Legislature(2001 - 2002)

06/21/2002 10:14 AM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                    
                   SENATE JUDICIARY COMMITTEE                                                                                 
                          June 21, 2002                                                                                         
                           10:14 p.m.                                                                                           
MEMBERS PRESENT                                                                                                               
Senator Robin Taylor, Chair                                                                                                     
Senator Dave Donley, Vice Chair                                                                                                 
Senator John Cowdery                                                                                                            
Senator Gene Therriault                                                                                                         
Senator Johnny Ellis                                                                                                            
MEMBERS ABSENT                                                                                                                
All Members Present                                                                                                             
OTHER MEMBERS PRESENT                                                                                                         
Senator Gary Wilken                                                                                                             
COMMITTEE CALENDAR                                                                                                            
Regulatory Commission of Alaska                                                                                                 
PREVIOUS COMMITTEE ACTION                                                                                                     
See Senate Judiciary minutes dated 06/12/02, 06/13/02 and                                                                       
WITNESS REGISTER                                                                                                              
Mr. Leonard Steinberg, Attorney                                                                                                 
Alaska Communication Systems (ACS)                                                                                              
600 Telephone Ave.                                                                                                              
Anchorage, AK 99503                                                                                                             
Mr. Ted Moninski, Attorney                                                                                                      
600 Telephone Ave.                                                                                                              
Anchorage, AK 99503                                                                                                             
Mr. Jim Rowe, Executive Director                                                                                                
Alaska Telecommunications Association                                                                                           
201 E 56th, Ste. 114                                                                                                            
Anchorage AK 99518                                                                                                              
Dr. Dale Lehman                                                                                                                 
Alaska Pacific University                                                                                                       
Anchorage, AK                                                                                                                   
Mr. Patrick Luby                                                                                                                
Anchorage, AK                                                                                                                   
Mr. Don Reed                                                                                                                    
Matanuska Telephone Association                                                                                                 
140 S. Chugach Street                                                                                                           
Palmer, AK 99645                                                                                                                
Ms. Paula Eller                                                                                                                 
No address available                                                                                                            
ACTION NARRATIVE                                                                                                              
TAPE 02-43, SIDE A                                                                                                            
Number 001                                                                                                                      
CHAIRMAN  ROBIN  TAYLOR  called  the  Senate  Judiciary  Committee                                                            
meeting to order at 10:14 a.m.                                                                                                  
[THE FOLLOWING IS A VERBATIM TRANSCRIPT]                                                                                        
CHAIRMAN TAYLOR: We  have with us two members of  the ACS that are                                                              
here. They gave their formal presentation  yesterday, but returned                                                              
this morning primarily  so the committee could  ask questions. Let                                                              
me remind both  of you, both Leonard  and Ted, that you  are still                                                              
under oath and ask  that if you have anything further  you wish to                                                              
add or supplement to your testimony before we begin questions.                                                                  
MR. STEINBERG:  Thank you Mr. Chairman  and Senators. I  have just                                                              
two  very brief  items  that I  wanted  to mention  to  you and  I                                                              
promise they won't  take very long. Yesterday, at  pretty much the                                                              
beginning of my comments I had presented  to you the results of an                                                              
analysis that  I had done relative  to case aging and  I mentioned                                                              
to you  that I  identified a  specific category  of cases,  tariff                                                              
filings that  have been  suspended by  the RCA  for more  than 180                                                              
days.  I aged  those cases  and found  that the  average of  those                                                              
cases was 504 days.                                                                                                             
After yesterday's proceeding, a colleague  asked me a question and                                                              
the  question was,  'Did  my list  include  rate  cases?' And  the                                                              
answer to that question is yes. As  you have heard from ACS and as                                                              
you've heard from other witnesses,  rate cases tend to be the most                                                              
complex  and the most-lengthy  proceedings  that are processed  by                                                              
the RCA. It  occurred to me then  - I asked myself a  question - I                                                              
wonder  what the  impact  of that  is  on the  result  that I  had                                                              
produced. So, I  went back to my list and I pulled  out all of the                                                              
rate  cases  and reran  the  aging.  As  you  might expect,  as  I                                                              
expected, the  result was that the  age of the case began  to drop                                                              
because  the rate cases  were no  longer reflected  such that  the                                                              
[indisc.]  study, tariff  filings suspended  longer than  180 days                                                              
but not including  rate cases, produced an average  age of case of                                                              
423  days. So  that's what  the rate  cases  are. I  just want  to                                                              
clarify that because  again I think we need to be  focusing on the                                                              
right  issues  and to  the  extent that  we're  going  to do  some                                                              
collective problem solving, I thought  it was important to go back                                                              
CHAIRMAN TAYLOR: What  is the average aging then  of the ones that                                                              
you pulled out - the tariff rate cases?                                                                                         
MR. STEINBERG:  I did not look. I  found at least one  that I know                                                              
exceeded 1,000  days, but I did not  go back and run  the aging of                                                              
the rate  cases, themselves. I could  certainly do that  and offer                                                              
that to you.                                                                                                                    
CHAIRMAN TAYLOR:  You might,  if it's not  too big a  problem, and                                                              
give us both numbers so that we can  see what is the aging of rate                                                              
cases and what is the aging of tariff cases and…                                                                                
MR. STEINBERG: I  think I can do that, yes. One  other item that I                                                              
wanted to bring  to your attention. It actually is  a follow up on                                                              
a line of questions  that Senator Cowdery had put  to witnesses at                                                              
the beginning  of the hearing  having to  do with staffing  of the                                                              
RCA. I  wanted to  just present to  you what I  think is  the most                                                              
recent active  battle at the RCA  and also is a supplement  to the                                                              
promise that  I made  to you  yesterday regarding  the use  of the                                                              
[indisc.]  staff  versus public  advocacy  section.  Based on  the                                                              
RCA's web page, which, I think, is  fairly current, the Commission                                                              
has at this point  in time 57 positions that are  filled. I do not                                                              
know whether  or not they have  more positions than that  that are                                                              
authorized. They have 57 positions  that are filled; five of those                                                              
positions,  of  course,  are  commissioners   and  then  the  non-                                                              
commissioner positions. We have five  positions that are allocated                                                              
to  the  public  advocacy  section   and  47  positions  that  are                                                              
allocated to a category of commission's  staff. [Indisc.] includes                                                              
support   positions,   clerical   positions,   and   the   various                                                              
professional  positions  that  provide  advisory  input  into  the                                                              
Commission. In addition to that,  the Commission also receives the                                                              
services of  three assistant  attorneys general  and, at  least my                                                              
experience  has been,  that's  done on  a  contractual basis.  The                                                              
Commission  contracts  with  the   Department  of  Law  for  those                                                              
services. That's in addition to the 57.                                                                                         
I bring that  up because Senator Cowdery had asked  some questions                                                              
that I  think are important  questions relative  to the  adding of                                                              
staff to  the Commission  and whether or  not that's  necessary to                                                              
get the job done and how that translates  into the regulatory cost                                                              
charge, which  is the  charge that  shows up on  the bills  of all                                                              
consumers  who are served  by regulated  companies who  ultimately                                                              
pay the bill. I  don't think I know the answer  to the question of                                                              
whether  57 employees  is the right  number. I  just really  don't                                                              
know  that.  I  wonder  whether or  not  the  allocation  of  five                                                              
positions  to the  public  advocacy section  and  47 positions  to                                                              
other activities  creates the right  balance and would  offer that                                                              
into the record  as something that as we go forward  we can take a                                                              
look at as we look at whether or  not staffing is [indisc.]. Those                                                              
are  the two  items  I had  and I  would be  happy  to answer  any                                                              
SENATOR COWDERY: You've worked with the APUC and the RCA?                                                                       
MR.  STEINBERG: I  was employed  by the  APUC. I  have never  been                                                              
employed by the RCA.                                                                                                            
SENATOR  COWDERY: When  the APUC  got  dissolved and  the RCA  was                                                              
created, how  many employees were lost?  Was it a majority  or was                                                              
it  a few  or I  know we  had people  who testified  who had  some                                                              
longevity and…?                                                                                                                 
MR. STEINBERG:  Senator,  I was employed  by Alascom  at the  time                                                              
that that other sunset process was  going forward. My recollection                                                              
of  that  following   year  was  pretty  much  the   same  as  the                                                              
recollection you've heard from every  body else. It appeared to me                                                              
to be business  as usual. I don't have a specific  recollection of                                                              
how  many  employees if  any  were  lost  during that  period.  Of                                                              
course, you're going  to have normal turn around  and attrition at                                                              
every agency and  even if [indisc.] lost, I don't  know whether or                                                              
not it  exceeded what  you might  normally expect.  It would  be a                                                              
question, I think, that somebody  would have to go back and check.                                                              
SENATOR COWDERY: I  wonder if we could ask that  of the Commission                                                              
- to get that information.                                                                                                      
MR. STEINBERG: Senator, first, if  you don't mind, I would like to                                                              
supplement the response that was  given to Senator Ellis yesterday                                                              
concerning  the  representations   that  have  been  made  to  the                                                              
[indisc.]. I have with me two press  releases issued by ACS that I                                                              
would like  to submit  to the record,  but I  would just  note the                                                              
first  one was  issued on  October 25,  2001 and  that contains  a                                                              
quote from the company's chairman,  Mr. Robinson, and says, 'While                                                              
we are  pleased with our  progress in  many areas, we  are mindful                                                              
that on a  year-to-date basis total local telephone  revenues have                                                              
decreased over  the past year. This  is a result of  a combination                                                              
of unfair competitive arbitrage opportunity  associated with a low                                                              
cost fee rate  coupled with decade old retail rates,  which do not                                                              
permit us to earn our regulated revenue requirement.'                                                                           
That was from  October 25 of last  year in a press release  to the                                                              
investment  community.  Also,  on  February  20 of  this  year  in                                                              
another press  release to the  investment community,  Mr. Robinson                                                              
was quoted  as saying, 'We continue  to face a market  with unfair                                                              
competitive  arbitrage opportunity  associated with  the low  cost                                                              
[indisc.] rates.'                                                                                                               
So, just to establish  for the record that I believe  that we have                                                              
notified  the  investment  community  that  there  are  regulatory                                                              
issues  here  which  may  have  an  impact  on  earnings  and  the                                                              
company's future.                                                                                                               
The  other thing  that  I'll  let you  decide  - there  were  some                                                              
comments made yesterday by a representative  of GCI concerning the                                                              
law that was used in Fairbanks and  the input. I think some of the                                                              
comments were made  specifically about matters that  we would take                                                              
issue with.  It's frankly a little  bit arcane and detailed  and I                                                              
don't want  to take the committee's  time if it's not  of interest                                                              
to the committee.  So, I'll let you decide as to  whether you want                                                              
to hear it.                                                                                                                     
CHAIRMAN TAYLOR: Thank  you, I think Senator Donley's  question is                                                              
still yet to be resolved, at least  it certainly is in my mind and                                                              
I defer to him on follow up.                                                                                                    
SENATOR DONLEY: I'd  appreciate a follow up because  I'm trying my                                                              
best to understand this model, because  it seems to be the root of                                                              
the problem here.                                                                                                               
CHAIRMAN TAYLOR: Not  only is it the root of the  problem, I think                                                              
it's  the excuse  for where  we have  got  to in  the problem.  We                                                              
somehow  up here  in Alaska  have created  our own  individualized                                                              
model and when they  ran the model, you end up  forcing one entity                                                              
to provide  access  to lines  at a below  cost ratio  and I  can't                                                              
understand  how any governmental  entity  could force somebody  in                                                              
the private sector. I think of Senator  Therriault's welding shop.                                                              
Could the  government come  in and  say you  have to provide  your                                                              
workmen and  your shop at 25  percent below what your  actual cost                                                              
is of employing  them and somebody  else gets to sit in  an office                                                              
someplace, take  orders for welding  and have your people  have to                                                              
go out and do it and have to maintain  the building and everything                                                              
else and  they can compete directly  against? I can't  imagine how                                                              
that happens,  but that appears to  be exactly what's  happened in                                                              
this market.  If you  can explain  how that  model drives  this, I                                                              
know it would  certainly help me and Senator Donley's  question is                                                              
unresolved in my mind.                                                                                                          
SENATOR DONLEY:  I'd just appreciate any information  from anybody                                                              
