated as rural
under the Telecom Act and were exempted from this kind of
competition that involves interconnection. The RCA has
terminated that status for all or part of all three of those
companies. The Telecom Act's goal was to balance competition
with preservation of affordable universal service. Service to
everybody at an affordable price, no matter how cost the area was
that they lived in. We have read the RCA's goal to be forcing
competition at any cost to ACS and ultimately to the consumer.
Finally, I would note that the RBOCs and major independents as
well operate in multiple states. So if they have a state
commission that is issuing adverse rulings, it affects their
business in that one state. We operate only in Alaska. So this
Commission by its rulings can make or break ACS.
Today we will direct many of our comments to ACS of Anchorage, as
this the company that has experienced the greatest economic harm
to date from the regulatory policies and directs of the RCA. As
we consider the long-term interests of consumers in Alaska, we
believe it is instructive to view Alaska as the test environment
for these regulatory impacts. The economics of serving the
higher cost areas, and that includes Juneau and Fairbanks, and
now, certain of the so-called Glacier State study area companies
that Leonard will discuss somewhat, where the rural exemption has
also terminated are much more complex and fragile. As these
regulatory policies roll out in the higher cost areas, as they
are now doing, we believe the results would be even more damaging
to both ACS and ultimately, to the public interest for the State.
Just a brief comment, if I could, on the historical regulatory
policy in the U.S. The economics of telephone regulations
developed in part to support an important social policy which
still has a basis in current Congressional policy, and that is
that residential customers should have access to modern,
affordable service, no matter where they live. Its still an
important public policy, one that must be reconciled with modern
reality, because in a rational competitive market, price must
bear a relationship to cost.
Prior to the enactment of the Telecom Act, this social policy was
implemented through a number of mechanisms. The most relevant to
our situation being averaged retail rates so that low cost
customers in service territory pay more than their fair share so
that high cost customers can have a lower rate. This is in
[indisc.] place of subsidy. Similarly, business rates are set
artificially high so that residential rates can be artificially
low. That's another implicit subsidy to support a social policy.
Then there's an explicit subsidy and that's the Universal Service
Fund that brings federal dollars into the State of Alaska to help
keep costs low where the cost of the loop is extraordinarily
high. And finally, long distance companies pay access charges
for being able to access the telephone network to pick up and
deliver long distance calls.
These mechanisms worked in the old days by shifting costs to
those most able to pay it through these implicit and explicit
subsidies. And these mechanisms and the rate of return
regulation assured that when you made an investment in
telecommunications plant you could return on it. So local
telephone companies knew that over time they would recover their
investment on that plant. So whether the telephone company was
investing lower cost customers, serving downtown businesses for
example, or building very expensive facilities to serve up on the
hillside by Flat Top, we knew that over time there'd be an
opportunity to earn on the investment. You already heard a lot
about the Telecom Act. It was aimed at changing the paradigm to
achieve more efficient and innovative telecommunications while
continuing to insure access to affordable service. It promoted
the development of efficiencies and innovations, but Congress was
encouraging achievement of these goals through competition and
market forces, not by more and abusive regulation. Deregulation
was clearly a desired direction. What we see from the Regulatory
Commission of Alaska, as an example, ordering a rate case in
Anchorage that has cost us almost $2 million already in the most
competitive market in the United States is anything but
deregulatory. And, in fact, the Chair of the Commission
indicated to me when I requested the opportunity to discuss
deregulation for Anchorage route, not a rate case, that she
preferred to see the data generated by this rate case before we
discussed that approach.
With regard to preserving affordable universal service,
particularly in high cost areas, I've mentioned, and Leonard will
elaborate on, the rural exemption, which provides that these
small companies serving rural areas will be exempted from some
forms of competition. And the purpose of the exemption is to
insure access to affordable services in high cost areas
characterized by fragile and complex economics that would be
jeopardized in a competitive environment.
The Alaska Legislature has empowered the Regulatory Commission of
Alaska to regulate the State's local exchange markets, but there
has to be a recognition of a larger telecom market. It would be
foolish to think that in regulating this one service segment,
local exchange, that regulators can ignore the impact on the
market of cable television, internet and wireless providers. In
fact, perhaps more here in Alaska than any other market in the
country, the effective bundling of these various services in a
creative, and I might add, cross-subsidizing manner, is a driver
of the competitive markets.
This makes for regulatory complexity, but these market realities
can't be ignored. It's one thing for a regulator to say, 'It's
not in my charter to regulate cable television.' It was quite
another to suggest that the regulators should be blind to the
market impact of these non-regulated but competing services. For
example, we find it interesting that the RCA recently filed
comments with the Federal Communications Commission encouraging
continued regulation of broadband services over the telephone
network, but have made no effort to regulate cable modems. As of
year-end, we believe GCI has about 27,000 cable modems in
operation to our 7,000 DSL installations. Regulators cannot be
blind to market realities because they view their charter as
narrow. They need to be able to connect the dots when they
regulate a local telephone company in a market characterized by a
blurring of technologies and bundling of services.
So why do we suggest the regulatory policies of the RCA are
failing the consumer, the public interest and the…
SENATOR DONLEY: Can I understand that better? So, because they
regulate telephone, RCA, but not cable TV, they're regulating the
costs of having a dialup computer connection, but not the cost of
using a modem computer connection?
MR. CARSON: In effect, but they're advocating continued
regulation of accessing high speed Internet services over the
telephone network. But they are not advocating that over the
cable network.
SENATOR DONLEY: RCA'S doing that?
MR. CARSON: Um-hmm. They filed comments with the Federal
Communications Commission to that effect.
MR. CARSON: We would suggest that our submission in the current
rate case for ACS of Anchorage, that we're not earning anything
on our investment in Anchorage. This is now a matter of disputed
results where a recent RCA order that we'll talk about just
briefly in a few moments. I've been known to say in public
settings that we greatly admire Anchorage's not-for-profits, but
we just don't wish to be one of them. And based on our
submission we're about $18 million short of what the regulators
in the past have deemed to be a reasonable return on our
investment. Yet, because we're the carrier of last resort,
meaning that the Commission can require us to build facilities to
serve customers within our service territory, we have to keep
investing even without the assurance of any return. And I would
ask you to keep in mind that this is the kind of regulatory
impact that's been in place for some time in Anchorage, but is
only starting to roll out in Juneau and Fairbanks where the
economics are much more complex and fragile. I would note that
with the exception of one subdivision that we're aware of on a
military base, a smaller subdivision, that neither GCI nor ATT
Alascom has stepped up to build telephone facilities in places
where they can't, where they're not required to and can't make a
business case. Why should they risk their own capital when they
get use our network for less that it costs us or them to build
it? The bottom line is what we believe is quid pro quo for the
regulation imposed on ACS by regulators, including this carrier
of last resort obligation, is that the RCA makes certain we can
earn a reasonable return. That would be fair. We invest in
facilities and we have an opportunity to earn on it. But the
reality is they can compel us to build facilities and we don't
have any way to sure we can earn on those investments. This is a
Commission that claimed sovereign immunity when we sought to have
a matter that was governed by federal law reviewed by a federal
district court. They didn't want to be accountable for their
decision. Where's the justice when the Commission doesn't have
to be held accountable? Why wouldn't the State Commissioners
want to be absolutely certain that in implementing the federal
law they were doing the right thing under the law and in terms of
the public interest? And yet they've done everything they could
to avoid that kind of review.
This leads us to Mr. Moninski to talk about issues of process.
Ted is uniquely qualified in that he's had responsibility during
his career for regulatory affairs of ATU, our predecessor, at
ACS, and at Alascom as well. He served as executive director of
the APUC from 1986 to 1991, and served previously as deputy
director from 1991, '81 to '86. So, with the Committee's
permission I'll turn the time over to Ted.
CHAIRMAN TAYLOR: Go ahead, Ted.
4:00 pm
MR. MONINSKI: Thank you. Mr. Chairman, members of the Committee,
and I hope you will forgive me. I have a bit of a frog and may
wind up needing a sip of water. The comments that I want to make
to you this afternoon go back to some of the processing procedure
issues that you, you've heard testimony on already. And I will
try, given the lateness of the hour and length of the proceedings
to not spend time repeating things that you've already heard, but
I would like to fill in some blanks for you. As I think about
procedural matters, they sometimes don't appear to be as
consequential as sustentative matters, as policy matters, that
you've heard GCI talk about and you will hear ACS talk about, but
they do form the foundation for fair and open decision making and
they are critically important. When I think about that I also
think in terms of due process, which is a term that lawyers
understand. I'm not a lawyer, but I've worked with lawyers for a
number of years. I think I understand the term. And I think of
it with these concepts in mind and I'll ask you to share them. I
think of it in terms of fundamental fairness. I think of it in
terms of the right to be heard in a meaningful way, the right to
a fair and impartial decision maker, the right to have decisions
made based on [indisc.] record. And these are some of the things
that we've heard talked about earlier and some of the things that
I'd like to discuss with you further. I have four points that I
want to make to you this afternoon, but before I do that, I'd
like to address something that the Committee members have
expressed a great deal of interest in as we've gone through the
proceedings so far, and that has to do with timeliness of
decision making. You heard other witnesses who have talked about
that issue. You've heard people talk to you about the
difficulties that they've encountered in terms of late cases and
expensive proceedings and burdens of discovery and I think you're
going to find that we have similar comments to make. Mr.
