Legislature(2001 - 2002)

06/12/2002 01:07 PM JUD

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

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