out there  that would  help me  better understand  how this  model                                                              
functions  so  I can  reach  my  own conclusion  whether  it's  an                                                              
appropriate model or not.                                                                                                       
MR.  STEINBERG: Let  me begin  by stating  that first  there is  a                                                              
distinction  to be  made between  the  model and  the inputs,  the                                                              
costs, that are put in to run the  model. We have issues with both                                                              
of those matters. We think that while  a model was adopted, but by                                                              
far the  biggest portion  of the  driver of  the answer  isn't the                                                              
model's structure, but it's the inputs  that are used to calculate                                                              
the numbers. The  inputs used here are crucial and  if you go back                                                              
and look at what the FCC's rules  were about that, it's clear that                                                              
the  RCA's intent  was  to measure  the  costs  of the  particular                                                              
carrier at issue, the incumbent carrier  costs and set rates based                                                              
on those costs.  I'd like to read  to you a couple of  quotes from                                                              
some  of the  FCC orders.  For example,  in its  first report  and                                                              
order  on  these  issues,  the  FCC said,  'As  a  result  of  the                                                              
availability to  competitors of the incumbent  [indisc.] unbundled                                                              
elements at their  economic costs, consumers will be  able to reap                                                              
the benefits  of the  incumbent [indisc.]  economies of  scale and                                                              
scope as  well as  the benefits  of competition.'  Now the  phrase                                                              
there -  at their economic  costs -  that the incumbent  carriers'                                                              
cost  -  okay?   Similarly  the  FCC  wrote  that   the  [indisc.]                                                              
methodology that we've talked about  aims to 'establish prices for                                                              
interconnection  and unbundled element  based on costs  similar to                                                              
those incurred by the incumbent.'  So it's clear, I believe in the                                                              
FCC  rule,  that the  objective  was  to  base  UNE rates  on  the                                                              
incumbent carrier's costs. That's  not what was done in Alaska. In                                                              
fact, on  calling, GCI proposed  a different standard,  a standard                                                              
that,  in fact,  was accepted  by  the arbitrator  ruling on  this                                                              
matter and then it was further endorsed by the RCA.                                                                             
What  was  that  standard?  Well,  that was  the  standard  of  an                                                              
efficient least  cost company  in a  competitive market  place. It                                                              
has nothing to do whatsoever with  ACS, with ACS's costs, with the                                                              
costs  in  Alaska.  This  was a  hypothetical  standard.  We  were                                                              
supposed to  be able to  meet the standard  of an efficient  least                                                              
cost company in a competitive market  place. Frankly, Senators, we                                                              
believe this is  an illegal standard, a wrong  standard that we've                                                              
attempted to  pursue this matter  in federal court where  there is                                                              
jurisdiction,  but  we have  been  stymied  so  far by  the  RCA's                                                              
opposition to federal court jurisdiction.                                                                                       
But,  nevertheless,  this  is the  standard  that  the  arbitrator                                                              
adopted, but the  RCA endorsed the arbitrator's  decision was that                                                              
of an efficient least cost company  in a competitive market place.                                                              
What that  means when you  think about it  is the costs  they were                                                              
going  to use  were  the least  expensive  costs  that could  ever                                                              
possibly  exist. That means  there's absolutely  no incentive  for                                                              
any  competitor, be  it  GCI or  anybody else,  to  ever go  build                                                              
anything, because  they could  never get it  as cheap as  the most                                                              
efficient,  least cost  company  could  ever get  it.  That is  an                                                              
extremely high standard.                                                                                                        
Now, our  colleague at GCI represented  to you yesterday  that the                                                              
inputs that  were provided  into the model  were all  adjusted for                                                              
Alaska  conditions.  I  believe  that  was perhaps  a  little  bit                                                              
misleading and  I would like to refer  you to and this  is for the                                                              
record  - exhibit  105  to  the arbitration  proceeding  and  it's                                                              
entitled GCI Input Picture for the  FCC Model. In other words this                                                            
is the document GCI relied on to  propose costs in the arbitration                                                              
we've been talking about.                                                                                                       
Now, what were the standards that  they provided in this document?                                                              
There were  three ways that  they talked about  establishing costs                                                              
and I'll just  read these to you  off this document. This  is page                                                              
one  called GCI  Input  Pitches  Support Documentation,  June  12,                                                            
2000. Interestingly,  June 12,  2000 is only  about a month  or so                                                              
before Commissioner Thompson went on a fishing trip.                                                                            
The  first item  was to  accept FCC  default value.  That was  the                                                              
first alternative  weighed that [was]  going to have  cost inputs.                                                              
Let me  just mention to  you in this  context that the  model that                                                              
was chosen  if you step back  one step, as I  mentioned yesterday,                                                              
ACS developed its  own cost based model, fully  compliant with the                                                              
FCC rule  for tele [indisc.]  hypothetical network, etc.  That was                                                              
rejected out of hand and what was  put in place was the derivation                                                              
of  the  FCC  universal  service model,  otherwise  known  as  the                                                              
synthesis model.  That model requires  over 1,300  separate inputs                                                              
to  run that  model. Now,  [indisc.],  the parties  were going  to                                                              
obviously litigate those things that  were most important so there                                                              
was a vast majority of input that  were run in that model were, in                                                              
fact, the  FCC's default input. I  believe it was over  85 percent                                                              
of all of the  input value that were run in by  the Commission for                                                              
the  Fairbanks and  Juneau arbitration,  85 percent  of all  those                                                              
inputs were, in fact, just flat estimate default inputs.                                                                        
The other two  ways that GCI suggested was adjusting  FCC defaults                                                              
for labor  and material  cost differences  between Alaska  and the                                                              
Lower 48 for  setting the actual GCI costs. Well,  in theory those                                                              
sound just fine, but I brought with  me today a document that I am                                                              
going to  introduce into evidence  that shows a comparison  of the                                                              
FCC  default values  and the  GCI inputs  and the  ACS inputs  for                                                              
these items that were in dispute.  I can tell you of all the items                                                              
that  are in  the  document, this  exhibit,  the  GCI values  were                                                              
accepted in all  cases. And, in many cases, the GCI  values were a                                                              
fraction of what  ACS's calls for. So, for example,  when it comes                                                              
to  something that's  called  the digital  loop  carrier, and  the                                                              
first item  on there is  something called  fixed line fiber  - and                                                              
these are  very technical archaic  terms, I realize, but  I'm just                                                              
using  them  as  examples,  the  FCC  input  value  for  this  was                                                              
$152,000. GCI's value was $201,000.  ACS's cost was $315,000. When                                                              
it came to  running the model, they  didn't use the ACS  number of                                                              
$315,000; they  used the GCI number  of $201,000. Let me  give you                                                              
another example...                                                                                                              
CHAIRMAN TAYLOR: Let me interrupt  - that GCI number - that was an                                                              
actual  cost  -  that  was  based on  an  actual  cost  of  either                                                              
installing or putting in that type of equipment or fiber?                                                                       
MR. STEINBERG:  It's a good question,  Senator. In most  cases, we                                                              
know where  the ACS  number comes  from. In all  cases I  can tell                                                              
you, the ACS number is based on our  most current costs to acquire                                                              
[indisc.] of  equipment and materials  and our most  current labor                                                              
rates.  Those are  the  two things  that went  into  the ACS  cost                                                              
Now,  we have  heard the  arguments from  GCI, but  these are  all                                                              
supposed  to be  forward looking  costs  and you  can't use  those                                                              
because those are all historical costs.                                                                                         
CHAIRMAN TAYLOR:  That would just  be higher, because  labor costs                                                              
are not going to go down.                                                                                                       
MR. STEINBERG:  Our position, Senator,  the best evidence  we have                                                              
of what  our costs will  be tomorrow is what  it cost us  today or                                                              
yesterday. We have no better evidence of what it will cost.                                                                     
CHAIRMAN TAYLOR: And your numbers are subject to audit?                                                                         
MR.  STEINBERG:  Yes,  absolutely,  we  provide  a  detailed  cost                                                              
support by  each and every  one of our numbers.  Let me ask  you a                                                              
CHAIRMAN TAYLOR:  Where did  the number come  from then,  that GCI                                                              
proposed and was adopted?                                                                                                       
MR.  STEINBERG:  Let  me  answer  your  question  this  way  then,                                                              
Senator.  The  Commission,  when   it  ordered  arbitration,  also                                                              
adopted what  was called  a baseball  arbitration style.  And what                                                              
baseball arbitration  is, if you've had any experience  with that,                                                              
two  sides  come  in.  They  both  put  in  their  pitch  and  the                                                              
arbitrator  simply takes  one or  the  other. There's  no, if  you                                                              
will, compromise position. Furthermore...                                                                                       
SENATOR DONLEY: Wait  a minute. I don't understand  that. You mean                                                              
the arbitrator is either going to go with yours or theirs?                                                                      
MR. STEINBERG: That  is correct. And in most of these  cases, I do                                                              
not  believe that  GCI  submitted  substantial cost  evidence.  In                                                              
other  words,  I  believe  that   for  many  of  these  decisions,                                                              
certainly the  FCC default that were  used, there was  no evidence                                                              
on the record to support any of these  numbers. The only evidence,                                                              
particularly for  the FCC's default  numbers, was that it  was the                                                              
FCC's default number.                                                                                                           
CHAIRMAN TAYLOR:  But an FCC default  number is going to  be based                                                              
on Lower 48. It's not going to have anything to do with Alaska.                                                                 
MR. STEINBERG: Exactly, Senator,  but even then, there was no real                                                              
evidence.  There  was  no documentation  of  exactly  where  those                                                              
numbers came from. We can get into a dispute with our…                                                                          
CHAIRMAN TAYLOR: ...large an FCC default number would be lower.                                                                 
MR. STEINBERG: Yes.                                                                                                             
CHAIRMAN TAYLOR: I'm sorry Senator Donley. You had a question.                                                                  
SENATOR DONELY:  Well, I understand that technique  of arbitration                                                              
when you  have a lot  of diverse types  of issues involved,  but I                                                              
don't understand  that technique of  arbitration when it's  just a                                                              
series of numbers.                                                                                                              
MR. STEINBERG: We do not believe  that it is appropriate, Senator,                                                              
if that answers  your question. We believe it  should be incumbent                                                              
on the  Commission and  its arbitrators to  make findings  of fact                                                              
based on the  evidence and not just  simply pick one or  the other                                                              
depending on whichever one looks  best. Let me remind you that the                                                              
standard  that  was  adopted  by the  arbitrator  based  on  GCI's                                                              
proposal  was  that  of  an efficient  least  cost  company  in  a                                                              
[indisc.] marketplace.  In other words, the burden was  put on ACS                                                              
to show  not that  these were  its costs  and its forward  looking                                                              
costs, but  that these would  be the  costs of an efficient  least                                                              
cost company  in a competitive  marketplace, an almost  impossible                                                              
standard  to meet.  And  under  those circumstances  in  virtually                                                              
every case,  the arbitrator  elected to  endorse the proposal  put                                                              
forth by  GCI. There's a  lot of arcane detail  in all this  and I                                                              
don't want to bog you down, but I  wanted to give you a flavor for                                                              
when GCI,  standing  before you,  and said that  the numbers  were                                                              
adjusted  for Alaskan  costs.  They were  GCI's  numbers, most  of                                                              
which  we  don't  really  understand   the  basis  of  them.  But,                                                              
whatever, they  were clearly not  ACS's costs and we  believe that                                                              
was the standard that was set by the FCC.                                                                                       
SENATOR THERRIAULT: Who is the arbitrator in power this month?                                                                  
MR. STEINBERG: The arbitrator was  Mr. Paul Olson. He is a hearing                                                              
officer employed by the Commission.                                                                                             
CHAIRMAN  TAYLOR: Let's  repeat  that. He  was  a hearing  officer                                                              
already  employed by  the Commission  that appoints  him as  their                                                              
MR. STEINBERG: That is correct.                                                                                                 
CHAIRMAN  TAYLOR: Is he  one of  the staff  people, then,  that we                                                              
hear about  chatting with the  commissioners and working  with the                                                              
commissioner? Maybe  they are doing  that on other  matters, maybe                                                              
not on this one adjudication he wouldn't be, but on others?                                                                     
MR.  STEINBERG:  Senator, all  I  can tell  you  is  that we  have                                                              
theories  and we  have suspicions  about  communications and  that                                                              
they  have occurred  between  the  commissioners  and the  hearing                                                              
officer or an arbitrator  in this case. We have no  proof of that,                                                              
but it would be an interesting area of inquiry.                                                                                 
CHAIRMAN TAYLOR: At least he is an  employee within the staff - he                                                              
is one of those staff people you were talking about?                                                                            
MR. STEINBERG: Yes.                                                                                                             
SENATOR DONLEY: Labor costs - I don't know.                                                                                     
CHAIRMAN TAYLOR:  Let me  follow up on  that one, then,  because I                                                              
also have labor down as an item that  I wanted to talk about today                                                              
with you as far as these formulas,  because it seems to me that if                                                              
you adopt, as  the Commission has, this hypothetical  model of the                                                              
most  efficient  that anybody  could  ever  be, then  you're  also                                                              
establishing  and  adopting if  you're  most efficient,  the  most                                                              
efficient labor force and the least costly labor force.                                                                         
SENATOR DONLEY: That's what I was getting concerned about.                                                                      
CHAIRMAN  TAYLOR: I think  what that  means is  if you adopt  that                                                              
model,  basically you're  going to  break somebody  out there  and                                                              
maybe what you're breaking is a union.                                                                                          
MR. STEINBERG:  That's exactly correct,  Senator. I don't  know if                                                              