Steinberg will be speaking to that more specifically. In terms
of, excuse me, standards of timeliness the Legislature
specifically did direct, when it created the RCA in 1999, that
the RCA undertake a rulemaking and adopt regulations dealing with
standards of timeliness. The RCA complied with that requirement,
and regulations were adopted in, shortly after the Commission
came on board in December of 1999. The interesting thing about
those regulations is that in each and every instance, as far as I
know, for every regulation that was adopted there is a failsafe
clause. There's a failsafe mechanism that allows deadlines to be
extended for good cause. So, there, there really weren't any
absolute time standards that flow from those regulations. But
there is one absolute time standard that is on the books. That's
a standard that the Legislature created back when long distance
competition was first entering the market in Alaska. And it's
found in Alaska Statute 42.05.810 (b). As far as I know, it may
be the only absolute time standard that exists. I can't recall
whether this was a proposal of GCI, but I do believe that GCI
supported it at the time. The standard is for how long the then
APUC, now RCA, has to evaluate an application for certification
for a competitive long distance company.
SENATOR DONLEY: Do you got that statute in front of you there?
What's the year it was adopted?
MR. MONINSKI: I'm sorry, Senator. I don't have that with me.
SENATOR DONLEY: It's all right.
MR. MONINSKI: …gift wrapped for you.
SENATOR DONLEY: Sounds like something I might have done.
MR. MONINSKI: Thank you, if, in fact, it was the case. This
particular statute requires that the Commission complete its
review and make a decision either to approve or to reject an
application within 90 days after having the application complete.
To the best of my knowledge, the APUC, the former Public
Utilities Commission, and the RCA had in each and every instance
complied with this statute. The interesting thing to note is
that there appears to be no negative results as a result of that
compliance. Applications are filed. They are made complete over
some period of time. They are processed and 90 days later a
decision gets made and I don't believe that there's ever been one
that missed a deadline. Absolute time standards, reasonable
absolute time standards do work and I would encourage you to
consider, to think about that as, as you move along the path
concerning reauthorization. When the RCA testified, it also
indicated that some of the prior witnesses have presented to you
some anecdotal evidence. I'm not sure I completely agree with
that. I think what you heard from Chugach and from ARECA and
from others were experiences that those witnesses have with
specific rate cases. But, if, if by that the Commission meant,
we don't have any statistics in front of the, in front of the
Committee, I would like to offer a few as we go along.
One of the ones that I'd like to offer is one that I pulled
together fairly recently. And I'll take just a moment to explain
it to you because its definition is kind of important. I wanted
to go back and take a look at all of the adjudicatory proceedings
and those are the proceedings where, where the regulator acts in
a quasi-judge capacity, look at all the adjudicatory proceedings
that the Commission opened up that were related to tariff
filings. And I think you heard from other witnesses, tariff
filings are filings that are made by companies when they want to
do something with the rates and the terms and conditions of
[indisc.] that they are. I wanted to look at tariff filings
because they are the most easy filings to evaluate in terms of
when cases are actually opened and when they close. There is not
a complexity even of a process of matters going before the
Commission, but tariff filings have pretty clear points of
delineation. So, you know when they open, you know when they
close. I also didn't want to look at any cases that were open
for less than six months because we know by the statute that
that's sort of the default time standard that we're working from.
About six months is how long these cases were intended to be in
existence. So I looked at only cases that were older than six
months, and then only tariff cases because they were easy to
define. And I aged those cases. And I aged those cases and
counted them. And I counted from 1999 until now, 63 cases that
have, tariff filings that have been open for more than six
months. Then I determined when the case was either closed or if
they were still open, I used today's date as the, as the point of
measure. And I averaged them. And of those cases, for those 63
cases, the aveage age for those cases was 504 days. So, there's,
there's a statistic and I'll be happy to leave copy of my listing
with you for you to take a look, and again I need to point out
that I chose this category of cases for a reason, the reasons
that I state. They're not all cases. They certainly don't
include, I don't believe, any cases that were open by the former
APUC, so I didn't want to hold the RCA accountable for cases the
APUC may have held open for an extended period of time.
CHAIRMAN TAYLOR: The average was 500 and some days?
SENATOR COWDERY: Five hundred and how many?
MR. MONINSKI: I'm sorry. Five hundred and four days is the
average age of those tariff dockets that have been open more than
six months.
CHAIRMAN TAYLOR: Senator Cowdery.
SENATOR COWDERY: Yeah. You know, we heard testimony, and since
you're kind of in that zone there that we're talking about, the,
about the interim rates that are established and, and they said
the last interim rate, I thought, was in October, 2001, or what
we're dealing with now. How long, I mean, interim, interim
rates, in your opinion, how long should a person have to wait for
before adjudication and why, why the wait? And you know, it
seems to me pretty important that that interim rate is an
accurate reflection of, of the time. So, if you could talk, I
don't want to divert you from your testimony but I thought we
were talking about in that area.
MR. MONINSKI: Senator, I appreciate that. I don't know that
there's an absolute answer to your question. You've heard
testimony, and you'll hear it from me as well, cases are
different. The category of cases that I just reported to you,
specifically defined and narrowed as I suggested it was. There
are other cases that move much more quickly. And the complexity
of the case is going to drive how long it's going to take to
resolve the case. There are certainly some cases that should
easily be resolved within six months and many that are. There
are other cases that probably need to last longer than six
months. The question is do they need to last a year, two years,
five years? My personal opinion is even a complex rate case
ought to get resolved between a year and 18 months. And again,
that's just a rule of thumb, there's no rule that I'm quoting to.
SENATOR COWDERY: Thank you.
MR. MONINSKI: Next I was going to…
SENATOR COWDERY: If I could just say, say the delay of getting
into the, and setting a permanent rate, is that, that can be
sometimes expensive or where is it disruptive besides, you know,
or without having a permanent answer?
MR. MONINSKI: And Mr. Steinberg reminds me that he's going to
address those…
SENATOR COWDERY: Oh, okay, I'm sorry.
MR. MONINSKI: …in his testimony as well.
SENATOR COWDERY: Yeah, go ahead.
MR. MONINSKI: Okay, thank you. I had mentioned that I wanted to
bring four points to your attention and again I think, as I look
at them, three of them have already been mentioned to you and one
of them will be new. The four points that I'd like to talk about
briefly are the RCA's use of its advisory staff and its public
advocacy section, the lack of codified ex parte rules, and what
might appear to be violations of the open meetings act. I think
you've heard some testimony about those three. The other item
that I wanted to mention to you also is new and has to do with
our perception, ACS's perception, of the RCA's unwillingness to
conduct evidentiary proceedings.
Just as a sort of a brief recap, the RCA uses its staff in sort
of two components, advisory staff that communicate and report and
advise directly to the Commissioners and the public advocacy
section that you created in 1999 as part of the statute that
created the RCA. Public Advocacy, at least my reading of the
statute is, it was intended to be the public interest advocate in
adjudicatory matters that the Commission conducts. The rules
associated with how the advisory staff are used, is used and how
those members are used is sort of unclear. You seem to use the
advisory staff in different ways at different times in different
proceedings and the rules seem to be rather ad hoc. And I had an
experience just recently where there was a dialogue that was
commenced by the advisory staff and it came to my attention and I
called the advisory staff back and said, 'This seems like a
different kind of communication than we have been having in the
past.' And I asked for clarification. The advisory staff said
they couldn't answer my question, they'd have to refer it to the
Commission and I'm still waiting for an answer back on that. The
point being that there aren't real clear rules in terms of the
use of the advisory staff. There haven't been real clear rules
in terms of the use of the public advocacy section, either. In
fact, your auditor as it performed the sunset audit of the RCA
pointed that out and having brought that to the Commission's
attention, a rulemaking has been opened now that will address
that. We do know this, though, that when the public advocacy
section, both in the current version that comes out of statute
and in the former version back before they, the APUC, when the
staff advocacy group was named to party, then party rules tended
to apply to the staff. The staff was expected to act like a
party, to function like a party and was subject to the same
obligations and rights of the other parties in the proceeding.
In this docket that I mentioned that was opened recently, there's
a quote that I'd like to share with you. It's not mine and I
hope my friends at the Alaska Telephone Association won't mind my
borrowing their words. This was filed in the docket dealing with
the public advocacy section. And the ATA indicated that, 'The
main problems inherent in the current regulatory scheme are the
Commission, through its various sections, continues to act
simultaneously as investigator, inquisitor, prosecutor and
adjudicator in its own dockets.' And I think that is the essence
of the issue that we're trying to get our hands on. And I do
believe that the rulemaking that's open is going to help us get
there. And I think that further guidance from the Legislature
will help us get there.
I told you I'd share a couple of numbers with you and I'd like to
share one now. I went back and took a look at the adjudicatory
dockets, all of the adjudicatory dockets that were opened since
the RCA came into existence. And again, the public advocacy
section came into existence at the same time. There were 498
st
formal adjudicatory dockets that were opened since July 1 of
1999. Of that number, the public advocacy section has been named
a party of 59 of those cases. And my calculator shows that to be
something a little bit less than 12%. Which means that in 88% of
the cases, it's unclear who's performing the public interest
advocacy function. It might be that the case is so simple, so
straightforward that that's unnecessary. There are cases that
are like that. My guess though…
CHAIRMAN TAYLOR: Let me interrupt you for just a second. Though
Steve Kohn was somewhat rambling in his presentation because he
didn't know that he was going to be called upon and he probably
would have prepared something more formal, Steve Kohn of AkPIRG,
he was echoing your very comments before us and that was at the
first hearing we held, is that he felt they had been left out far
too often and that they had a significant public advocacy role to
play but were not really being allowed to play that role. So I
appreciate hearing your comments.
MR. MONINSKI: And it, ACS's position is, I don't want to suggest
to you that we don't find the public advocacy section to be a
formidable advocate and adversary in proceedings that we are in.
It's the structure that we're talking about. It is, as I
mentioned before, having decisions based evidence in the record,
being able to confront adverse witnesses, being able to cross-
examine testimony, those are the kinds of things we're interested
in pursuing.
SENATOR DONLEY: Are you not allowed to do that?