you're aware  that ACS is a union  shop. GCI primarily  is not. It                                                              
does not surprise  us at all if  they have lower labor  costs, but                                                              
that doesn't mean that that's our  labor costs and we believe it's                                                              
the intent of the federal law that  these G and Es are supposed to                                                              
be based on  our costs. In other  words, whatever it costs  ACS to                                                              
go  out and  [indisc.], that's  what it  ought to  be charged  the                                                              
competitor. If  the competitor has  lower labor costs, and  he can                                                              
go  out and  build that  line himself  for  less, there's  nothing                                                              
under the  law that prevents  it from doing  so. In fact,  the law                                                              
encourages that  type of activity and  so, if GCI has  lower labor                                                              
costs and wants  to take advantage  of them, we invite  them to go                                                              
out and  build their  own local loops  and we'd  like to  buy them                                                              
from them,  based on their lower  labor costs, but that's  not the                                                              
way it works.                                                                                                                   
CHAIRMAN  TAYLOR: In  fact, there  is one and  they've refused  to                                                              
allow you.                                                                                                                      
MR. STEINBERG: That is correct.                                                                                                 
CHAIRMAN  TAYLOR: They  went out  on  the base  and utilizing  the                                                              
contractor  on the  base  who never  provided  an opportunity  for                                                              
anybody else to  bid, he installed copper for GCI  and that is, in                                                              
fact,  the only  telephone  loops  that these  people  own in  the                                                              
entire state.  So, when I asked  if you own any  copper yesterday,                                                              
it's, 'Oh  yes, we put in  this subdivision.' What they  failed to                                                              
say was the  second shoe which  should have been dropped  and that                                                              
is, 'And we are refusing to allow  ACS to share in those lines and                                                              
compete with  us for those customers  out there, because  we don't                                                              
want  competition out  there.' To  me it's  the most  hypocritical                                                              
thing I've ever seen in this discussion.  They're going to exclude                                                              
you guys from the only copper that  they own, but they're going to                                                              
use this  commission  to mandate  that they have  access to  every                                                              
inch of copper  that you own at  a price below your costs.  Now is                                                              
what I'm saying to you a correct  assumption and is that true that                                                              
they have  worked with the Commission  to exclude you  from access                                                              
to those lines?                                                                                                                 
MR. STEINBERG: I cannot represent  the extent with which they have                                                              
worked with  the Commission, Senator  Taylor, but I  can represent                                                              
to you that the  only lines in Anchorage, which  are not available                                                              
to a competitor  are the UNE bases  or those lines that  you refer                                                              
to as the Aurora Subdivision on the [indisc.].                                                                                  
CHAIRMAN TAYLOR: And why are they not available?                                                                                
MR. STEINBERG: GCI is not making them available to us.                                                                          
CHAIRMAN TAYLOR: I thought they wanted competition.                                                                             
MR.  STEINBERG:   We'll  let  the   committee  come  to   its  own                                                              
conclusions about that.                                                                                                         
SENATOR THERRIAULT:  We've got volumes of  documentation [indisc.]                                                              
on that. There  was no discussion about this  yesterday. [indisc.]                                                              
I'd like some kind of backup on.                                                                                                
CHAIRMAN TAYLOR:  I think  we all  need that, Senator  Therriault,                                                              
because I was  shocked when I was  told that last night  that this                                                              
was  one -  to me  appeared to  be  one of  the most  hypocritical                                                              
things I  had ever heard  of - that we  get access to  your lines,                                                              
but you don't  get access to any  of ours and, literally,  I think                                                              
the part that  even frustrates me  more, and I don't live  in this                                                              
community, but I  travel in and out of it, I've  been watching ads                                                              
on the TV showing  GCI pretending to be out  installing copper. It                                                              
shows ads where they're digging and  they're installing things and                                                              
doing things and  they're telling the community that  this is part                                                              
of competition  and that they're going  to go out and  build these                                                              
systems. They're not, are they?                                                                                                 
MR. STEINBERG: We  believe that's correct. GCI will  tell you that                                                              
they're installing a  lot of coaxial cable. Of  course, it's their                                                              
unregulated  plan   and  it's  interesting,  Senator,   they  have                                                              
installed quite a bit of fiber optic  cable around Anchorage, some                                                              
of  which is  to serve  some of  their business  customers and  to                                                              
provide transport to their own facility.  I will note that we have                                                              
several times asked them for access  to some of their fiber optics                                                              
facilities  in the  ground and  they  have refused  to provide  us                                                              
access to those  facilities saying, 'Gee, they  have no obligation                                                              
and they're not  going to.' So it's very much  a one-sided sharing                                                              
CHAIRMAN TAYLOR: Their fiber optic is their TV cable.                                                                           
MR. STEINBERG: It's  their basic backbone for - if  you carry both                                                              
a TV signal and voice signals and  transmission. They have to have                                                              
quite a  bit of fiber installed  around Anchorage and  they refuse                                                              
to share access with us.                                                                                                        
CHAIRMAN TAYLOR: But they're not  allowed, because of federal law,                                                              
I guess, to use that for telephonic?                                                                                            
MR. STEINBERG:  They are allowed to  do that, but they  don't have                                                              
to share it. Unfortunately, there  is a glitch in the federal law,                                                              
I believe,  which  obligates incumbent  carriers to  share all  of                                                              
their   facility, but it does  not impose a reciprocal  obligation                                                              
on competitive carriers. Now, if  the legislature so desires, they                                                              
can do the kind  of thing that we believe could  probably be fixed                                                              
with state  law -  something you  might want  to consider  at some                                                              
point in the future.                                                                                                            
CHAIRMAN TAYLOR: Would  you draft an amendment or  have your staff                                                              
do so  to suggest  to the  committee how  that might  be fixed?  I                                                              
think what  many of us have assumed  is that the RCA  was going to                                                              
provide for  at least a level  playing field among  competitors. I                                                              
think that's all  we have a right to expect and  the competitors -                                                              
that there be a level playing field.  I don't see anything in this                                                              
situation that would involve a level  playing field at this point.                                                              
So, if you have  a suggestion for legislation that  might amend or                                                              
change  that  to put  in  a  fairer  standard,  I'm sure  we'd  be                                                              
interested in seeing it.                                                                                                        
MR. STEINBERG: [Indisc.]                                                                                                        
CHAIRMAN TAYLOR: Senator Ellis, you  had question yesterday and...                                                              
SENATOR ELLIS:  I had a question  yesterday and I posed  it to Mr.                                                              
CHAIRMAN TAYLOR:  And that  was it?  Okay. Senator Therriault,  go                                                              
SENATOR  THERRIAULT:  A question  for  Ted. Yesterday  you  talked                                                              
about the  diversion process and the  notes that I wrote  down for                                                              
myself here  is that you  thought it was  well intended by  RCA to                                                              
deal with the backlog or deal with  the number of cases coming in.                                                              
Looking  back at  some  of the  input from  ARECA,  they passed  a                                                              
resolution,  02-19, saying that  they wanted  RCA extended  for an                                                              
additional  two years,  but they  do  have some  things that  they                                                              
think should  be worked  on. And  one of them  is that  number two                                                              
here - how the  RCA can revise its processes to  assure that fewer                                                              
issues are  tried in  a trial like  proceeding. In addition,  I've                                                              
heard from USA  in Fairbanks, the water/sewer  utility, expressing                                                              
a similar  desire, that fewer things  go to that elevated  sort of                                                              
judicial proceeding where you have  to have loads of attorneys and                                                              
it just drives  the cost up. Isn't  that in fact what  the RCA was                                                              
trying  to do with  this diversion  process is  instead of  having                                                              
things  elevated right  to  this quasi-judicial  process,  instead                                                              
divert it. And  that's one of the diversions. That  is something -                                                              
and  hopefully   less  expensive   -  where  they   could  request                                                              
additional  information  and  maybe  reach  a  decision  based  on                                                              
information they just  got from the companies  without involving a                                                              
lot of the attorneys.                                                                                                           
MR. TED MONINSKI, ACS Attorney: As  I indicated yesterday, I think                                                              
that is  what the RCA  is doing.  There is no  way for me  to know                                                              
that  for  sure. This  procedure,  and  I  call this  diversion  a                                                              
procedure, was  introduced for the  first time within  the context                                                              
of  this  specific  tariff.  There  was no  prior  notice  to  the                                                              
regulated industry that I'm aware  of that the procedure was going                                                              
forward.   Ultimately,   what  you   might   expect  under   these                                                              
circumstances  is   sort  of  a   generic  application   that  the                                                              
procedures have, that  we might have had a ruling.  The Commission                                                              
might have  taken input  from people, tried  to identify  the best                                                              
way to  streamline the process  on the basis  of one of  those who                                                              
came into  the record. But,  that didn't  happen and I  think that                                                              
was part of the flaw of this process  was that this didn't happen.                                                              
I'm glad you asked the question,  because I really want to clarify                                                              
for the  committee and  for anybody who  is listening.  ACS agrees                                                              
with the  comments that  you've heard  earlier  about some  of the                                                              
very cumbersome  procedures that  are still  part of the  process;                                                              
it's extensive  and costly discovery  that goes on,  especially in                                                              
rate cases.                                                                                                                     
What  I would like  to suggest  to you,  though,  is that not  all                                                              
cases fit that load  and not all cases require some  of the things                                                              
we no longer  have access to.  The Commission's caseload  needs to                                                              
be looked at and analyzed and stratified  so that we get the right                                                              
procedures  and apply  them to the  right cases.  There are  cases                                                              
that I think can move very very quickly  that will not require all                                                              
of the  judicial proceedings  that you might  use in a  rate case.                                                              
There's  a body  of cases in  the middle  of that  mix that  still                                                              
require some  opportunity to put  evidence into the record  and to                                                              
the  extent  the  advisory  statutes   will  continue  to  provide                                                              
advocacy   functions,   some   opportunity   to  test   that   the                                                              
propositions  that are  going to  be put forward  by the  advisory                                                              
staff. And that is really what I  was trying to get at by delaying                                                              
my comments  was that sort of the  notion that you have  to strike                                                              
the right  balance and  must not  throw the  due process  baby out                                                              
with  the bath  water as  we try  to  streamline. Streamlining  is                                                              
important. We  endorse it and  will continue to  participate doing                                                              
SENATOR THERRIAULT:  I guess the  ruling thing the RCA  would have                                                              
to do.  So, it seems  like they're getting  input. I  know they've                                                              
heard from  USA up in Fairbanks  that why does everything  have to                                                              
be this  heightened  hearing that  drives up costs.  So, it  seems                                                              
like they're  trying to  be responsible in  one aspect.  You would                                                              
have  liked to have  seen them  get to  that process  - this  rule                                                              
making, which  would have  taken staff time  and effort,  too. So,                                                              
maybe they  short-circuited or jumped  to the new  process without                                                              
going through a  development phase, but they've  got their backlog                                                              
to deal  with, too. So,  it seems like  they're being  pulled from                                                              
more  of a  competition  direction.  In  that instance,  they  are                                                              
trying to do something that has been suggested [indisc.].                                                                       
MR.  MONINSKI: I  appreciate that  tension. [indisc.].  I think  I                                                              
would characterize it this way that  not knowing for sure what the                                                              
Commission's  intentions  were, but  it looked  like  this was  an                                                              
effort to streamline the process  is a good thing. There were some                                                              
things  that short-circuited  the  rule  making.  There were  some                                                              
things that  got stepped  over. They  were important things.  They                                                              
were  opportunities to  be heard,  opportunities to  cross-examine                                                              
witnesses.  In the  appropriate cases,  where  real disputes,  the                                                              
opportunity  to create a  factual entry  record, those  things got                                                              
missed  or at  least  they  appear to  have  been missed  in  this                                                              
process and they're really important things.                                                                                    
SENATOR  THERRIUALT: When  you  made reference  to  the AECA  case                                                              
yesterday and the  fact that the courts threw it  back to the RCA,                                                              
in fact, didn't  the RCA make the ruling in a  quasi judicial sort                                                              
of setting, like  a judge would in a summary  judgment, that there                                                              
was no issue of fact here and just  ruled on the case based on the                                                              
information that  had been presented  and the courts  decided that                                                              
no, in fact, there  were some issues of fact, again,  similar to a                                                              
judge being overturned and having  something remanded back down to                                                              
MR.  MONINSKI: It  certainly  appears to  be  in the  nature of  a                                                              
summary judgment,  but for those  people who practice in  front of                                                              
the  Commission   [indisc.],  summary   judgments  typically   are                                                              
prompted by a  motion for summary judgment at which  point in time                                                              
people can come in and put their  positions forward as to what the                                                              
material issues  of fact  are seeming to  exist. That  motion part                                                              
that didn't exist  in this case, in the AECA case,  again when the                                                              
diversion process  was introduced for the first  time, an advisory                                                              
staff memorandum  made the recommendation to the  Commission. That                                                              
memorandum was  released on the day  of the tariff  [indisc.]. The                                                              
filing party,  AECA, did have the  opportunity to comment  on that                                                              
memorandum within 30 days. It made  its comment within 30 days and                                                              