MR. MONINSKI: In those cases where the advisory staff is, is the
participant as opposed to the public advocacy section, the
Commission has told us that we were not allowed to cross-examine
the advisory staff. And if you don't have the PAS in the
proceeding, to the extent that the advisory staff is engaging in
advocacy's functions, advocacy activities: a) you don't always
know it because those things are not done on the record, we're
going to talk in a moment about ex parte, whatever ex parte rules
exist in this jurisdiction don't seem to apply to communications
between the advisory staff and the Commissioners. So…
SENATOR DONLEY: Okay, so you do get to do it when the public
advocate section is involved because they're treated like a
party. But you don't get to do it when the staff is doing it
instead of the public advocacy section. I remember there was
some discussion the first day, I didn't fully understand this,
now I think I'm starting to understand the concern that people
before the Commission have.
MR. MONINSKI: And I would agree with your characterization.
SENATOR DONLEY: Okay, thank you.
MR. MONINSKI: The next item that I wanted to mention, and I won't
spend a lot of time on it, is the issues regarding ex parte
communications. And again, ex parte tends to be sort of a legal
judicial term. When I think about it, I think about parties
having off-record kinds of communications with decision makers,
with judges or quasi-judges, communications that are outside the
scope of all the parties and again are maybe not on the record at
all. Depending on the rules, however, ex parte communications
may or may not be improper. The rules define whether or not they
are or they are not improper. And you heard testimony earlier
that in Alaska, other than what we might find in case law, in the
common law, we don't have any ex parte rules that specifically
apply to practice before the former APUC and the RCA. This is
not a new issue. The former APUC considered this issue several
years ago. There was some movement along the lines of adopting
regulations, but that did not happen and it hasn't happened since
the RCA has come into office. Ex parte creates an issue for
parties because, and I think you may have heard this from Mr.
Gordon when he testified, it's difficult to interact with
Commissioners given concerns about ex parte. And in fact, ACS
has been, I think, discouraged from interacting with
Commissioners off-the-record because of concerns about ex parte.
CHAIRMAN TAYLOR: Well, to give you an example of how concerned
the Attorney General's office is, I had asked Bernie Smith to
show up over here at four o'clock. Fortunately, we got that
matter of discovery taken care of. He merely walked in the room
and sat down and we got an Assistant Attorney General jumps up
and runs over and runs him out of the room because he's afraid
some of the generic discussions being given to this Committee
might somehow impact him. Nobody seems to care about it if
you're flying out to a fishing lodge for a couple of days, but if
he's going to sit here and listen to public testimony given at a
public hearing that somehow that is too sensitive. I mean, there
seems to be a heck of a different standard apparently between the
Attorney General's office and their concerns about ex parte
communication and the concerns apparently either being raised or
not being raised at the RCA. I don't know what those standards
are and if you have any suggestions you can give to us on how we
might set as a matter of public policy, better standards that are
more easily enforced and maybe more easily understood by our
Commissioners, we would certainly be grateful of any assistance
you can give us. Thank you.
MR. MONINSKI: I appreciate that opportunity, Mr. Chairman. In
fact, I have one that I just want to briefly mention to you. But
I guess, given the time constraints of these proceedings, of the
proximity of the special session, I for one was finding it hard
to try and come up with really good well-thought-out solutions to
many of these issues.
CHAIRMAN TAYLOR: You've got to understand something, Wes, nobody
gives a damn about really good or well-thought-out. We got a
th
Governor yanking us back to Juneau on the 24. He wants to cram
a bill down the throat of this Legislature that says four-year
extension and maybe he'll add in some of the stuff left over from
the House bill last time around. Nobody cares about whether this
is well thought out, whether this is good public policy or not.
We're being told we have to accomplish it within a very brief
period of time and that's why we're holding these hearings
because I want to get the most on the record we can and the most
suggestions we can so that when we are forced to make a decision,
we will have the very best recommendations from the experts
within this industry that we can get. And that's why we've
wasted, or taken up, a lot of your time and a lot of other
peoples' time here and we're going to continue to do that so that
the Legislature may be better prepared than they would have been.
That's why I'm sitting here today and that's why the rest of the
people are here too is to come up with the very best product we
can if we're going to be forced to address it.
MR. MONINSKI: I'll take you up on your invitation and make my one
brief suggestion. And that is, is to bring to your attention the
approach that's used at the FCC. The FCC routinely allows what
is even called ex parte discussion with Commissioners. People go
to Washington and they have an opportunity to meet FCC
Commissioners from other parts of the country and they are, given
the application of specific rules, allowed to communicate with
FCC Commissioners. But the most significant aspect of this
though is that there is a requirement within a specific period of
time that those communications be disclosed in writing, entered
in the record, with an explanation of what was discussed. And
that certainly would be one thing that I would, that I would
recommend to the Legislature as a possible alternative to the
current situation where we really don't know where the lines are
drawn and it makes it very difficult to know when you've crossed
it. There could be, I'm sure there could be an improper
communication, it's just awfully hard to tell when they occur.
SENATOR DONLEY: And you this is not an isolated issue with the
RCA. It runs throughout State and local government where you've
got commissions or groups, and the Anchorage Assembly is a
perfect example when they sit as a quasi-judicial group but they
go into some community council meetings, the issues come up, and
there really isn't a good consistent approach to how to deal with
this and its something that ought to be dealt with, not just on
RCA, but from a bigger picture also. Probably it'd be good to
have some sort of statutory guideline on this issue.
CHAIRMAN TAYLOR: Barbara Craver came up with some
recommendations. There's about three pages which were in the
beginning of all of our packets and she submitted those to the
Committee at my request just so we would have some other
standards on how other states are doing this and how are other
regulatory commissions and so on doing it and what are those
standards. And so if you get a chance, Wes, we can get you guys
a copy of that and anybody else in the room that would like to
have a copy, we can certainly provide that for you through staff.
But I'm very serious about this. I think it's a very important
element that many people have discussed with us and if we could
possibly find a better standard and a better way of doing
business in the future, I think it benefits the Commission and it
benefits all the consumers at the same time.
SENATOR DONLEY: It's a tricky thing though.
CHAIRMAN TAYLOR: Oh, it's very delicate. There's no question
about it. But with, with your good help and the Committee's, I
think we could probably come up with something, so… Continue, I
didn't mean to interrupt.
MR. MONINSKI: Thank you, Mr. Chairman. The other item I want to
mention is something that you heard in prior testimony. It has
to do with the open meetings act. And I'm going to try to
clarify something for you if it hasn't already been. The, the
RCA and it's predecessor agency, the APUC, is covered by the open
meetings act and in fact for its rulemaking proceedings is
covered by the administrative procedures act. It's only in its
rule as quasi-judge in its adjudicatory proceedings that the
administrative procedures act doesn't apply. Over the years,
I've witnessed that the Department of Law, having routinely
advised the Commission that, except where there's a clear
exception to the open meetings act, such as adjudications, or
maybe when the Commission's talking about personnel matters or
pending litigation, those kinds of things that are spelled out in
the statute, other than that, all other matters that require
deliberation or require voting has to be done in public. And
th
that advice was relayed to the Commission as recently as May 24
of 2002, this is when the Attorney General again said, 'If you're
going to deliberate, if you're going to take a vote and it's not
any, in any of those exception categories, it must be done in
public.' I became concerned not too long ago because I was doing
some research and I was researching the Federal Communications
Commission proceedings and came upon a filing that had been made
by the RCA at the FCC. And because I attend most of the public
meetings that the RCA holds, I couldn't remember this one having
been discussed. And I went back and checked the record and I
couldn't find anything that indicated that it was discussed. So
then I went back and checked the record more thoroughly. In that
checking, I found 14 comment filings that were made at the FCC by
the RCA since 1999, eight of which I could not find any record of
their being a public meeting discussion. And again, I find this
a little bit confusing. Either I'm not reading the records
properly or sometimes these things are being discussed in public
meetings but other times they're not. And I don't understand why
it would be one way or the other. If there is a clear…
TAPE 02-42, SIDE A
MR. MONINSKI: …seeing them split up about 50/50 did cause me some
confusion. Some other issues that are public meeting-type issues
having to do with contracting and procurement, you heard some
testimony about that. I did go back and double-check the statute
regarding the signature authority of the Chair. It's pretty
clear that it's limited to $5000 and the next sentence after that
in the statute implies that anything that's greater than a $5000
procurement would require action by the full Commission. I
believe that that would be covered by the open meetings act
rules. The other thing, too, is perhaps this proceeding itself.
I don't recall that the Commission had any public meeting
discussion of House Bill 333, which was the original
reauthorization bill. There have been numerous public statements
that have been made, website postings, correspondence to this
Committee, and again, I haven't seen or participated or observed
any discussions of that.
CHAIRMAN TAYLOR: No, in fact we had a couple Commissioners
specifically say on the record under oath that that letter
written by Nan to the Chair of this Committee was not brought up,
it was not shared to them and that they did not vote on it, did
not have an opportunity to vote on it. Yet it was stated as the
position of the Regulatory Commission.
MR. MONINSKI: I think that's the distinction. If an individual
Commissioner were to make a position statement like that and it
were so characterized, I think that would not have a public
meeting or open meeting section impact. But if it's the position
of the Commission then I would presume that it would be discussed
in a public meeting. And again, the reason why this is
important, and I think you heard one of the Commissioners last
week indicate the open meetings act makes communications between
the Commissioners cumbersome and difficult. I can tell you,
having been at the Commission, that that's true. It's a tough
thing to stay in compliance with the open meetings act and have
continued and meaningful dialogue going on. But the simple fact
is it is the law. And it's the law and it goes back to a comment
that Mr. Carson made, it's a law that creates accountability. We
don't have elected officials sitting on the RCA or nor did we
have them on the former APUC. And in order for the citizens, the
regulated industry to be able to bring issues to you, the elected
officials who do have that accountability, then these actions I
believe do have to take place in a public setting as the statute
requires. The last thing I want to mention to you this afternoon
is a new item, which you didn't hear discussed by other
witnesses. You did hear Mr. Griffith and Mr. Buell and Mr.
Gordon talk about their experiences with rate cases. And as I
told you, ACS's experience, as Mr. Steinberg will tell you, has
been quite similar. You might have walked away from that
testimony thinking, you know, that's all that ever happens over
at the Commission, is we have all these lengthy proceedings and
we have discovery going on all the time and we lock up people for
weeks on end in hearings. That's not exactly the case. In fact,
and I believe that the RCA had the best of intentions, but in
fact we have somewhat the opposite going on. I think as a result
of the emphasis that the Legislature placed on creating the new
Commission that we've got to get in there and clean up the
backlog and clear out old cases and be concerned about standards
and time limits, I think the Commission created what I am
referring to as its diversion procedure. It is a procedure that
was not adopted. It was not publicly noticed. It was not
adopted by regulation. It was simply introduced back in February
of 2000. The diversion procedure applies to tariff filings. And
an entity, the Alaska Exchange Carriers Association, made a
tariff filing in the year 2000. And instead of suspending that
tariff, which means the Commission takes a look at the tariff,
maybe they approve it, but if they think they need to spend some
more time with it after a very brief review, either 30 or 45
days, it then goes into a period of suspension, which is that
initial six-month period that we've been talking about.
Typically, historically, what happens is, when you have a tariff
suspended like that, during that six-month period some things
occur. Other interested parties have a right to come in and
petition to intervene. You do conduct some discovery if that is
appropriate for the case. You give the parties an opportunity to
file some written testimony. And you hold an evidentiary
proceeding if there are disputed factual issues. And what's
happened with this new diversion procedure is we're trying to
short circuit that, again perhaps well intended, but having rough
results. The short-circuiting is, the tariff gets suspended, the
advisory staff, having provided some advocacy to the Commission
about suspending that tariff, has a memorandum that then becomes
public. That memorandum becomes public on the day that the
Commission makes its decision to suspend. You don't see it any
sooner. You don't have an opportunity to respond to it. But you
do get to see it in the morning of the meeting where the
Commission would actually suspend these tariffs. The new part of
the procedure is now we go into suspension and instead of having
all of these due process safeguards out there, the filing party
gets to respond to that advisory staff memorandum within 30 days.
After the Commission gets that response the Commission might make
a permanent decision. There may be no further process beyond
that. In the case of that AECA tariff, that's what happened.
The Commission made a permanent decision. It rejected the
tariff. The AECA then appealed that decision, because it now had
a final order, to the Superior Court. The Superior Court, in
March of this year…
SENATOR DONLEY: I got a little behind there, the ACEA?
MR. MONINSKI: I'm sorry, the Alaska Exchange Carriers
Association. It's a group of companies that is required to have
a tariff in effect for charging access charges and I don't know
how much detail you want to get into.
SENATOR DONLEY: Okay, all right.
MR. MONINSKI: But this entity is required to have a currently
approved tariff.
SENATOR DONLEY: Okay.
MR. MONINSKI: And it made a tariff revision that was suspended
subject to this new diversion program. The AECA had 30 days to
respond to the advisory staff memorandum and then the Commission
summarily rejected the filing. That was appealed. The Superior
Court of Alaska, in March of this year, reversed and remanded
because no evidentiary, no evidentiary hearing was conducted.
And so, and so now the case is back in front of the Commission.
But since the diversion process began and the Superior Court
ruled, in that period of time, ACS has had 19 of its tariff
filings that have been the subject of this diversion process. In
one of those cases, we did file a petition for reconsideration
raising some of the same issues I'm talking to you about. The
Commission denied the petition.
SENATOR DONLEY: Okay, now this is going back to your original
point number four, unwillingness to conduct evidentiary
proceedings.
MR. MONINSKI: Yes.
SENATOR DONLEY: Okay.
MR. MONINSKI: And again, when you hear about rate cases, you hear
about all of this process. But there are numerous other kinds of
cases that are moving in front of the Commission. And in the
case of tariff filings, it's the lack of process that we are
concerned about. And it's not clear yet whether or not the
Commission in response to the Superior Court remand is going to
change the procedure. We'll…
SENATOR DONLEY: Can I ask you a question?
MR. MONINSKI: Sure.
SENATOR DONLEY: I mean, If their rule making is outside the
administrative procedures act, I mean, the rule making's inside,
their judicial function is not within, but still they're going to
be subject to some basic fairness requirements, I would imagine,
and some court-made, you know, decision laws to how you make
decisions as a quasi-judicial agency and be fair. And that would
just seem to me to require some sort of evidentiary proceedings
just on a basic due process standard. Is this, this diversion
process you're talking about here, other than this one case
you're talking about where the court rejected it and sent it
back, where did this standard come from? You know, what's the
experience with this? Has any other quasi-judicial agency in
Alaska been successful using, making decisions without an
evidentiary hearing?
MR. MONINSKI: Senator, I wish I could answer that question, but I
cannot. The term diversion is mine. I labeled it that because
that's what it looks like to me. I believe what we're trying to
do is move cases faster, which is a good objective. But in the
process, I believe we may have lost sight of some very important
due process issues. And I'm hoping that the court's remand will
increase the Commission's sensitivity to that. But right now
that's not clear. And to the extent, again, as we talk about
things that the Legislature might consider through the
reauthorization process, this is certainly one that I would hope
would be undertaken. Those conclude my remarks and if you have
any other questions, I'd be happy to answer them. The other
thing I wanted to let the Legislature know and I hope the
Commission understands, and that is we really want to work with
the process in order to improve it, both by participating here
and continuing to work in these rulemakings and we offer those
types of input and that assistance wherever we can offer.
CHAIRMAN TAYLOR: Thank you. [Indisc.] had Leonard yet to go and
we've run out of time at this point. I'm willing to give Leonard
another half hour if we can get wrapped up within that period so
you wouldn't have to come back tomorrow. And we could take up
public testimony tomorrow.
SENATOR DONLEY: Can I just ask one more thing?
CHAIRMAN TAYLOR: Sure.
SENATOR DONLEY: This thing you've labeled diversion only takes
place where there isn't the public advocate section involved,
right?
MR. MONINSKI: If I may, Senator. Again we've got, in every
tariff adjudication you have a front-end piece and then possibly
a further piece. The front-end piece is that the Commission
within either 30 or 45 days depending upon which rules you
operate under must make a preliminary decision either to approve
the tariff or to suspend it. If the tariff's approved, it goes
into effect and you move on. If the tariff is suspended, then it
moves into the six-month statutory suspension period. And it is
that period that has now been impacted by what I've been calling
this diversion process.
CHAIRMAN TAYLOR: But his question was: if the public advocacy
enters as a party, then you do get a hearing?
MR. MONINSKI: That's correct. And in this diversion process, one
of the things the Commission has said to us in one of its orders
is it doesn't necessarily end after the filing party responds to
the advisory memorandum. Maybe we'll have more proceedings
beyond that. If that were to happen and the Commission thought
that it was appropriate, it would and could designate the public
advocacy section to participate at that point. But up until
then, the public advocacy section has not participated.
CHAIRMAN TAYLOR: And you may not be receiving any opportunity for
a hearing?
MR. MONINSKI: That was certainly true in the case of the AECA
tariff and in fact so far in some other tariffs as well.
CHAIRMAN TAYLOR: Okay. Did you have anything further, David?
SENATOR DONELY: I can see why the court sent this back. I mean,
you didn't even get a hearing? I mean, you just got here's our
decision now you can respond to it and we might change our mind
based on your response. But you don't really get a hearing. I
mean, that's, there's some fundamental questions there, I think.
I, this is really getting complex and I'm trying my best to
understand what's going on here. I do have some experience in
the area of administrative law, and on something that important
that does seem real, it just seems unusual. And I'm trying to
figure out where this process got developed versus what I'm used
to in administrative law. Right. So I'm sorry, I'm just kind of
talking, thinking it out here…
CHAIRMAN TAYLOR: Senator Therriault had a question too.
SENATOR THERRIAULT: I think you mentioned though that you believe
that this is a process developed out of a desire to try and move
things quickly.
MR. MONINSKI: That is my belief, yes.
CHAIRMAN TAYLOR: Thank you. Leonard, if you could in about 20
minutes?
MR. STEINBERG: I will try to be as prompt as I can. I realize
some of my comments may raise questions and to the extent that
you would like anything responded to, I would be happy to respond
as soon as we can within the time allowed. I apologize for my
voice. I've got the remnants of my two-year-old's cold. But
I'll move forward as best as I can here. I'd like to begin by
alluding to something that Wes said during his opening comments.
And that goes to the notion that interconnection agreements and
rates are the drivers of local telephone competition in Alaska.
If terms and rates are not properly set, there will be a long-
term, there will be long-term consequences that jeopardize the
ability of Alaskans to enjoy modern and affordable
telecommunications services. Now my comments are going to focus
on just a few of the legal and policy calls of the RCA that
concern us. I'm going to talk a little bit about interconnection
agreements, a little bit about the rural exemption and some about
rate cases. In all these matters, the RCA's positions generally
reflect an activist Commission making policy according to its own
vision and implementing it through existing or new utility
regulations. Before we jump into our discussion of
interconnection agreements and rates, it might be helpful to
consider and abstract and [indisc.] simplified example. Please
imagine a gas station. The proprietor has invested in the
business by building and maintaining a building, putting in
tanks, installing gas pumps and the like. The gas station owner
buys gas from a distributor for $1.50 a gallon and sells it for
$1.65 a gallon. Of the 15-cent margin, 10 is required to recover
his investment, leaving 5 for profit. Now imagine government
stepping in and telling the gas station owner that he has to
permit a competitor to use one of his sets of pumps and oh yes
sell him the gasoline for $1.00 a gallon. The competitor then
decides to sell his gas for $1.50 a gallon. It will be 15 cents
cheaper than the original proprietor's gas. And the competitor
will have a margin of nearly 50 cents a gallon as nearly all of
his margin goes to profit because the competitor has not made
substantial investments of his own. In the short-term, this may
look god for consumers. They are paying 15 cents a gallon less
for their gas. But how long do you think the original proprietor
will stay in business? Moreover, how many new gas stations is the
original proprietor likely to build? Well, with that example in
mind, let's turn specifically to telecommunications agreements
that are known as interconnection agreements. What are they?