the Commission didn't reject the  filing. There was no opportunity                                                              
to look  at data  from other parties  who might  be able  to raise                                                              
other issues of  material facts. That did not occur.  That was the                                                              
case that was [indisc.].                                                                                                        
CHAIRMAN TAYLOR:  So, it  gets appealed, gets  sent back  down and                                                              
now somebody  has to actually  got to sit  down and listen  to the                                                              
facts, huh?                                                                                                                     
MR. MONINSKI: We've been hearing the schedule is for early 2003.                                                                
CHAIRMAN TAYLOR: 2003?                                                                                                          
MR. MONINSKI: Yes, sir.                                                                                                         
CHAIRMAN TAYLOR: Then what's [indisc.] in here?                                                                                 
MR. MONINSKI:  At this  point there  will be  the more  formalized                                                              
regular judicial process associated with this case.                                                                             
CHAIRMAN TAYLOR:  I understand that,  but what's the  issue? Isn't                                                              
it rates?                                                                                                                       
MR.  MONINSKI:  The AECA,  through  this  process, made  a  tariff                                                              
filing and  in that tariff  filing they set  out - I'm  doing this                                                              
from memory  - I  believe they  set out  about 10 separate  issues                                                              
they  want to  address in  the [indisc.].  The  court referred  to                                                              
those [indisc.] that  were out there as the 10  issues that needed                                                              
evidentiary  support and that's  basically what  got sent  back to                                                              
the  Commission. So,  it's not  necessarily  a rate  case per  se.                                                              
There are  other mechanisms  that are part  of that tariff  filing                                                              
that will be before the Commission.                                                                                             
CHAIRMAN TAYLOR:  But, ultimately those  10 things will  have some                                                              
impact upon a tariff  or a rate whether or not  that tariff can be                                                              
approved  by the  Commission.  In other  words,  this filing  that                                                              
initially was made, before it goes  up to the court and comes back                                                              
down again, this filing was for an increase, wasn't it?                                                                         
TED:  Senator,   no.  The  filing   itself,  was  a   filing  that                                                              
established the  procedure, the  notice requirements,  the dispute                                                              
resolution  process  associated with  what  happens  when a  local                                                              
exchange  company  changes  what's   called  the  first  point  of                                                              
switching and  again we get  into these types  of issues on  it. I                                                              
apologize  [indisc.],  but  when  the  first  point  of  switching                                                              
changes,  it has  an impact  on or  can  have an  impact on  other                                                              
carriers that interconnect  with that point of  switching and this                                                              
tariff deals with how that process would work.                                                                                  
MR. STEINBERG: If  I can address the question  you've raised? That                                                              
tariff filing  does, like  most tariff  filings, have a  financial                                                              
impact on [indisc.]. ACS did have  a strong interest in the tariff                                                              
that  was filed,  but this  tariff  filing affects  ACS and  other                                                              
incumbent carriers'  ability to design  and upgrade  their network                                                              
to make  it as  efficient as  possible to  serve the future.  And,                                                              
essentially what has  occurred is the competing  carriers have had                                                              
a very large voice in telling the  incumbent carriers how they can                                                              
design their  network and how they  can upgrade their  network and                                                              
how  to  make their  network  more  efficient  or  not -  or  less                                                              
efficient. And so ACS certainly had  financial concerns related to                                                              
this tariff because the outcome will  affect our ability to either                                                              
make our network  more efficient or not. So far,  we've been stuck                                                              
in the not category,  but it does have financial  implications for                                                              
CHAIRMAN TAYLOR: Senator Donley's  question still echoes in my ear                                                              
and I  have to  hark back to  that because  it hasn't really  been                                                              
resolved in  my mind and that is  if we continue with  the process                                                              
that  you  and GCI  are  basically  caught  up  in, where  is  the                                                              
incentive for  anybody to  go out and  build new copper,  to build                                                              
new lines in  houses? It doesn't  make sense to me that  ACS would                                                              
want to  do that when  you're going to have  to pay out  of pocket                                                              
your actual costs, but under this  formula you're only going to be                                                              
allowed  to charge  the  competitor  who wants  to  use the  lines                                                              
you've now  installed -  you're only  going to  be able  to charge                                                              
them  a  portion  of  your actual  costs  which  means  for  every                                                              
customer  that they  pull off the  system, that  the loops  you've                                                              
just developed,  you're losing money.  Why would you ever  want to                                                              
build any  lines? And if in  fact GCI will eventually  be required                                                              
to  allow you  as the  competitor  at that  point to  come in  and                                                              
utilize their lines and basically  if the same formula is applied,                                                              
you will get their lines for less  than their cost of installation                                                              
and  then you  could  go into  that  subdivision  and offer  those                                                              
people $10  less per  month or whatever  for their phone  service,                                                              
just as GCI has done to you in the  areas where they're competing.                                                              
So, why would either one of you have  any incentive at all to ever                                                              
put in any additional copper?                                                                                                   
MR. STEINBERG:  Your  analysis is  on the mark,  Senator, and,  in                                                              
fact, that's  why the  FCC in its  rules and  its orders  was very                                                              
careful to  insure that  the proper price  signals were  such that                                                              
this whole  notion of competition  only works if the  proper price                                                              
signals are set  out to the marketplace. And, if  you discount the                                                              
cost of  a line  and you  make it  cheaper than  it really  is, it                                                              
completely  distorts the  marketplace  in just  the manner  you're                                                              
referring to. I would like to add,  however, that the consequences                                                              
are even  greater than the direct  issues that you've  raised. Not                                                              
only do we have to provide our lines  at some discount to whatever                                                              
it actually cost us to put it out  there, but what happens is that                                                              
our competitor essentially  has the same facility,  they offer the                                                              
same  services, but  they have  a lower  cost if  it sold than  we                                                              
could ever  have. What that does  is drives down the  market price                                                              
and,  as  we  said,  in  the short  term  this  may  be  good  for                                                              
consumers, but in the long term,  it means that not only do we not                                                              
recover from GCI on the lines that  they have taken, but we really                                                              
can't  recover on  the line  that  goes to  our customers  either,                                                              
because the entire  marketplace has been driven down  by the party                                                              
that has  the lowest  cost of goods  sold. And  the point  here is                                                              
that cost  of goods sold  should not  be an artificial  number. It                                                              
has  to be  a real  number  for the  economic  consequences to  be                                                              
favorable long term.                                                                                                            
CHAIRMAN  TAYLOR:  Well, what  worries  me  is  not just  the  new                                                              
investment of new  lines going now, which isn't  happening, by the                                                              
way. You're not putting much out. [END OF SIDE A]                                                                               
TAPE 02-43, SIDE B                                                                                                              
CHAIRMAN TAYLOR: ...phone company  is to install a bunch of switch                                                              
gear  and  an office  some  place  and  then  bootleg off  of  the                                                              
incumbent, but  what really  worries me is  what happens -  let me                                                              
give you an example.  Some guy goes out here in  a subdivision and                                                              
he's putting in  a new water line and he takes  his backhoe and he                                                              
cuts through  your buried cable. You  have to go out and  fix your                                                              
cable, right? You're  mandated to do that. You can't  say no we're                                                              
not going to fix the cable. So, you  go out and spend the money to                                                              
fix  the cable,  but  you're not  going to  recover  any of  these                                                              
costs. You may be  fixing the cable going into a  system where you                                                              
haven't got  a single  customer left.  GCI's got  all of  them and                                                              
you're losing  money every month on  that system, but you  have to                                                              
maintain the  system. So, what are  you going to do?  You're going                                                              
to do  it at the  least cost possible.  You're going  to band-aide                                                              
that  system. And  you're going  to  band-aide it  again the  next                                                              
time. And guess what happens two  or three years from now when the                                                              
economics of this either drives you  people out or into bankruptcy                                                              
or whatever  and we end  up with nobody  doing any  maintenance of                                                              
any significance  on this infrastructure  and nobody  investing in                                                              
this  infrastructure.  That's  what  I'm  fearful  of  -  is  that                                                              
possibility. And is that going on today?                                                                                        
MR. STEINBERG: Absolutely,  Senator. Just to give you  a real life                                                              
example, a few months ago there was  a fire at a newly constructed                                                              
hotel downtown  at the corner  of 7th and  A. It was a  hotel that                                                              
was almost ready to open. A fire  burned it down and in the course                                                              
of  that   fire,  most  of   the  telephone  facilities   for  the                                                              
surrounding  buildings were  heavily damaged.  It turned  out that                                                              
almost all of  those were GCI customers but, of  course, they were                                                              
all riding  on our  lines. It was  ACS that went  out to  make all                                                              
those  repairs. To  date we've  done  that, but  as our  financial                                                              
situation gets squeezed  further and further, we are  less able to                                                              
do that.  I tell you,  as we sit  there in our management  meeting                                                              
and we look at  our expenses and our capital costs,  we have tried                                                              
to squeeze  every dime that we can  out of that and  our objective                                                              
is to  do so without  affecting service.  But now, we've  squeezed                                                              
everything out that doesn't affect  service. The next thing we are                                                              
going  to start  squeezing will  affect service  and that's  where                                                              
we're headed under the current scenario.                                                                                        
CHAIRMAN TAYLOR:  How many  layoffs have you  had now in  the last                                                              
two years?                                                                                                                      
MR. STEINBERG: I can't give you a  number, Senator, but I can tell                                                              
you that there have been layoffs and people have been let go.                                                                   
CHAIRMAN TAYLOR:  Aren't you currently  offering an  incentive for                                                              
people to leave?                                                                                                                
MR. STEINBERG: Yes we are; it's a voluntary incentive.                                                                          
CHAIRMAN TAYLOR: When  I hear that, with an expanding  market here                                                              
- at least  Anchorage, Wasilla, and  so on and places like  out in                                                              
the  Valley, they're  growing in  population.  I live  in an  area                                                              
where  we're shrinking  in population,  but if  you're growing  in                                                              
population, somebody's got to be out there installing new lines.                                                                
MR. STEINBERG: Yes.                                                                                                             
CHAIRMAN TAYLOR:  If you're growing in population,  somebody's got                                                              
to  be maintaining  the  existing system  and  upgrading it.  When                                                              
something breaks,  you put in a  better switch. There's  not going                                                              
to be any incentive  that I can see when the thing  breaks for you                                                              
guys to put  in anything other than  the same kind of  switch that                                                              
broke last time  because you've got it in inventory  and let's get                                                              
it slapped together  as cheaply and as quickly as  we can, because                                                              
the two good  lineman that we used  to have that did  this work we                                                              
just gave them bonuses so they could  leave because we cut down on                                                              
our  costs. It's  that  maintenance  of the  system  that I  think                                                              
provides a  significant threat  to all of  us who rely  upon these                                                              
services. What you're  telling me is that is going  on and shortly                                                              
will be getting worse.                                                                                                          
MR.  STEINBERG: If  I could  just add  to that,  Senator. I  can't                                                              
speak for  GCI or what  their motives or  business plan is,  but I                                                              
can  imagine they  might like  very  much having  us just  exactly                                                              
where we are. We  know that in our recent rate  change they were a                                                              
significant advocate  of increasing our depreciation,  our ability                                                              
to recover  through  rates for the  cost of  equipment. What  this                                                              
does is it  reduces our ability to  go out and spend  money on new                                                              
equipment  and particularly  to upgrade  facilities.  I think  Mr.                                                              
Carson,  when  he  was  here  yesterday,  testified  that  in  the                                                              
delivery of  broad band today,  at least at  the end of  2001, GCI                                                              
had to pull  in to about 27,000  cable modems in the  state. These                                                              
are  unregulated  services  for the  delivery  of  broadband.  ACS                                                              
deployed  approximately   7,000   [indisc.]  Bell  modems.   These                                                              
essentially  deliver  the  same   kind  of  services,  but  via  a                                                              
regulated  service. To  be able  to  continue to  deploy via  Bell                                                              
modem, ACS  has to upgrade its  facility. That costs money  to the                                                              
extent that we are squeezed on our  capital costs and our expenses                                                              
and we cannot  afford to upgrade. Then, guess what?  That seems to                                                              
deliver  more of  the market  to our  competitor, the  unregulated                                                              
cable  provider.  Now, I  don't  know if  this  is  part of  their                                                              
business plan  or not. I can't speak  for them, but I  can imagine                                                              
it would be a desirable position for them to be in.                                                                             
SENATOR THERRIAULT:  With regards  to the  cost of [indisc.],  all                                                              
the  discussion seems  to  be  put in  if  you go  out  and run  a                                                              
[indisc.] and  you're exempt [indisc.]  hotel fire with  damage to                                                              
the infrastructure.  That wasn't  infrastructure that you  put in,                                                              
though. It was infrastructure that you purchased. Correct?                                                                      
MR.  STEINBERG:  If I  understand,  you're drawing  a  distinction                                                              
between ATF and ATU?                                                                                                            
SENATOR  THERRIAULT: What  I'm trying  to get  to is a  difference                                                              
between putting in  a new line tomorrow versus  the infrastructure                                                              
that you  purchased, because  ACS is  the conglomeration  that has                                                              
been  put  together  by  purchases  over  a  number  of  years  of                                                              
different systems. I don't quite  understand exactly how the rates                                                              