Well, they permit competitors to lease facilities through a
mechanism known as unbundled network elements, or UNEs. They
establish UNE rates competitors pay to use ACS facilities and the
processes used for the companies to interact with each other.
The rates directly account for most of our competitors' cost of
goods sold and therefore indirectly establish the range of
possible market prices. Now incumbent carriers in urban areas
are obligated to execute these agreements of the
Telecommunications Act of 1996, where carriers are unable to
negotiate mutually acceptable terms. State Commissions are in
power to establish the rates and conditions through arbitration.
Turning now specifically to Anchorage. The interconnection
agreement between GCI and ATU was one of the very first in the
nation. It was approved by the APUC in January 1997 in order
U96-89-9. In that order, the APUC established a temporary UNE
loop rate of $13.85 a month. This rate was intended to be a
short-term substitute for and be replaced by prices based on a
cost study in compliance with federal law.
SENATOR DONLEY: I'm sorry to interrupt you. But can I, I heard
this $13.85 before and I don't really understand, what's that
for?
MR. STEINBERG: Senator, that is a monthly rate for leasing the
local loop.
SENATOR DONLEY: You mean like just to somebody's house?
MR. STEINBERG: That is the connection between the central office
and somebody's telephone, be it in the house or a business. But
it is the loop between the central office and the telephone.
SENATOR DONLEY: So if somebody, so if this wire line into
somebody's house is owned by ACS and somebody else wants to do
the service, then they would pay ACS $13.85 a month to rent or to
use your wire line into somebody's house.
MR. STEINBERG: That is correct.
SENATOR DONLEY: I'm trying to, you know, I just don't remember
exactly, you know, what the rate we're paying for home service is
now…
MR. STEINBERG: Well, I can tell you that that is below our cost
for that, to go out and build the loop like that on average. I
mean these are averages. But on average our cost of a local loop
is several dollars higher than that, quite a few dollars higher
than that.
SENATOR THERRIAULT: Is that the cost to build that loop or is
that the cost that you purchased the loop for? Your business
entity is comprised of businesses that you purchased.
MR. STEINBERG: I understand, Senator. Regardless of whether you
look at it either a historical or a prospective basis, that
$13.85 is considerably below our cost, either way you look at it.
SENATOR THERRIAULT: So, if you build a new loop, it's going to
cost you more than that?
SENATOR DONLEY: And it's what we're talking about, Senator
Therriault and I, right now, this is somehow the TELRIC, total
element long run incremental costs.
MR. STEINBERG: There are different ways of measuring cost. There
are actual costs, which frankly are the costs that we have to pay
out of pocket for all the [indisc.] we have in the ground and on
the pole today. Some people refer to those as historic or
embedded costs. There are also forward looking costs. The
TELRIC costs that you are referring to which are the costs for
determining the rates for unbuckled network elements under
federal law are forward-looking rates, which would be the rates,
not the same as, exactly the same as the rates that you've
already paid for, but the rates you would pay going forward.
Now, as a practical matter, you would expect those, you would
never expect those rates to be exactly the same, but neither
would you expect them to be grossly different either. I mean,
what you build today tomorrow becomes historical. So the
difference between history and prospective is not that great and
you would expect them to be different, but not grossly so.
SENATOR THERRIAULT: So what was the rate that you requested?
MR. STEINBERG: The rate that we requested, and I'll get to that,
if you give me just a moment, Senator. The point I wanted to
make on this is in the words, going back to where we started and
I'll get to your question. In the words of the APUC back in
1997, all prices in the arbitrated interconnection agreement are
temporary in nature, this is a quote, and will require a full
study based upon a cost methodology to be determined by this
Commission at a later date. And if you bear with me, Senator, I
think I may answer your question. ACS sought but was unable to
obtain an agreement with GCI for new cost-based rates. The ACS
then asked the RCA to set new rates in compliance with federal
law in January of 2000. The RCA granted ACS's request to set new
forward-looking rates in March of 2000, expressly recognizing
that the existing rates were both temporary and quote, not based
upon an accepted forward-looking cost methodology, end quote.
Nevertheless, neither the APUC nor the RCA has ever established a
cost-based rate in compliance with federal law for Anchorage. A
year and a half after we requested new rates, in January of 2000,
ACS asked for at least a new temporary rate. And the new
temporary rate sought by ACS was $24 a month. Now, ACS provided
the RCA with substantial cost studies supporting this rate,
copies of which we are willing to make available to this
Committee if it desires. The RCA rejected ACS's suggested rate
and ordered a new temporary and refundable rate of $14.92. And
there was no cost study supporting that number. This is only a
small increase over the old temporary rate of $13.85. And it's
prudent to look closely at where this number came from.
SENATOR DONLEY: Did you say $14.90?
MR STEINBERG: $14.92 was the new temporary rate. As I said,
there's no cost study supporting that number. The rate was in
fact provided to the Commission by one of GCI's lawyers. That's
where the basis for that rate came from. Well, where are we
today for Anchorage UNE rates?
CHAIRMAN TAYLOR: Leonard, Let me interrupt you.
MR. STEINBERG: Yes.
CHAIRMAN TAYLOR: That's a pretty dramatic statement. There was
no other evidence provided with it. One of their attorneys just
kind of called up and said here's a good sounding number.
MR. STEINBERG: One of their attorneys, who is here today, stood
up and said, 'Gee, if you do the same thing for Anchorage that
you did in Fairbanks and Juneau, we think it would come in at
about $14.92.' And that was the rate that the Commission ordered
as the new temporary rate. There was no evidence put into
record. There were no studies that anyone could look at. It was
without representation. Well, where are we today? Two and a
half years after requesting new rates in compliance with federal
law and five and a half years after initiating facilities leases,
ACS still has never had an Anchorage UNE rate in compliance with
federal rules. In fact, today ACS has been unable to obtain even
a schedule for resolving this. We have asked for hearing dates.
We have asked for a schedule. So far we have not been able to
get either of those. There is no schedule for this matter to get
resolved. Well, the RCA claims it does not make law, but rather
implements the law.
SENATOR DONLEY: Leonard, I'm sorry, we're interrupting a lot
here. But I'm trying to relate that back to what we talked
earlier about AS 42.05.810 (b), which says they have to make a
decision, and I believe this applies specifically to telephone
issues, within 90 days after the information is complete. How
does the fact that they've never made a decision on this tariff
issue, I guess it's a tariff issue, maybe it's not, I don't know
all the magic words that apply to telecommunications law, right?
MR. STEINBERG: Senator, I can answer that very briefly. 810 (b)
applies specifically to certificates of public convenience for
inter-exchange carriers. It's a different kind of matter. We
wish there was some kind of rules on this. We think there ought
to be. But so far the Commission has not established a schedule.
SENATOR DONLEY: Let me ask you this. Have they, if 42.05.810 (b)
did apply to these kinds of tariff matters or these unbundled
network elements questions, would all, would the Commission
currently have all the information needed to trigger it. I mean,
that statute only kicks in after the information is complete.
The evidentiary proceedings and pleadings and all that…
MR. STEINBERG: Senator, we have provided a full cost study, with
all supporting documentation and inputs both to the Commission
and to GCI for their review. So I believe the answer is yes.
SENATOR DONLEY: Okay. Thanks.
CHAIRMAN TAYLOR: Go right ahead.
MR. STEINBERG: Now as I mentioned, the RCA claims it does not
make law, but rather implements it. Well, in this particular
case, we haven't even seen much implementation. The situation
introduces a considerable amount of uncertainty to our business
plan. Anchorage UNE rates are not only temporary but refundable.
It makes it very difficult for us to plan for the future in this
environment. Moreover, this standard perpetuates artificially
low wholesale prices for facilities. It benefits consumers in
the short run, but harms consumers in the long run by
discouraging investment. Now, I'd like to briefly turn the
situation in Fairbanks where we have grave concerns about the UNE
rates that the RCA promptly set in response to a request by GCI.
In that case, ACS's actual costs for an average loop in Fairbanks
is about $33.50. Going to the question that Senator Therriault
asked earlier, that is a historical cost, that's what we've
actually had to pay to have loops in Fairbanks. If you want to
know what our forward-looking cost is in that area, we've
calculated it to be about $36.
SENATOR DONLEY: Leonard…
MR. STEINBERG: In the neighborhood of the actual cost, in that
case just a little bit more. Yes, Senator Donley?
SENATOR DONLEY: I'm sorry, I don't know you well enough to really
call you Leonard, I'll call you Mr. Steinberg.
MR. STEINBERG: It doesn't matter to me.
SENATOR DONLEY: You say its $33.00. I imagine the other side
contests that.
MR. STEINBERG: This rate of $33.50. We have to file cost support
documents with the federal, with this case the universal service
administrative company, in order to get federal subsidies. We
have to support our request for federal subsidies with cost
documentation. This $33.50 number is absolutely supported by all
the cost studies that are going to go to obtain our federal
subsidies.
SENATOR DONLEY: Well, if that's the case, and is that the same
situation as with the $24 you say you wanted for the Anchorage?
MR. STEINBERG: I apologize, Senator, I know this is confusing.
The $24 is actually a forward-looking cost. It turns out the
rules are inconsistent. And the rules for federal subsidies
require that cost be based on actual costs, that is what we've
actually paid out. The rules for UNE say that they should be
based on what you think it's going to cost you.
SENATOR DONLEY: So the $24 is what you think it's going to cost
you?
MR. STEINBERG: That's correct.
SENATOR DONLEY: It's not the same as the harder dollar number for
the Fairbanks example…
MR. STEINBERG: That's correct. In the Anchorage case, we believe
that the actual cost number is probably in the 18, 19-dollar
range.
SENATOR DONLEY: You say you believe it, but has it gone through
that same federal process?
MR. STEINBERG: There are no federal subsidies for Anchorage. So
it's not the same type of cost documentation.
CHAIRMAN TAYLOR: Remember, the rest of them were rural, but
Anchorage wasn't.
SENATOR DONLEY: Right.
CHAIRMAN TAYLOR: Over a 150,000 lines.
MR. STEINBERG: The point I'd like to make in this case though is
that ACS's actual cost for an average loop in Fairbanks is
$33.50. The RCA however, set a UNE loop price for Fairbanks of
$19.19. That is 57% of ACS's actual costs. And again, if we
used the forward-looking numbers that we think are legitimate
there it would be even a smaller percentage. Now…
CHAIRMAN TAYLOR: What did they have for evidence to make that
decision?
MR. STEINBERG: If you can hold your questions for just a moment,
Senator Taylor…
CHAIRMAN TAYLOR: Go right ahead.
MR. STEINBERG: I'll try to get to that. Before I answer that
question, let me explain. This is our version of, frankly of the
gas station example. Or if you prefer, consider the fact that in
biological terms, the relationship between GCI and ACS as local
phone businesses would be described as parasitic. Now here's the
definition of parasite I found in one biology textbook. Quote,
organisms that live in, with or on another organism. The
parasite benefits from the association without contributing to
the host. Usually they cause some harm to the host, end quote.
Now in that same text, I noticed that there was a definition of
parasitism. And that is, quote, a form of symbiosis in which the
population of one species benefits at the expense of a population
of another species. Similar to predation, but differs in that
parasites act more slowly than predators and do not always kill
their host, end quote. Well, is state-sponsored parasitism good
for the people of Alaska? Well, perhaps it allows for lower
prices in the short-term. But it begs the question of who will
be here to provide service in the long-term? GCI's local phone
business has not made the kinds of investments needed to maintain
and upgrade the facilities needed to provide service and ACS,
sufficiently harmed, will be unable to do so. Now, how did the
RCA arrive at these rates for Fairbanks? Well, the RCA rejected
ACS's detailed cost study for Fairbanks. Again, a copy of which
we can make available to this Committee if it desires. Rather,
the RCA relied on an improper economic model and the RCA largely
ignored ACS's costs and elected to set Fairbanks prices based on
lower-48 costs. Now, I can answer questions about that if you'd
like, but I, let me, I'm trying to get through this.
CHAIRMAN TAYLOR: Go ahead.
MR. STEINBERG: Now, the model relied upon by the RCA was the
synthesis model used by the FCC to allocate universal service
funds. This is the same model criticized last week by Harold
Furchtgott-Roth. I will say in very brief, that there were some
slight modifications to the model to be used for this setting
because it was never intended to be used for UNEs. However, the
criticisms that have been made of the model, broadly, all of the
fundamental flaws that exist in the model, were not corrected,
none of those really were corrected in the modifications that
were made to use the model for UNE pricing. I would like to say
with the FCC…
SENATOR DONLEY: I'm sorry to interrupt you again. I mean my
memory of the GCI testimony was that the Commission went out and
hired an expert and that the expert recommended this national,
modified national model. What kind of a back and forth were you
allowed in that proceeding as far as contesting the expert's
recommendation?
MR. STEINBERG: Well, that whole issue is currently on appeal,
Senator. But I will say that what the expert actually concluded
was that the ACS model was difficult to understand. He didn't
understand it. So, he basically wanted to recommend something he
did understand. And that's essentially what was used.
SENATOR DONLEY: And it's your contention that that model was not
heavily modified, but it was, you acknowledge it was somewhat
modified, but not…
MR. STEINBERG: It was somewhat modified because in its original
form it was never, it could not predict UNE prices in its
original form. So it was modified to enable it to predict UNE
prices. However, the fundamental flaws that were inherent in the
model that were criticized by former Commissioner Furchtgott-Roth
and others were never corrected.
SENATOR DONLEY: Well, what the heck good was it if it didn't
protect UNE prices, I mean project UNE prices, because that seems
to be the whole question the model was…
MR. STEINBERG: That was the question. Of course this model was
developed for an entirely different purpose. And if I can read
you the quote that I've got in front of me from the Federal
Communications Commission. They said in one of their orders,
quote, the federal cost level was developed for the purpose of
determining federal universal service support and it may not be
appropriate to use nationwide values for other purposes such as
determining prices for unbundled network elements, end quote.
Now, the FCC recently reiterated this position just this month in
another order. And they said, quote, the Commission is cautioned
against using the results of the synthesis model to set rates and
we emphasize we are not doing so in this proceeding, end quote.
Now, it's worth noting that the rural task force of the federal-
state joint board on universal service, this is the same board
that Commissioner Nan Thompson co-chairs, reviewed the
reliability of the FCC synthesis model and concluded, quote, the
costs generated by the synthesis model are likely to vary widely
from reasonable estimates of forward-looking costs. As a result,
it is the opinion of the task force that the current model is not
an appropriate tool for determining the forward-looking cost of
rural carriers, end quote. Finally, the U.S. Supreme Court
recently rejected a Verizon argument, which relied on the
synthesis model to challenge the FCC's UNE pricing rules. The
court described Verizon's argument as spurious, noting that the
synthesis models numbers are quote, clearly wrong.
SENATOR DONLEY: Now wait, you said the 'synthesis,' is that what
this model has, is called?
MR. STEINBERG: This model has gone by various names, but it is
referred to as the FCC synthesis model.
SENATOR DONLEY: The FCC synthesis model.
SENATOR THERRIAULT: At the time the model was adopted, you had
proposed a model, did GCI have a model?
MR. STEINBERG: GCI did propose another model. That is correct.
Now, the RCA represents again that it does not make law, but
rather implements it. In this case, we question that
representation and we invite the Legislature to investigate
whether the RCA's activist policies such as state-sponsored
parasitism reflect the will of the people and this body. And if
not, we recommend enacting statues which establish policies such
as competition being on a level playing field. There were a
number of questions raised, Senator, about cost inputs and I
could address those but I know we're running short on time and
with your permission, I'd like to just try to run through the
rest of this quickly.
CHAIRMAN TAYLOR: Sure.
MR. STEINBERG: I'd like to briefly talk about the issues of rural
exemption. Well, first of all, what is the rural exemption? As
noted earlier, certain incumbent carries were classified as rural
by the Telecommunications Act of 1996, excuse me, and they are
exempt from the obligation to lease facilities to competitors.
state commissions may terminate a rural exemption but only,
according to the act, if the state commission finds that is not
unduly economically burdensome, technically feasible and
consistent with universal service.
SENATOR DONLEY: Okay, hang on just a second. [Long pause] Sorry,
Mr. Chairman, I just want to…
SENATOR ELLIS: Mr. Chairman.
SENATOR DONLEY: Consistent with universal service, whether
technically feasible and undue economic burden.
MR. STEINBERG: Those are the same standards.
SENATOR DONLEY: Right, okay.
CHAIRMAN TAYLOR: Senator Ellis.
SENATOR ELLIS: Chairman, are you planning to cut this off after
Mr. Steinberg finishes his presentation?
CHAIRMAN TAYLOR: Just recess and take it up tomorrow morning at
10, yeah.
SENATOR ELLIS: Okay, so these folks will be back with us in the
morning?
CHAIRMAN TAYLOR: I'm assuming so.
MR. CARSON: Mr. Chairman, my son Benjamin is getting married in
Portland tomorrow and with the Committee's permission, I'd like
to attend.
CHAIRMAN TAYLOR: No problem. You're not subpoenaed here nor was
anyone else except one witness, so…
SENATOR ELLIS: And I think there are questions after Mr.
Steinberg is finished.
CHAIRMAN TAYLOR: Okay.
MR. STEINBERG: I would be happy to respond to those.
CHAIRMAN TAYLOR: Ted, you'll be here, and so will you, Wes?
Excuse me, Wes is going. Ted Moninski.
MR. MONINSKI: Yes.
CHAIRMAN TAYLOR: Good, good. Is that all right with you, Senator
Ellis? If…
SENATOR ELLIS: I had a question for Mr. Carson, not for the other
folks after Mr. Steinberg is finished.
CHAIRMAN TAYLOR: Okay, we'll take that up then as soon as we're
done. Thank you. Go ahead.
SENATOR DONLEY: I'm caught up, thanks.
MR. STEINBERG: Why did Congress create the rural exemption? The
Telecommunications Act of 1996 recognized the fragile economics
of most rural telephone companies and frankly the folly of trying
to bring market economics to high-cost telecommunications
services that cannot exist without significant subsidies. The
rural exemption then is not to be terminated lightly, for doing
so threatens the essence of universal service. The provisioning
of modern telecommunications services to all consumers an
affordable rate, a policy which ACS supports. Nevertheless, the
RCA terminated the exemption of ACS's three rural telephone
companies. Well, what our concern is the RCA's decisions to
terminate a rural exemption. First, the RCA has ignored a
federal judicial decision placing the burden of proof in rural
exemption proceedings on the competitive carrier seeking to
terminate the exemption. But it's also important to note that
the RCA also terminated the exemption for ACS's most rural
company, ACS of the Northland, despite GCI's testimony in 1997
and again in 1999 that it was seeking interconnection only in
North Pole, and not anywhere else in the ACS of the Northland
service territory.