are  set,  what information  RCA  takes  in  with regards  to  the                                                              
purchase price  and your debt, because  a lot of this cost  is the                                                              
debt that you're  paying on purchases that you  made. Now, looking                                                              
back, did you pay too much for the facility?                                                                                    
MR. STEINBERG: To answer your question  if I might, Senator. There                                                              
were several issues in the beginning  of our rate case that needed                                                              
to be  resolved between ACS  and the Commission's  staff [indisc.]                                                              
and between  ACS  and GCI.  The issue  of cost of  capital was  an                                                              
issue that  when there were some  differences between ACS  and the                                                              
public  advocacy section,  as  the case  began,  those issues  got                                                              
resolved.  So, those  are  not significant  issues.  They did  not                                                              
require hearings to get resolved.  The parties were able to find a                                                              
compromise  [indisc.].  What  went  to hearing  was  strictly  the                                                              
dispute  between ACS  and  GCI over  what  the depreciation  rates                                                              
ought to be. What I can tell is the  Commission ended up resolving                                                              
that largely  in GCI's favor  with rates  that are much  closer to                                                              
the rates  proposed by  GCI for depreciation  than the  rates that                                                              
ACS has proposed. I don't know if that answers your question.                                                                   
SENATOR THERRIAULT: I'm not sure  I phrased my question correctly.                                                              
During  this last  session  there was  another  bill dealing  with                                                              
water and sewer  and whether a state grant that had  been given to                                                              
a  utility that  was privatized  could  eventually end  up in  the                                                              
pockets of the  private owners and the discussion  that took place                                                              
in the legislature  was that no, the RCA would not  allow rates to                                                              
be charged  that took into account  grants that had been  used for                                                              
infrastructure,  and  that  if  somebody  overpaid  and  when  the                                                              
infrastructure sold  again to another private holder,  if that new                                                              
purchaser paid  more for the  infrastructure than the  rates could                                                              
justify,  then RCA might  enter the  picture and  not approve  the                                                              
sale, because  it's not  going to be  an economic business  - that                                                              
you paid too  much for the infrastructure. The  rates you're going                                                              
to be able  to charge are not  going to be on a volume  to service                                                              
your  debt.  And  I'm  wondering  when  we're  talking  about  the                                                              
infrastructure  here, rates  you're  able to  get for  use of  the                                                              
infrastructure, if part  of it is perhaps that as  a business that                                                              
ACS has put together from the assets you pay a premium.                                                                         
MR. STEINBERG: I believe I understand  your question, Senator, and                                                              
let me  answer it this  way. In short, I  do not believe  that the                                                              
price  that  was paid  for  the  ACS [indisc.]  influence  on  the                                                              
outcome of [indisc.]. In fact, the  rate cases are based on what's                                                              
called the  rate base. And  it is the  amount of [indisc.]  that's                                                              
reflected in  the plant  and equipment,  the specific ground,  the                                                              
facility and the  central offices. Those are hard  numbers of what                                                              
the equipment is worth and what was  spent for it, how much it has                                                              
been  depreciated, what's  left. That  is different  than what  is                                                              
paid for. That's the basis for setting the rate.                                                                                
SENATOR THERRIAULT: The other thing  I just wanted to touch on was                                                              
you heard about  this Department of Justice investigation  and the                                                              
testimony that  we've had  back and forth.  My own staff  calls to                                                              
the  department  indicate  that  it was  initiated  when  GCI  was                                                              
thinking about  or initially had  proposed purchase of  this other                                                              
fiber  optic cable  and  I'm just  wondering  what  your level  of                                                              
understanding  on that  is. Are  you  aware of  any Department  of                                                              
Justice investigation  of GCI or is it just this? If  GCI is to be                                                              
a potential buyer  or part of a group of buyers,  a decision would                                                              
have  to be  made and,  therefore,  they've kept  that open  until                                                              
assets are actually sold to somebody other than GCI?                                                                            
MR. STEINBERG: Let me  begin by saying it's my  understanding that                                                              
the Justice investigation  is a substantial investigation  to some                                                              
extent. I  do not know  exactly what  the boundaries are  on that.                                                              
So, I'm concerned about saying too  much that divulges any kind of                                                              
confidential  information. I will  say that  ACS was contacted  by                                                              
the Department of Justice and asked  for information in the course                                                              
[indisc.] more comfortable not offering  any details that would be                                                              
in violation of [indisc.] confidentiality.                                                                                      
SENATOR THERRIAULT:  Is it your understanding that  the Department                                                              
of Justice would look at a potential  anti-trust issue if GCI were                                                              
[indisc.] that other  fiber optic cable and even  though GCI is no                                                              
longer  attempting  to  make  that  purchase,  the  Department  of                                                              
Justice  would  keep a  docket  or case  open  until  the sale  to                                                              
somebody else was finalized?                                                                                                    
MR. STEINBERG: [indisc.] unable to  answer your question, Senator,                                                              
because I  do not know  the scope of  the Department  of Justice's                                                              
investigation.   We   were   contacted  and   asked   to   provide                                                              
information, but beyond  that I do not know the  details, frankly,                                                              
of the justices  in implication or scope or its  plan [indisc.] of                                                              
those matters.                                                                                                                  
SENATOR COWDERY: I'm getting back  to what Senator Therriault said                                                              
about the original  cost to ACS of  their purchase. Am  I right in                                                              
thinking  that the upgrade  cost that  you had  to endure  are the                                                              
greatest  influence  to your  rates  or  to your  situation  where                                                              
you're at now - financial situation?                                                                                            
MR. STEINBERG:  It's difficult to  answer your question,  Senator,                                                              
and  I'm not  the most  knowledgeable  person to  comment on  this                                                              
entity. I  can get back  to you  on it. I  can tell you  this much                                                              
that during  the period  when the  municipality owned the  utility                                                              
and when  the utility  was up  for sale,  the municipality  really                                                              
squeezed  its costs  down to nothing.  So that  when ACS  acquired                                                              
this  property,  we  found  it  was  -  essentially  there  was  a                                                              
significant  amount  of  what  we   might  refer  to  as  deferred                                                              
maintenance  and the  capital costs  in the first  few years  were                                                              
quite significant  because  there was  so much  that had not  been                                                              
done that  had to  be done, it  was in conflict.  I don't  know if                                                              
that answers your question.                                                                                                     
SENATOR COWDERY: Well, you're having  ongoing besides [indisc.], I                                                              
assume. Purchase  - you're having  ongoing upgrades in  costs that                                                              
are extensive.                                                                                                                  
MR.  STEINBERG:  Absolutely. Yes,  in  other  words, in  order  to                                                              
provide modern  facilities and modern services,  such as broadband                                                              
over telephone, a  DSL line, requires significant  upgrades to the                                                              
base that, in fact, can be very expensive  and obviously, it's not                                                              
an investment that's prudent if we can't recover our costs.                                                                     
SENATOR COWDERY:  These upgrade costs  are primarily  ACS's costs,                                                              
not GCI's costs. Would that be a fair statement?                                                                                
MR. STEINBERG: That is correct.                                                                                                 
SENATOR COWDERY: Thank you.                                                                                                     
CHAIRMAN TAYLOR: Anything further?  Gentlemen, I want to thank you                                                              
very much  for the  information you  have provided  us and  to the                                                              
extent that you have recommendations  for how this committee might                                                              
structure  legislation that  will  probably be  pending before  us                                                              
within  another  three or  four  days  here, we  would  appreciate                                                              
having your advice  and recommendations just as we  would from GCI                                                              
and from every  other witness for that matter  that has testified.                                                              
You people  have, especially those  within the audience,  you know                                                              
what this system and this business  is all about. You know it from                                                              
the unique aspects of your own businesses.  We don't know that and                                                              
for  us to  create solutions  to your  problems, I  think is  very                                                              
dangerous business and  dangerous ground for us to  be on. But, we                                                              
don't seem to have a choice in this  matter and to the extent that                                                              
we are  going to be  required to come  up with something,  I would                                                              
certainly hope it would be something  we could all take some pride                                                              
in and hope  for the future that  it will be a better  system than                                                              
we have  today. Thank you again  for your testimony.  I appreciate                                                              
your patience in standing by.                                                                                                   
I'm going to  start off with yesterday's sign up  sheet, because I                                                              
think it probably  reflects better the current  status of people's                                                              
travels  and  vacations and  other  things  that we  have  totally                                                              
interfered with through  calling these hearings. Let  me start off                                                              
with Jim Rowe from ATA. Jim, again,  thank you for standing by all                                                              
this time  and we appreciate  your patience  very much.  If you'll                                                              
raise your right  hand, please? Do you solemnly swear  to tell the                                                              
truth,  the  whole  truth  and  nothing  but  the  truth  to  this                                                              
committee on these matters? Do you so swear?                                                                                    
MR. JIM  LOWE: [Indicates yes].  I'm Jim Rowe,  Executive Director                                                              
of the Alaska  Telephone Association.  I would like to say  to the                                                              
committee  that   I'm  both  honored  and  appreciative   of  this                                                              
opportunity  to address this  committee on  these issues  that are                                                              
very important to us.                                                                                                           
Let me tell you a little bit about  ATA. I know you've been around                                                              
longer than  I have here.  You know plenty  about it. Most  of you                                                              
weren't here  at least for  the beginning of  it in 1949.  We're a                                                              
volunteer association,  essentially. We  have two staff  members -                                                              
myself  and Joyce  Slosnikov.  You probably  all  know Joyce  from                                                              
either having  attended our  receptions [indisc.]. Senator  Taylor                                                              
and his wife graciously attended  one of our meetings. You know it                                                              
doesn't work without  Joyce and it stumbles along  in spite of me,                                                              
but basically the  decisions are made by volunteer  committees. We                                                              
have  14  [indisc.]  members.  That's  incumbent,  local  exchange                                                              
carriers.  All of  the incumbent  level exchange  carriers in  the                                                              
state  with the  exception of  the  smallest and  the largest  are                                                              
members. They vary in size considerably  and in the service areas.                                                              
We have a small [indisc.]. We have  one that's modestly large, MTA                                                              
and that's  50 - 60,000 lines. We  have a lot of  little [indisc.]                                                              
companies in the [indisc.], about half of them coops. [indisc.]                                                                 
That  year, at  the  time,  it was  a  simple bill  going  forward                                                              
[indisc.]. We wanted  to look at it and see what  our feeling was,                                                              
if  we wanted  to support  this  or not.  We  haven't liked  every                                                              
decision  that's  come  out  of  this  commission  by  any  means.                                                              
11:15 a.m.                                                                                                                      
SENATOR WILKEN:  Senator Taylor, pardon me for  interrupting. This                                                              
is Gary Wilken. Could you ask the  witness to please get closer to                                                              
the microphone? We can just barely pick him up.                                                                                 
CHAIRMAN  TAYLOR: Sure  thing. He's very  soft-voiced, Gary.  It's                                                              
nice to hear you're there.                                                                                                      
MR.  ROWE:  Take down  the  costs,  but  [indisc.] not  doing  any                                                              
As this committee already knows from  my letters of May 1 and June                                                              
6, the  ATA supports the  reauthorization of  the RCA and  we will                                                              
support it in special  session. This is in spite  of the fact that                                                              
we don't  agree with all the  decisions they've made. I  think the                                                              
testimony by Mr.  Moninski, Mr. Carson and Mr.  Steinberg has been                                                              
excellent.  Many  of  the  concerns,  particularly  in  the  rural                                                              
nature,  particularly  since different  rural  exemption  concerns                                                              
that my members  appear at the top  of their list of  priorities -                                                              
very much.                                                                                                                      
We  have for  years  before even  the  last commission  went  away                                                              
talked  about  the  separation  of staff  -  advisory  and  public                                                              
advocacy staff. We're  not satisfied with the  separation that was                                                              
made when  we last [indisc.].  However, we appreciated  the effort                                                              
that was  made. [Indisc.] We considered  these things when  we had                                                              
our government  affairs  committee meeting  earlier this  year. We                                                              
have spoken with  the Commission and realize they  are putting out                                                              
regulations,  putting  out  proposed  regulations  and  asked  for                                                              
comments from  us on what we would  like or changes we  would like                                                              
and we agreed we  would participate. When I say we,  I am speaking                                                              
on behalf  of my members.  I don't vote  when making  these policy                                                              
We have participated  in the process of proposed  regulations that                                                              
were put out in  April. I'd have to go back and  look at that date                                                              
for  sure. And  there  have been  reply comments  put  out just  a                                                              
couple of days ago on the RCA's web.  We think we can correct some                                                              
of the  concerns we have  through working through  this regulatory                                                              
process. We have utter faith that  if we're not satisfied, then we                                                              
can come to the legislature any time  and tell of our problems and                                                              
that you  will address  those and we  think it's important  enough                                                              
that it is not  a sunset year and we have a concern  that needs to                                                              
be changed  in statute and  we come to  you [indisc.]. I  think we                                                              
pretty well have  to have that faith in our  legislators. We elect                                                              
them; we elect them for a purpose [indisc.].                                                                                    
The five  sitting commissioners  we have  were appointed  in 1999.                                                              