SENTOR DONLEY: I'm sorry, but I gotta ask this. I gotta keep up
here. How does this relate to the testimony that you gave
earlier about, I was trying to understand the significance of it
at the time, but I think this somehow links to it, that it's two
one-thousandths of a percent of the total lines in the U.S.A. and
there's some, I didn't fully understand this 2% standard that you
talked about earlier.
MR. CARSON: One of the mechanisms under the Act is for carriers
with 2% or fewer of the access lines in the country to petition
the state commission to be exempted from these exact kinds of
obligations. So with both the rural exemption mechanism and this
2% petitioning of the State Commission to avoid this kind of
interconnection.
SENATOR DONLEY: And this rural exemption was, I didn't get a good
note on that, but you said it was 150,000 lines or less?
MR. STEINBERG: Companies with 50,000 lines or, there are multiple
standards, Senator, but generally the ones that we can [indisc.]
is companies with 50,000 lines or fewer qualify as rural under
the Telecommunications Act.
SENATOR DONLEY: 50,000 lines or fewer?
MR. STEINBERG: Correct.
SENATOR DONLEY: Okay, thank you.
SENATOR THERRIAULT: And the 2% applies to state entities
petitioning to turn the exemption on?
MR. CARSON: It means that a company, whether it's rural or not,
who has fewer than 2% of the line may petition the state to be
excluded from this kind of competition.
MR. STEINBERG: In other words, be excluded from the obligation to
lease facilities.
SENATOR THERRIAULT: …turn the exemption on.
CHAIRMAN TAYLOR: You're both saying the same thing. Go ahead,
Leonard.
MR. STEINBERG: Sorry, let me back up just a moment or two.
[Indisc.] about what we're speaking about. With regards to the
ACS and the Northland rural exemption that was terminated by the
Commission, GCI testified both in 1997 and in 1999 that it was
seeking interconnection only in North Pole and not anywhere else
in the ACS of the Northland service territory. Now, given GCI's
position and the absence of a dispute concerning most of the ACS
of the Northland territory, we do not believe any specific
evidence was introduced of the impact of competition on the
economic burden or universal service in Northland's small
communities such as Seldovia, Ninilchik, Delta Junction and
Nenana. Given this, we do not understand how the RCA can make
the required statutory findings when there really was no evidence
in the record. Now, why should the Legislature care about this?
Well, because of all consumers outside of Anchorage have been put
at risk of losing the benefits of universal service. And we
invite you as the Legislature to come to your own conclusions
about whether the RCA makes law or just implements it. Now, I'd
like to address a few concerns regarding the RCA's handling of
the ACS rate cases. We are concerned, excuse me, about the level
of effort and resources that are required and the time to reach
resolutions for these cases. The ACS rate cases are Commission-
mandated proceedings. As a condition of transferring to ACS in
1999 the certificates of public convenience and necessity that
are required to operate local telephone companies, the old APUC
required ACS to file rate cases for each of its four local
exchange companies on July 1, 2001. We now anticipate rates
sometime in 2003 based on data from the year 2000. This
proceeding before the RCA has already cost ACS roughly $1.8
million and we expect the full proceeding to cost approximately
$3 million. And this does not include the loss of [indisc.]
costs associated with operating a business without the proper
rates.
CHAIRMAN TAYLOR: Now, Leonard, you were, as a company, you were
required by the RCA to file new rate filings…
MR. STEINBERG: That is correct.
CHAIRMAN TAYLOR: …with the RCA? You weren't, you didn't go in
there on your own asking for new rate filings, they told you to
come in and file rate filings?
MR. STEINBERG: That is correct, Senator.
CHAIRMAN TAYLOR: And now it's taken how long, a year and a half?
MR. STEINBERG: Well, the rate case was, the data year, the test
year was 2000. We filed them in July of 2001. We do not expect
a final decision until sometime in 2003.
SENATOR DONELY: Now, and this was the type, I imagine the public
advocacy section is involved in this one so you get full cross-
examination and everything.
MR. STEINBERG: That is correct. Although I have to say that one
of our concerns about case management has to do with the fact
that our primary competitor GCI was allowed to intervene and, in
our view, propounded burdensome discovery, they delayed and
interfered with the process.
SENATOR DONLEY: The Commission, the last time we had them here,
testified they had streamlined the discovery process. Was this
before or after this streamlining?
MR. STEINBERG: Senator, if I may continue with some of my
comments, I think I will address this. ACS has produced more
than 13,000 documents in these rate cases today and has provided
more that 2500 responses to more that 850 separate discovery
requests, the bulk of which came from our chief competitor, GCI.
I hope that addresses your question.
SENATOR DONLEY: Sounds like it happened before they limited the
number of interrogatories.
MR. STEINBERG: I do not believe…
CHAIRMAN TAYLOR: Well, they haven't limited them.
MR. STEINBERG: I do not believe that the RCA effectively managed
the case and effectively did limit the discovery in this case, in
this matter. There were several times when we asked for limits
on discovery and they were not granted. And if you'd like the
record on that, I can dig that up for you. If I may go on. All
of this…
SENATOR DONLEY: I don't understand this jives with what we heard,
how this is consistent with what we heard the last time we were
here was that they had limited them to 60 questions. Remember,
it was that testimony that we heard that discovery at 60
interrogatories, if you can't make your point in that tough luck…
MR. STEINBERG: We wish that were the case, Senator, that's all I
can say. And if you would like, I can give you a detailed
listing of all the discovery requests and all the responses that
we had to provide.
CHAIRMAN TAYLOR: Chugach has provided over 600,000 copies on one
case.
MR. STEINBERG: This 13,000 documents does not reflect the
multiple copies of each that we are required to provide. Which
multiplies it significantly.
CHAIRMAN TAYLOR: The number I was using for Chugach was the
number that they had, of copies that they had to provide to
others. Their actual discovery I think was about 100 and some
thousand copies originally.
MR. STEINBERG: And the 13,000 documents, that's documents, not
pages. If we went to pages, it would be considerably greater
than that.
CHAIRMAN TAYLOR: Go right ahead, Leonard.
MR. STEINBERG: All of this effort is paid for, frankly, by
consumers either directly or indirectly. The RCA's costs for
these proceedings are collected via the RCC charge on utility
bills. The utility's cost for these proceedings are generally
recoverable through rates. Now, one decision that recently was
issued by the RCA in this matter had to do with depreciation for
our rate cases. And that decision appears to be in conflict with
the U.S. Supreme Court's recent decision in Verizon v. FCC
decided in May of this year. The U.S. Supreme Court criticized
attempts to minimize depreciation and slow depreciation rates.
Yet that is precisely what the RCA has ordered here. In fact,
the depreciation rates established by the RCA for ACS of
Anchorage are not only lower than the rates employed by its
competitors, but these rates appear to be significantly lower
than any other telephone utility in Alaska. In fact, they appear
to be lower than any known depreciation rate for any telephone
utility, big or small, anywhere in the country. This is exactly
the opposite result from what one would expect in the most
competitive marketplace in the nation where there is heightened
pressure to modernize equipment or lose customers. In light of
this dramatic decision…
TAPE 02-42, SIDE B
MR. STEINBERG: Yes, that's correct, Senator.
th
SENATOR DONLEY: And there were portions of what the 8 Circuit
ruled the Supreme Court then subsequently also ruled on and
portions they didn't…
MR. STEINBERG: That is correct.
SENATOR DONLEY: …grant cert on?
MR. STEINBERG: That is correct.
SENATOR DONLEY: But the depreciation, they did grant cert on the
depreciation issue?
MR. STEINBERG: It was actually a comment that the Supreme Court
made in the context of rendering a decision on the FCC's TELRIC
forward-looking economic cost rules.
CHAIRMAN TAYLOR: So, it was a different one.
SENATOR DONLEY: Yeah.
MR. STEINBERG: But it was not a main part of the U.S. Supreme
Court case, but they did make this note in the context of looking
at the FCC's rules that they criticized efforts to slow the
depreciation rates.
SENATOR DONLEY: Well, you know, sometimes courts say things in,
you know, [indisc.] that it was not controlling, is this, was
this a…
MR. STEINBERG: I would say this was probably not controlling,
Senator. But it was very interesting that what the Court was
actually doing in that case was it was criticizing what they
thought were Bell operating company acts to slow depreciation
rates to keep their rate base high. And they were criticizing
the Bell operating companies for the very same act essentially
that the RCA has now implemented with regards to ACS. That was
the only point I was trying to make.
SENATOR TAYLOR: Go ahead.
MR. STEINBERG: Now, one has to ask in thinking about the rate
cases is what are the relevance of rates set by the government
based on three-year-old data in a competitive marketplace?
Because that's exactly what we have. And this question is
particularly irrelevant in a competitive markets where retail
markets today are driven by artificially low UNE rates. And one
also should be asking, well, why is ACS still being treated like
a regulated monopoly when consumers have a choice of carriers in
areas served by three of the four ACS local exchange companies?
Now before closing, let me note that there are numerous other
examples of the RCA's pro-regulatory and activist policies. For
example, as was previously noted, in the comments filed with FCC,
the RCA continues to advocate regulation of broadband services
provided by telephone companies while allowing other providers of
broadband such as cable companies to be unregulated. Similarly,
in another FCC proceeding, the RCA advocates having a right on
it's own to add to the FCC's list of facilities and services that
companies such as ACS are obligated to make available to
competitors. And earlier this year, the RCA agreed to new inter-
exchange carrier regulations that significantly increased the
regulatory burden on long distance providers. All of these
issues lead to the question of whether the RCA's policies and
procedures reflect the will of the Legislature. If not, the
Legislature should provide the RCA with guidance concerning
specific case regulatory policies.