With  the  exception  of  one prior  year  of  experience  by  Nan                                                              
Thompson, there is no historical  knowledge. The learning curve is                                                              
steep, I feel and  members feel, 18 - 24 months.  We've got people                                                              
who are  in very  complex jobs  regulating a  number of  different                                                              
utilities - telephone, electric,  water, sewer, refuse. [indisc.].                                                              
I deal  with telecom issues.  [indisc.]. This makes  that learning                                                              
curve  very  steep.  You've  had the  privilege  of  hearing  some                                                              
wonderful  acronyms  and terms.  Some  we  make up  ourselves  and                                                              
you've got  more of  a dose of  this than  perhaps you  would have                                                              
liked,  but not  enough to  be able,  say, probably  make all  the                                                              
decisions that  are necessary and  my personal feeling  [indisc.],                                                              
you know what? You have to be born  in this trade to have any idea                                                              
where they  are going.  And they  change it  so often whether  you                                                              
were born there  or not, but they  stay pretty current  on it. Ms.                                                              
McPherren commented that knowing  the importance of long tenure of                                                              
commissions - and she was complimenting  some years ago [indisc.],                                                              
I think  she  said 12  - 14 years  by some  of them  and how  that                                                              
knowledge was  valuable. I'm  sure at the  time issues  were still                                                              
changing and  people's experience  and education typically  helps.                                                              
These new  folks have  welcomed,  I say new  folks, [indisc.]  new                                                              
commissioners, that  welcomed workshops  with the industry  and we                                                              
think that's very important. We've  encouraged that. We appreciate                                                              
that they  made the  effort and  it's taken  time away from  other                                                              
things.  However,   we  feel  like  educated  people,   they  make                                                              
necessary decisions,  it's better for the public  interest to have                                                              
these  workshops.  They  have  made  significant  progress  toward                                                              
understanding telecom issues.                                                                                                   
I can  hardly address electric  issues, but  let me say  the first                                                              
day  of  hearings  we  heard  from   three  people  from  Chugach.                                                              
Following them there  were people from ARECA. It's  no surprise to                                                              
me that  these people were pretty  united in their  views, Chugach                                                              
being the largest  member in ARECA. Chugach  indicates significant                                                              
frustration in  the six-year rates,  failing to note I  think that                                                              
when half that time  was [indisc.] on to the old  APUC, and in the                                                              
time since  that - three  years, they  have a unified  commission.                                                              
And my  feeling is that  a half to  two-thirds of that  time these                                                              
folks were learning, plus they had  to pull out files from the old                                                              
drawers  and read  them,  which at  my speed  of  reading is  much                                                              
slower  than the  first time.  So,  I think  what we've  got is  a                                                              
learning  process and  when we try  to correct  some problems  and                                                              
bring in  a new  commission, some  of that  also goes to  problems                                                              
slowing down some of the dockets. [Indisc.]                                                                                     
The  definitive timelines  in the  final  version of  HB 333  were                                                              
added, I  understood, working  with [indisc.]  to address  some of                                                              
the concerns  of the  electric [indisc.],  Chugach in  particular,                                                              
but the also address some concerns  that my members have and we've                                                              
worked to modify them and [indisc.].                                                                                            
We're on the record in the House  saying yes, we're satisfied with                                                              
these timelines; this  makes things good. There's  nothing here we                                                              
can't live with.  It didn't mean the world was  perfect, but we're                                                              
in support of  getting this commission reauthorized.  Part of that                                                              
is what we've gotten here today.                                                                                                
The  concerns  of telephony  are  far  different than  electric  -                                                              
[indisc.]  extremely  precarious,  changing.  Quite  honestly,  in                                                              
their  wisdom,  we  really  wish   maybe  not  as  an  individual,                                                              
[indisc.] but that  Congress in its wisdom can  allow the electric                                                              
utilities  to go into  a competitive  environment  in 1996  and we                                                              
[indisc.]. We worked  very diligently with [indisc.]  with Senator                                                              
Stevens' staff. Nevertheless,  we got a piece  of legislation that                                                              
was a fascinating exercise [indisc.]….  very much a compromise for                                                              
the multitude of stage that probably  can't be administered, can't                                                              
be worked, might be in the public interest. God help us all.                                                                    
CHAIRMAN  TAYLOR: Jim, let  me ask  you, are  all of your  members                                                              
classified as rural?                                                                                                            
MR. ROWE: Yes.                                                                                                                  
CHAIRMAN  TAYLOR: What  would happen  to your  membership if  that                                                              
classification were  to be dropped by the legislature,  if we just                                                              
set  it as  a policy,  that  there are  no  rural… I  mean RCA  is                                                              
piecemeal doing  that right now,  depending on how big  the outfit                                                              
is. If  somebody wants to cherry  pick them, they're  pulling them                                                              
off right now. They pulled off Juneau;  they pulled off Fairbanks;                                                              
they've  even pulled  off North  Pole.  They took  away the  rural                                                              
exemption.  So, why  shouldn't we  as a  legislature to  encourage                                                              
competition, wipe  out the rural designation all  together and let                                                              
them  start  cherry  picking  all   over  the  state?  Would  your                                                              
membership like that?                                                                                                           
MR. ROWE: I expect you'd hear from us very quickly.                                                                             
CHAIRMAN TAYLOR:  Might we hear some  of the same  complaints that                                                              
we're  hearing   from  ACS   today?  That   you've  paid   for  an                                                              
infrastructure that  you're now being  ordered by a  commission or                                                              
ordered by the state to provide that  infrastructure at below your                                                              
maintenance cost?                                                                                                               
MR. ROWE: Probably  far more vocal than you've heard  from ACS and                                                              
certainly at  the federal  level. I may  just give my  opinion and                                                              
certainly that  of my members. We'd  fall off our  chairs thanking                                                              
you. It's  absolutely absurd.  I realize  rural is  a term  in the                                                              
English language, but  you know what? I tell you  I have something                                                              
big  at home.  Do you  know how  big it  is? Would  it help  you a                                                              
little  if I  told you  how big  it  was? Is  it the  size of  the                                                              
breadbox? Is it the size of a Volkswagen?   It's big, isn't it? If                                                              
it's a pine  tree, maybe the size  of a Volkswagen isn't  too big.                                                              
And I say this  because within the Beltway when  they created this                                                              
act,   the   multitude   of  the   [indisc.]   that   passed   the                                                              
Telecommunications  Act  said in  rural  areas, we  need  to do  a                                                              
little something,  we need  to be a little  bit careful.  You know                                                              
what? Maybe  competition won't  work there  and Ms. Tindall,  when                                                              
she was  up here, in her  statement said,  the law of the  land is                                                              
competition. Let  me say until  the '96 Act,  the law of  the land                                                              
did not  codify universal service.  That's in there. I  assure you                                                              
the  print   is  equally   bold  that   universal  service   isn't                                                              
competition.  Well, we  better hang  our hats  on that because  we                                                              
desperately need it in the state  of Alaska. Up here the folks and                                                              
it's  interesting  when  I  talk   to  them  -  we  had  a  former                                                              
commissioner told us one time at  the Anchorage office of ATA, you                                                              
know people  that live way out there,  I don't know why  they even                                                              
should have telephones. They want  to live out there. I was rather                                                              
new to it. I was a bit chagrinned.  Let's think again rural. Folks                                                              
within  the  Beltway  pay  for  this  now.  Most  of  them,  quite                                                              
honestly, we  strive to get FCC  commissioners up here  in Alaska.                                                              
We want  them to  sit in  the middle  seat near  a [indisc.]  coat                                                              
section when they come up and then  we want to take them down to a                                                              
place  that we  can't  get to  with  commercial  transport in  the                                                              
morning and get  out of at night, because you know  that is rural.                                                              
Their idea of rural when they wrote  this act is places where we'd                                                              
never be careful because competition might not work [indisc.].                                                                  
I asked  my assistants  to look up  something [indisc.]  yesterday                                                              
[indisc.]. There are 32 flights in  from major carriers on a daily                                                              
basis  from Washington,  D.C. and  that's  if they  don't want  to                                                              
drive the 240.4  road miles from Washington D.C.  [indisc.] Now if                                                              
our congressional legislators in  their wisdom thought we'd better                                                              
be  careful   in  Roanoke,  Virginia,   because  it's   rural  and                                                              
telecommunications  might not  be able to  sustain competition  in                                                              
this area,  let me suggest that  even [indisc.] in Juneau  and the                                                              
North Pole. I think we should be very careful.                                                                                  
CHAIRMAN TAYLOR: That  isn't what happened, though. We  now have a                                                              
commission  that  has  removed  the  rural  exemption  from  those                                                              
people. GCI  as I  speak is building  internally about  a 20  x 30                                                              
switch gear  office inside of ACS's  building and in fact  ACS has                                                              
to provide it for  them and build it for them so  they can move in                                                              
there. That's in Juneau right now.                                                                                              
MR. ROWE: Then they're wrong.                                                                                                   
CHAIRMAN TAYLOR:  That's what's happening.  This is  not something                                                              
that  we can  sit around  and speculate  about.  These people  are                                                              
being  required  to  provide  this  service  in  Juneau  to  their                                                              
competition  at below  their rate  of cost so  the competitor  can                                                              
move into  Juneau and  start underselling  them.  And this  is all                                                              
being  done  by  the  Commission  that  you're  telling  me,  your                                                              
organization said was  fine to let go for another  four years, was                                                              
fine to  let go  with just the  restrictions placed  on it  by the                                                              
House. If  that's fine,  if that's hunky  dory, what we  should be                                                              
doing according to your membership,  then maybe we ought to remove                                                              
rural and let your membership enjoy  the same level of competition                                                              
that apparently the RCA wants to  encourage in four of our cities,                                                              
three of whom used to be rural.                                                                                                 
MR. ROWE:  In my  estimation, those  communities still  are rural.                                                              
The federal  courts ought to do  something about this and  the FCC                                                              
ought to  have it  turned around.  We, as  a membership,  disagree                                                              
with these decisions.                                                                                                           
CHAIRMAN  TAYLOR: Yeah,  Jim, but  isn't that  a decision that  is                                                              
left up to  the discretion of the  states under federal  law - who                                                              
will be rural and who will not?                                                                                                 
MR. ROWE:   Whether the rural exemption  may be lifted  is left up                                                              
to the  state commission. After  a public interest  determination,                                                              
in my estimation it was not made.                                                                                               
CHAIRMAN TAYLOR: Well, let's assume  they do go through the proper                                                              
hoops  and jangles  the next  time around  and then  we end  up in                                                              
higher  court, which  provides significant  deference  to a  state                                                              
agency that  has expertise  in an area  and we reviewed  yesterday                                                              
the standards  of which  that would be  upheld or overturned.  And                                                              
it's a  very high standard; it's  almost abuse of  discretion. You                                                              
almost have to get  that high. I guess my concern  is that I don't                                                              
know which  one of  your members is  going to  be next on  the hit                                                              
list  to  have  the  word  'rural'  removed  and  find  themselves                                                              
building quarters for someone to  come in and compete against them                                                              
at below their  cost. I don't know  which one of you  guys is next                                                              
on the  list, but  if North  Pole is  big enough  that it  doesn't                                                              
qualify as  rural anymore,  I would think  that there  are several                                                              
members  of your  association  that ought  to  be concerned  today                                                              
about what this commission is doing and where it's headed.                                                                      
MR. ROWE: I think we're absolutely concerned with that.                                                                         
CHAIRMAN TAYLOR: Do  you have recommendations that  you would like                                                              
to  make  as  far as  legislative  changes,  in  policy  for  this                                                              
commission which we might contemplate  during this special session                                                              
that might  improve that security  that some of your  members feel                                                              
is jeopardized right now?                                                                                                       
MR.  ROWE:  I   don't  feel  we  get  absolute   security  through                                                              
regulatory  commission oversight  and  not necessarily  [indisc.].                                                              
The  system  of government  is  certainly  less than  perfect.  Of                                                              
course, it is  elected, appointed, confirmed by people  and we all                                                              
have our frailties and foibles. We  have some of those in the room                                                              
with us today.                                                                                                                  
SENATOR COWDERY:  Are you saying  that the legislature  should not                                                              
work towards  changes to  improve RCA's  guidelines, timelines  or                                                              
things of that nature? You said there  were problems with the APUC                                                              
and then  you also  said about  new commissioners.  I don't  think                                                              
this hearing or  this Senate Judiciary has ever  suggested that we                                                              
need to  change the -  that's really  up to the administration  if                                                              
they want to change commissioners.  I don't think it's a desire of                                                              
us to  do it,  but I think  it should  definitely be improved  and                                                              
there is incentive for improvement  in the wind-down period. So, I                                                              
guess that's more of a comment and  you can answer that, but I was                                                              
just wondering, do you think we should  leave it the way it is for                                                              
four years  - one year extension,  two years or no  extension. For                                                              
the incentive that was talked about  yesterday, the wind down year                                                              
seems to have quite a bit of incentive impact on improvement.                                                                   
MR. ROWE: Through  the chair, I am  concerned that we get  to this                                                              
razor's edge or is it going to fall  off the plate and be gone and                                                              
that  the  best decisions  will  be  made  on improvement  if  the                                                              