CHAIRMAN TAYLOR: Thank you.
MR. CARSON: Senator, if I could take 60 seconds just to conclude
all of this.
CHAIRMAN TAYLOR: Sure.
MR. CARSON: And that there were some comments or questions about
what ACS's position was and I'd like to state that if I might. I
was able to hear you speak at Commonwealth North last week where
you talked about the problems with the four-year clean approach
to reauthorizing this Commission. We agree. There are too many
issues and our story is only one small part that need to be
addressed before the Commission's reauthorized. So we would say,
one, establish an oversight Committee to monitor the RCA, to
assure that regulatory policy is aligned with long-term public
interest, that processes are completed in a timely fashion, that
due process is afforded to everyone and that there is in fact an
incentive to invest in telecommunications in Alaska. And then we
would recommend that the information derived from these hearings,
which we think have been very valuable, by an oversight committee
and by the telecommunications study be provided to the
Legislature in the next session as they deliberate the regulatory
future of this State. That's the ACS position.
CHAIRMAN TAYLOR: We heard testimony, even earlier today, when I
inquired as to who was telling people that we were going to
terminate the RCA, that ACS may have said these things. Is that
your position, that we should terminate the RCA?
MR. CARSON: That has not been our position. But it is our
position that reauthorizing for a long term now is a mistake
because this is the opportunity to shine the light on this and
study it and make sure that what's happening is in the interest
of the Alaskan consumer.
CHAIRMAN TAYLOR: Thank you. John, you had a question.
SENATOR ELLIS: Yeah, thank you, Mr. Chairman. Mr. Carson, by
oversight committee, who did you mean? Did you mean a bunch of
Legislators?
MR. CARSON: Legislators, or individuals appointed by the
Legislature, perhaps. We are open as to what form that might
take.
SENATOR ELLIS: Okay. Thank you. I came across your letter in
th th
our packet, the July 11letter, or June 11 letter of this year
about, to the Chairman where you said that, you contend that 'ACS
has suffered greater economic harm that any other Alaskan utility
as a direct result of the policies and orders of the Commission.
Frankly, we're convinced that ACS will be in serious financial
jeopardy.' And you went on, and it's pretty much reflective of
the statement you made today about the trouble that you all are
in having been punished by the RCA through process or their
orders that it's financially hurt your corporation. So I'm
trying to reconcile that with the things that you've been telling
the financial advisors, people on Wall Street, your investors in
conference calls and other communications. And there are direct
quotes from you that are very upbeat and positive about the
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financial situation of the company. On April 30 of this year,
'We're please with our results for the quarter, particularly in
local telephone where we saw solid performance. Further, we
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experienced our 4 quarter in the role of positive free cash
flow as we generated over $13 million in cash even as we
continued to establish our technology leadership.' And just,
there's a whole bunch of these. But just one other was from a
thth
little earlier this year, February 20, 'We had a strong 4
quarter, reporting revenues that were the highest in the
company's history.' So I'm trying to reconcile the rosy picture
to Wall Street and the investors with the charges or your
contention that you're in financial trouble because of the RCA's
decisions.
5:20 p.m.
MR. CARSON: Senator, if I might go back to my introductory
comments. Within the ACS family of companies, we have an
Internet company, a wireless company, a long distance company and
we have four local exchange telephone companies. Those are the
four pieces of our broader ACS family of companies that are most
intensely regulated by the Regulatory Commission of Alaska. Of
those four companies, I then focused this down to ACS of
Anchorage because we are now basically five and a half years into
the regulatory policies of competition in Anchorage. That said,
we would wish to focus on this because we believe it will
portends what will happen to the other three ACS companies, two
of which are now engaged in competition with GCI and the fourth
which has had their rural exemption terminated. I think you will
also find in our press releases and our other comments that we
say that our results are in part encouraging because we're
dealing with very difficult situations. So we're pleased to be
able to have done as well as we have with the entire company and
with the four telephone companies when we have these adverse
regulatory situations [indisc.]. I didn't bring those press
releases with me, but I'd be happy to submit them because we talk
specifically about how we feel we're not dealing with the level
of [indisc.] and that is a difficulty for us. So the simple
answer is, we have focused on ACS of Anchorage, which in fact by
our estimation is not earning anything on its investment. It is
not earning a profit. And we're saying, by implication, if these
regulatory policies are allowed to continue, we will see similar
and perhaps worse results in Fairbanks, Juneau and the Glacier
Estate properties. Because those economics are more complex,
involving as they do, quotability [ph] of explicit subsidies.
SENATOR ELLIS: So you think it's clear to the investors and to
the financial analysts that you're segmenting the success and the
problem with RCA? To a layperson, just looking at your
materials, it seemed like gloom and doom to the Legislature and
then things are great with the other folks.
MR. CARSON: We have very carefully segmented operational results
between telephone and non-telephone. And particularly in
investor conferences, we've talked about the regulatory situation
existing and the challenges that we have legally because of our
concerns about this regulatory [indisc.]. So, yes, I believe
we've been clear.
CHAIRMAN TAYLOR: Senator Therriault, did you have a question?
SENATOR THERRIAULT: With regards, you started out with your
comments today saying you were thankful to have an opportunity to
get this, this information out. Did you make requests of any
Committee that heard the extension bill in the Legislature to
have such a hearing and bring this information during the last
legislative session?
MR. CARSON: I did not personally, although I did send a letter to
Senator Taylor that's part of the packet in which we indicated a
desire to be able to share our concerns.
SENATOR THERRIAULT: Okay, and during the Session, did you, were
you backing a hearing?
MR. CARSON: I have not personally been involved in backing a
hearing although I think…
SENATOR THERRIAULT: Okay. And then the, Senator Taylor has
talked about the four years and clean that the Governor's likely
to request and that's probably likely to be the bill that he puts
in. GCI has indicated that they'd like to see a four-year as was
recommended by the auditors. I think that's not likely to
happen. I've told GCI's lobbyists that's not likely to happen.
Do you see any problem with the one- or two-year extension while
the Legislature? Because this is quite a bit of information,
bringing all the Legislators up to speed could take some time.
Do you see a problem with a one- or two-year extension while the
Legislature deals with the public advocacy section and the
timelines issue and the oversight?
MR. CARSON: If I might, Senator, answer in explaining it
differently. And that is that I see a benefit of being in this
wind-down situation because it adds urgency. We believe these
are issues that require urgency. So we believe this next
legislative session is the right time to hear these issues. And
so whatever situation arises, if it encourages dealing with these
issues in a timely fashion, and for us that means the next
legislative session, we think that's a positive thing.
SENATOR THERRIAULT: Okay, so being able to link that to do-or-die
gotta-have legislation or else RCA is gone is in your view a good
thing. But I think there was some testimony with regard to
personnel, if we get into the legislative session, it's basically
six months from it going out of existence. So you've got
personnel, and as we go to the end of the legislature, you've got
personnel that potentially see their jobs going away in three,
two or three months. I think that's a negative and it seems to
me than an extension of a year while the Legislature looks at all
this information, a minimum of a year, maybe a year or two, which
is being supported by Mr. Gordon out of Fairbanks, the electric
out of Fairbanks. I guess I don't really see a compelling reason
why that's not, that's not reasonable.
MR. CARSON: On the one hand, the four years and clean absolutely
puts no pressure on…
SENATOR THERRIAULT: I understand that.
MR. CARSON: …urgency. So as you ratchet that back. How much
time is enough time? I guess I don't have an answer for you
today. We will watch with great interest what's developing in
the special session. But some sense of urgency we think is
required because these matters are so serious, not just for
telecom, but as we've heard from electric and sewer and water and
others, there needs to be a sense of urgency to deal with these
issues. You asked a question if there's some place in between.
I guess we're not prepared to make a comment on that until we saw
what that was.
SENATOR THERRIAULT: Well, back in the previous session, it was a
year. We were arguing over three months, no one year. The we
had offers for six months, no a year. We were talking about, at
one point, 90 days difference. It just seemed to me that a year,
the Governor was reluctant, the House was reluctant, but I think
that we could have settled on that. To my understanding there
was an offer that was not brought back to the Senate caucus. It
seems to me that a year is very reasonable.
CHAIRMAN TAYLOR: We need to clarify that a little bit, Senator
Therriault. There was additional qualifications on that bill.
There was a task force attached to it. There was also the House
amendments that had been placed on it which provided for
significant deadlines. And to be real frank with you, the
information I have is, that bill wasn't killed in the Senate. It
was killed over on the House side when they were told by GCI that
one year was not acceptable, that they had to have four years and
it didn't matter what we were hanging on it, they weren't going
to accept any things that were hanging on it, whether it was the
task force or whether it was wait for the study. Every person
that we have got on record so far that has testified in favor of
an extension has said, 'I want the extension, but with…' And
then they have always added something. Whether it's the
timelines, the study to be done by someone, the task force group,
they've all seemed to have some additional thing they've hooked
on to it. And I think that's what we were facing, too. Because
the one we moved out of Committee had that, even though it was
only three months. It had a task force attached to it, too. And
that was not acceptable over on the other side, apparently. I'd
like to take credit for killing that rascal, but I didn't do 'er.
She died on her own over there. Guys, we went over a half hour
beyond where I, an hour actually [indisc.] I told staff I'd keep
them hanging around here. The two of you can come back tomorrow
because Senator Ellis has some additional questions and I think
Senator Donley has too, on some technical matters. We'd
appreciate that. As soon as we have concluded tomorrow and I
would hope that we could do that in probably an hour, we will
start taking up public testimony and we will continue until we
have exhausted the last of the public testimony. Thank you,
gentlemen, very much. We are in recess until 10:00 o'clock
tomorrow morning.
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