deadline is  right in front of us?  I often, probably not  as much                                                              
as you  folks, but as we  get to the  middle of May I  think these                                                              
folks who  are being pushed  to work  'til midnight every  day are                                                              
going  to  make  the  decisions that  are  really  in  the  public                                                              
interest because they're  tired now and pressured to  get to leave                                                              
in another 36 hours. I think that's  a tough time and I don't envy                                                              
any  of  you  that opportunity.  I  have  asked,  certainly  after                                                              
legislative session,  why do  you really do  that? How can  you do                                                              
it? I  don't think there's  enough thanks for  what you put  in on                                                              
those days.                                                                                                                     
However, an answer, I would really  like to see, first of all, the                                                              
pressure that  they aren't  going to fall  off the cliff  here any                                                              
minute  gone.  I   absolutely  think  we  should   be  looking  at                                                              
improvement.  I  welcome  any improvement  whether  it's  in  this                                                              
Regulatory Commission or any other  state agency we have made that                                                              
need to be looked at. That's why  we sent you people to Juneau. We                                                              
need improvement in our government.  We need continual improvement                                                              
in all our government.  We absolutely like to  live with timelines                                                              
and any  ideas I  think many  ideas and  people in industry,  many                                                              
entities in  industry can bring ideas  that are valuable  to this.                                                              
But as  we had so  much time dedicated  even to these  hearings, I                                                              
think it's important  that we should be working  carefully on this                                                              
and not making  things in haste as  we've had the chair  mention a                                                              
number of times, making this special  session. Making decisions in                                                              
special session  is very short and  making it when we're  about to                                                              
fall off the  cliff is very short,  also. I would like  to whether                                                              
it's the  timelines get something  through there; I would  like to                                                              
get reauthorization of the Commission.                                                                                          
I know  one senator asked  one of my members  if we really  need a                                                              
regulatory  commission. Are  there  other states  that don't  have                                                              
one? Well, no.  There aren't any states that don't  have one. Yes,                                                              
we really need one.  Do we need it to be different?  Do we need it                                                              
to  do  something   else?  Every  state  doesn't   have  the  same                                                              
regulations. They're  not all appointed,  some are  elected. There                                                              
are different ideas working in democracy.  Let's have a regulatory                                                              
commission. Let's  look at  all the improvements  we can  make and                                                              
change and  after we  write that,  as we did  three years  ago and                                                              
make  all  the  improvements  we  can think  of  that  day,  let's                                                              
continue  to  look at  it  and I  hope  your  door will  be  open,                                                              
Senator,  when we  come next  time  and say,  'Look, there's  some                                                              
other tweak  that we didn't get quite  right last time  and can we                                                              
work on that? Will you entertain it?'                                                                                           
I would feel comfortable that your  door will be open. You were on                                                              
the telecom committee. You were very  involved and listened to our                                                              
complaints then.                                                                                                                
SENATOR COWDERY:  A good  friend of  mine that  I have lunch  with                                                              
every Saturday  that comes to town  is a former  commissioner, Don                                                              
Shraer. I got a  letter from him. He phoned me  personally on this                                                              
and I questioned  him a lot. He was a commissioner;  that was with                                                              
APUC. He  told me  and I  am convinced  it's a  tough job,  but he                                                              
certainly  thought that  on the wind-down  thing  it seems  to get                                                              
more action.  And if it  winds down,  you're in a wind-down  mood,                                                              
you can  always extend it.  You can always  extend it  for another                                                              
four years, if you get [indisc.].  But with what you've just said,                                                              
I  don't think  we can  do these  necessary changes  in a  special                                                              
session.  In fact, I  am excused  for the  special session.  I got                                                              
excused before I  left, because the 24th, next Monday,  is my 51st                                                              
anniversary and I  was planning a trip. I am going  to the special                                                              
session and  I am going to  do in my mind  what I think is  in the                                                              
best interest. But, I'm not going  to stay past the 3rd of July. I                                                              
guarantee you  that, but I'm  going to be  there. So, we  sat here                                                              
and  listened to  ideas  and I  listened to  my  good friend,  Don                                                              
Shraer. I've  had lunch  with him on  Saturdays for 20  years. So,                                                              
anyway, you've  been to  my office, I  believe. We've  talked many                                                              
times in Juneau and I think we're  all here trying to do the right                                                              
thing. That's  why I ask you,  should it be a  four-year extension                                                              
or shorter? Just your thoughts.                                                                                                 
MR. ROWE: Congratulations, may I  offer that, sir. Four years, two                                                              
years.  I think  bringing it  up  in too  short a  time period  is                                                              
dysfunctional.  I really think  it makes us  all worry  about that                                                              
and not  on the rate cases,  not on the  tariff issues and  not on                                                              
the things that  need changing. I also feel like when  we get as I                                                              
think  we should,  timelines,  a piece  of  legislation passed,  I                                                              
think within  a year  after that  we'll have  some other  ideas we                                                              
would like  to bring to  you. It doesn't  mean they  did something                                                              
wrong. Language isn't perfect.                                                                                                  
I have a whole other issue I'd like  to go on to, if I may. I have                                                              
rambled quite a bit and for that  I do apologize. Your patience in                                                              
the fourth  day of this testimony  is amazing. I do thank  you and                                                              
appreciate all the members sitting  here for that. But, our Chair,                                                              
Nan Thompson, is  the State Chair of Federal State  Joint Board on                                                              
Universal Service.  And the federal system  the telecommunications                                                              
for a  rural state like  Alaska with  millions of dollars  flowing                                                              
through  the  state,  almost  $75  million  in  universal  service                                                              
support,  as  you've  heard.  This  is  probably  the  sixth  most                                                              
important  decision  in  telecommunications.   We  have  five  FCC                                                              
commissioners.  They do  the general  council  [indisc.]. And  for                                                              
this person  to be able to  have such influence in  this position,                                                              
it's very important  to the state. She gave a speech  two days ago                                                              
before  the Senate  subcommittee on  communications and  I have  a                                                              
copy  of  that   speech  here.  She  spoke  about   the  necessary                                                              
dependence of high  cost of [indisc.] in the state  [indisc.] that                                                              
telephone  rates in  rural  areas with  the  failure of  universal                                                              
support  system  could  go  up  from $25  to  $97  per  month  per                                                              
customer.  This is rural  customers  - not in  Anchorage. I  think                                                              
it's critical  and wonderful that there  will be a person  in that                                                              
position.  The next  state chair  of the  Federal State  Universal                                                              
Services Joint  Board will not be  from the state of  Alaska. That                                                              
person is now  sitting on a commission  in Maine or in  Florida or                                                              
in Pennsylvania. We will not have  access to that person, nor will                                                              
that person appreciate  the rural nature of our  communities and I                                                              
think  it's very  important to  keep  that person  there and  have                                                              
access to  that person particularly  that we have  the opportunity                                                              
to educate that person.                                                                                                         
CHAIRMAN TAYLOR: I think it's fascinating  that she gives a speech                                                              
back there  two days ago  on how critical  rural is to  Alaska and                                                              
yet sits  as the  commissioner who  selects the  panels that  will                                                              
make the decision and has personally  insisted on setting on every                                                              
GCI case  and then ruled  that North Pole  is no longer rural  - a                                                              
decision that both you and I disagree with... [END OF TAPE]                                                                     
TAPE 02-44, SIDE A                                                                                                              
CHAIRMAN  TAYLOR: ...and  make these  grand  statements about  how                                                              
you've got to save  rural in Alaska.  But when  it comes back home                                                              
to  making  decisions, she  makes  certain  that rural  no  longer                                                              
applies  to  Juneau, Fairbanks  or  North  Pole.   Maybe  you  can                                                              
explain that distinction.  I have  a hard time understanding that,                                                              
how she testifies one way here and  gives a speech that I think is                                                              
quite different  back there  from what the  facts are of  what the                                                              
board has decided to do.  How do you explain that distinction?                                                                  
MR.  ROWE: I  appreciate [indisc.]  absolutely  frustrated.   That                                                              
question you  asked there, I can't  explain it, I wish  I could, I                                                              
wish,  you  know,  I  have my  personal  bias,  I  certainly  wish                                                              
everybody saw the world through my eyes…                                                                                        
CHAIRMAN TAYLOR:  Let me  ask you a couple  of other  things, Jim.                                                              
You've  had a,  you've  had  apparently a  lengthy  correspondence                                                              
going on with Nan via e-mail.                                                                                                   
MR. ROWE: That's correct, sir.                                                                                                  
CHAIRMAN TAYLOR: And  some of this stuff is kind  of curious to me                                                              
in that back on  the 23  of March, you're talking  about a meeting                                                              
in Kotzebue,  'I can't be  out of the office.'   This is  from Nan                                                              
back to you.   Let me get to your part.  You  were encouraging her                                                              
to stop off in  Sitka.  Were you having kind of  an annual meeting                                                              
or something?                                                                                                                   
MR. ROWE: Yes.                                                                                                                  
CHAIRMAN TAYLOR: Okay,  and you said, 'permit ATA  to provide your                                                              
accommodations  for   Tuesday  and  Wednesday  nights   and  cover                                                              
additional travel  costs.   And suggest that  you stay  around for                                                              
the business lunch, board meeting  and evening banquet' and so on.                                                              
And her response I thought was kind  of fascinating.  She said no,                                                              
she probably  wouldn't be  able to  do that but  she would  try to                                                              
make your  dinner and stuff.   And then  she says, 'You  were very                                                              
discrete  and did  not say  anything  about the  substance of  the                                                              
discussion about  the PAS,' P-A-S in  caps, 'regs.  But  your face                                                              
during the discussion  suggested unease.  Perhaps  your shoes were                                                              
tight.   It's okay to  tell me what you  think about an  R docket.                                                              
The due process  concerns that exist  in U dockets do  not apply.'                                                              
Can you tell us what in the world  the PAS, P-A-S, regs are about?                                                              
MR. ROWE:  Yes.   That's what  I mentioned  a little bit  earlier.                                                              
We're  looking,  we're  hoping for  better  separation  of  staff,                                                              
between the advisory staff and the public advocacy section.                                                                     
CHAIRMAN TAYLOR: PAS is the Public Advocacy Section?                                                                            
MR.  ROWE: PAS  is  the Public  Advocacy  Section.   Mr.  Moninski                                                              
mentioned  this quite  a bit  in  his testimony  and we  certainly                                                              
agree.   I think  he mentioned  that there  were only five  people                                                              
under PAS right  now.  Now these are the regs  that were being put                                                              
out.  This letter,  not that I remember the dates  exactly, but by                                                              
the quote  you just  gave me, it  is indicative  that there  was a                                                              
public meeting  where the PAS,  Public Advocacy Section,  proposed                                                              
regulations  had just  been  put out  and  distributed for  public                                                              
comment.  When  I say for public  comment, let's put it  this way,                                                              
it was the first time I'd gotten  to look at them, it was a public                                                              
meeting.   And they were  there.  And  I obviously looked  at them                                                              
and saw things  I didn't like  [indisc.], which I didn't.   That's                                                              
one reason we, as ATA, had issued  comments in response to what we                                                              
had seen  on these PAS.   But I also  [indisc.], this is  a draft,                                                              
this is put out  to industry for comment and this  is why it's put                                                              
out there.   We  get to give  our opinion  and the reply  comments                                                              
that I mentioned…                                                                                                               
CHAIRMAN TAYLOR:  She was encouraging  you to participate  in that                                                              
MR. ROWE:  And let  me go into  a little bit  more. You  asked the                                                              
difference between the  R docket and the U docket.  The R dockets,                                                              
there's  no  ex  parte prohibition.  We're  talking  about  policy                                                              
things here.  U dockets are  adjudicatory dockets where  you can't                                                              
have ex parte communications. I want  to [indisc.] from my company                                                              
to your company.                                                                                                                
CHAIRMAN  TAYLOR: We've  had a hard  time finding  out where  that                                                              
line is.                                                                                                                        
MR. ROWE: Right.                                                                                                                
CHAIRMAN TAYLOR:  I noted on another  one of your emails  here, it                                                              
says, you  were emailing to  Nan, that says,  'I just got  a call.                                                              
At  the Neptune  bankruptcy hearings  last week,  it was  publicly                                                              
disclosed  during  cross-examination  that  ACS has  an  agreement                                                              
signed last December to loan Neptune  $15 million for a three-year                                                              
right to  purchase the  terrestrial infrastructure  in Alaska  and                                                              
pricing  control  during  that  time.'    And  the  commissioner's                                                              
response back  to you was,  'I saw that on  ACS's 10K.'   What's a                                                              
MR. ROWE: Financial report.  I hadn't seen it there.                                                                            
CHAIRMAN TAYLOR: Is a 10K a public document?                                                                                    
MR. ROWE: Yes. They're  on the web.  I think they  put it on their                                                              
own website.                                                                                                                    
CHAIRMAN TAYLOR: Okay.  'I saw that  on ACS's 10K and wondered who                                                              
they were loaning  to.  I noticed because I thought  it odd that a                                                              
company in  such allegedly dire  financial straits could  loan $15                                                              
million in  cash to  a third  party.' Is  ATA somehow involved  in                                                              
that discussion?  Is ACS one of your members?                                                                                   
MR. ROWE: They are  not one of our members now,  Mr. Chairman, no.                                                              
It is an important  issue to the companies in ATA,  or at least to                                                              
some of  the companies  in ATA.   The  Neptune acquisition,  or at                                                              
least the bankruptcy of [indisc.]  Alaska Fiberstar is of interest                                                              
because they have an undersea cable  that eventually somebody else                                                              
can certainly [indisc.]  capacity difference, but  I understand it                                                              
is  a greater  capacity than  GCI, which  is still  a far  greater                                                              
capacity than the  old Alascom cable.  When Alaska  Fiberstar went                                                              
into bankruptcy,  our hopes were  that somebody picking it  up out                                                              
of bankruptcy,  picking it up at  a much reduced cost,  would find                                                              
rates  of transport  going outside  to  drop significantly,  which                                                              
would be a benefit  of all of the customers in  Alaska, of course.                                                              
It  would  also  then,  maybe that's  not  fair,  from  my  biased                                                              
viewpoint,  it would  be  a benefit  to all  of  the customers  in                                                              
Alaska.   It would put  pressure on GCI and  I would expect  it to                                                              
reduce  its  rates on  its  cable  as well  so  that it  could  be                                                              
competition. Now...                                                                                                             
CHAIRMAN TAYLOR: Who regulates that, by the way?                                                                                
MR. ROWE: I'm sorry, you'll have  to address somebody who's better                                                              
at regulations than that.                                                                                                       
CHAIRMAN TAYLOR: I mean, are they regulated?                                                                                    
MR. ROWE: They're not a common carrier.                                                                                         
CHAIRMAN TAYLOR:  I mean  are they regulated  on that  fiber optic                                                              
cable?  I don't  believe they are.  I believe  they're exempt from                                                              
regulation under federal  law on that cable.  And  so any attempt,                                                              
or any hope that  you might have, that somehow  by this bankruptcy                                                              
occurring  and somebody  being  able to  compete  against them,  I                                                              
don't think there's any regulatory  authority that could tell them                                                              
to charge less.   The only thing  that would cause them  to charge                                                              
less would be the market.                                                                                                       
MR.  ROWE:  And  that's  what  we're  hoping.    That  going  into                                                              
bankruptcy  and  somebody  else acquiring  an  independent  party,                                                              
particularly acquiring the cable that Neptune is going after.                                                                   
CHAIRMAN TAYLOR: Thanks. Other questions?   Senator Therriault, go                                                              
SENATOR THERRIAULT:  What's your preference for the  length of the                                                              
MR. ROWE: I got to have a preference [indisc.].                                                                                 
SENATOR  THERRIAULT:  What's your  preference  on  behalf of  your                                                              
group?  Do  we have a resolution  or something that  you've passed                                                              
or in  writing you've  said we prefer  a one-year extension  while                                                              
these things are worked out or what is ATA's position?                                                                          
MR. ROWE:  We have  found acceptable  the legislation that's  gone                                                              
forward.   I think  less than one  year would  be unfortunate.   I                                                              
think one year is  a bit unfortunate, but it would  put a timeline                                                              
and I think what  we're doing is looking for a  compromise.  Would                                                              
we be irate  with a one-year  extension?  Unfortunately,  I'll say                                                              
to  you, probably  not.   We would  prefer  a two-year.   We  were                                                              
willing, at  the end of the  legislative session, as  we discussed                                                              
with the House,  we would like to have two years.   In honesty, we                                                              
need a regulatory  commission.  I  don't want it for two  years to                                                              
die off then.  I don't want it for  one year to die off then.  Nor                                                              
do I  want it  for four years  to die  off then.   We need  it for                                                              
regulated industry.                                                                                                             
SENATOR THERRIAULT:  And you  think that trying  to deal  with the                                                              
statutory timelines  and PAS  and ex parte,  all that in  a sunset                                                              
year would be inappropriate?  With the pressure?                                                                                
MR. ROWE: Would it frighten us?   Yes.  It would be inappropriate.                                                              
We have  many things  I would like  to see corrected,  absolutely.                                                              
And  I appreciate  this committee's  efforts, even  in the  summer                                                              
after a long session, going back  to another one and spending this                                                              
CHAIRMAN TAYLOR: You actually believe  that anything that we don't                                                              
correct, so  to speak, in the  special session, that  you're going                                                              
to  come  back and  you're  going  to  have  some happy  bunch  of                                                              
legislators that just want to take  this whole floor wars up again                                                              
and go through all this again in  the next year and maybe the year                                                              
thereafter.   I suggest  to you  that nothing  has happened  since                                                              
1999 because  that was a bloody  enough war nobody wanted  to take                                                              
this thing  up and that  the only reason  that attention  is being                                                              
focused  on it now  and that  people are  listening and  concerned                                                              
about it  is because  of the wind-down  year.   But I don't  think                                                              
you're going  to get everything accomplished  you want in  July or                                                              
in June.  And  I think that you're going to have  a very hard time                                                              
getting the  Legislature's attention  a year or  two from  now for                                                              
those additional things that you  didn't get accomplished in here.                                                              
But that's  just my opinion and I  share your hope that  you would                                                              
get those things accomplished.                                                                                                  
MR. ROWE:  I appreciate  your concern  in dealing  with this,  Mr.                                                              
Chairman, and the  committee's as well.  I really  look forward to                                                              
working with  you to make it better  for the people we  all serve,                                                              
the  people  we  are working  for.    I  do have  faith  that  our                                                              
legislators  will  have their  doors  open  for  us when  we  have                                                              
concerns to voice.                                                                                                              
CHAIRMAN TAYLOR: Well, you don't have to worry about that.                                                                      
MR. ROWE: [Indisc.] correct.                                                                                                    
CHAIRMAN  TAYLOR: If  you  have any  suggestions  as concerns  the                                                              
three  or  four  major  items  that   have  come  up,  timeliness,                                                              
insulation  of commissioners  from  inappropriate  communications,                                                              
the manner in  which we're going to have due  process and advocacy                                                              
for the  public, those are  at least  four major topics  that have                                                              
come up.  If you have others, Jim,  we would really appreciate, on                                                              
behalf of ATA, your  submitting them to us in a  form of amendment                                                              
or  whatever to  the  legislation that  is  contemplated that  the                                                              
Governor will  provide us with so  that we'll have  an opportunity                                                              
to address  your concerns.  I  don't believe you're going  to have                                                              
another window of opportunity like  this for the near future.  And                                                              
as  a  consequence  I  would  hope  that  we  could  resolve  your                                                              
industry's concerns  at the same  time that we're taking  up these                                                              
other matters.   So if you have  anything, please submit  it to us                                                              
and we will make  it part of the record and part  of any committee                                                              
substitute that will come out of  this committee.  I'll assure you                                                              
of that.                                                                                                                        
11:57 a.m.                                                                                                                      
CHAIRMAN  TAYLOR: Well,  we've run  out of time  for the  morning.                                                              
We'll start back up again at 1:30.   I have from yesterday, I have                                                              
next Dana  Tindall, Patrick  is it Luby,  L-U-B-Y, Judy  White, if                                                              
Judy's still,  I think she's  gone, it  looks like Dale  Lehman or                                                              
Layman, yeah  Dale, oh, it's Dr.  Dale, excuse me, Don  is it Reer                                                              
or  Rees, Reed,  okay,  and Leslie  Pate, oh  she  didn't want  to                                                              
testify  and neither  did Doug  Neill.   But we'll  come back  and                                                              
we'll  get you people  taken  care of  as quickly  as we can  this                                                              
afternoon.  We'll start up again  at 1:30.  We'll stand in recess.                                                              
1:38 p.m.                                                                                                                       
CHAIRMAN  TAYLOR:  …quorum  present  again,  that  being  Senators                                                              
Cowdery, Ellis,  Therriault and  Chair Taylor.   At the  break, we                                                              
concluded the  testimony of Jim Rowe.   Dana Tindall did  not wish                                                              
to  testify further,  although  for  the record  she  did wish  to                                                              
correct one  statement she had made  yesterday, and that  was that                                                              
former Senator  Tim Kelly  is also a  lobbyist working for  GCI at                                                              
the end  of the  session as  I understand  it.   And she said  she                                                              
would submit  that in writing  rather than come  over.  But  I was                                                              
aware of that and wanted you guys to be aware of it.                                                                            
SENATOR  ELLIS: Mr.  Chairman, before  we go  to the  rest of  the                                                              
public testimony, I have an announcement  for the group and that's                                                              
over the noon  hour, there was a unanimous decision  issued by the                                                              
Alaska Supreme Court.  Had you heard of that yet?                                                                               
CHAIRMAN TAYLOR: No, uh uh.                                                                                                     
SENTOR ELLIS: I've got copies of  it here.  The unanimous decision                                                              
affirms  the  RCA  order  that  Chugach   could  not  sell  retail                                                              
electricity  in the  service area  of ML&P  without getting  first                                                              
approval of the  RCA.  So, the  RCA was upheld by the  court and I                                                              
wanted to pass that out to folks and share that with you.                                                                       
CHAIRMAN TAYLOR: Sure.                                                                                                          
SENATOR   ELLIS:  I   thought  it   was   interesting  given   the                                                              
CHAIRMAN TAYLOR: Oh yeah, yeah.                                                                                                 
SENATOR ELLIS: And these are extra.                                                                                             
CHAIRMAN TAYLOR: Have you got another  one?  Could you give me one                                                              
SENATOR ELLIS: That's the breaking news from the noon hour.                                                                     
CHAIRMAN  TAYLOR: Yeah,  yeah.   It's over  this certification  of                                                              
need and necessity, huh?  And that's the geographic...?                                                                         
SENATOR ELLIS: Certificate of public convenience and necessity.                                                                 
CHAIRMAN  TAYLOR: Yeah,  and that's  for  geographic areas,  John,                                                              
where  they're allowed  to...  I  don't know  that  we heard  much                                                              
testimony on that one.                                                                                                          
SENATOR ELLIS:  It was  the court  rejecting Chugach's  claim that                                                              
federal  anti-trust  law  allows  it to  ignore  the  Commission's                                                              
certificate approval process.                                                                                                   
CHAIRMAN  TAYLOR:  Okay.   Thank  you,  John. I  appreciate  that.                                                              
Patrick Luby, you're here on behalf of AARP?                                                                                    
MR. PATRICK LUBY: Yes, sir.                                                                                                     
CHAIRMAN TAYLOR: Raise  your right hand please.   Do you swear the                                                              
testimony you're  about to give this  committee be the  truth, the                                                              
whole truth and nothing but the truth and do you so swear?                                                                      
MR. LUBY: Yes.                                                                                                                  
CHAIRMAN TAYLOR: Thank you.                                                                                                     
MR. PATRICK LUBY:  [Indisc.], Senators.  My name  is Patrick Luby,                                                              
I work  for AARP as  an advocacy representative.   AARP is  not an                                                              
energy company, it is not a telephone  company, no one asked us to                                                              
appear before this hearing and we don't have any fishing lodges.                                                                
SENTOR COWDERY: What's AARP stand for?                                                                                          
MR. LUBY:  It's just AARP, it  used to be American  Association of                                                              
Retired Persons,  but we  changed the  name legally several  years                                                              
ago to just AARP.                                                                                                               
SENATOR COWDERY: That's what I thought.                                                                                         
MR. LUBY: We are customers.                                                                                                     
CHAIRMAN TAYLOR: We have put your  - if that is the same thing, we                                                              
have put that into the record.  We  received it from you I think -                                                              
was it yesterday or the day before?                                                                                             
MR. LUBY: I don't think so.                                                                                                     
CHAIRMAN TAYLOR: Your statement.                                                                                                
MR. LUBY: No I haven't given it to anybody yet.                                                                                 
CHAIRMAN TAYLOR: Oh,  well, I've got it here.  Go  ahead, I didn't                                                              
mean to interrupt.                                                                                                              
MR. LUBY:  AARP is a  consumer organization.   We're  customers of                                                              
the utilities that RCA supervises.   Half of our members in Alaska                                                              
are over age 65,  half are under age 65.  Most  of our members are                                                              
heads  of households.    People tell  us that  they  join AARP  to                                                              
receive  useful information.   They  trust us.   As consumers,  we                                                              
trust  the oversight  authority of  the  Regulatory Commission  of                                                              
Alaska.  We rely on the RCA just  as our members rely on AARP.  We                                                              
believe  the RCA  offers our  members  and all  Alaskans the  best                                                              
opportunity to  achieve the following basic  consumer protections:                                                              
the ability to  make informed choices about utility  services; the                                                              
security  of  safe  and  reliable  energy  and  telecommunications                                                              
services; the  assurance that  sales practices and  advertisements                                                              
are fair,  so that they  do not confuse,  mislead or  frighten the                                                              
public;  and  the  reassurance  that  consumers  receive  accurate                                                              
information,  communicated clearly  and  in plain  language so  we                                                              
understand  our  rights  and  our   remedies.    The  RCA  assures                                                              
consumers the right  to affordable rates and access  to such basic                                                              
necessary services  as utilities and communications.   I emphasize                                                              
reasonable,  but  I also  emphasize  access particularly  for  our                                                              
rural  members.    The RCA  allows  consumers  an  opportunity  to                                                              
participate  in  the  governmental  decision-making  process  that                                                              
shapes  the marketplace  and  ensures meaningful  consumer  input.                                                              
When  wronged,  the RCA  offers  consumers redress  and  complaint                                                              
resolution.  We believe the RCA is  necessary for our organization                                                              
and for  our members.   Without the RCA,  we would be  deprived of                                                              
any  public oversight  of energy  and telecommunications  services                                                              
and, when  a complaint  is warranted,  we would  not have  the RCA                                                              
available  and  willing to  listen  to  a  consumer's side  of  an                                                              
argument.  The RCA protects our rights  as consumers.  We ask that                                                              
your  committee recommend  the reauthorization  of the  Regulatory                                                              
Commission of Alaska.  Our AARP families  need it.  And we believe                                                              
all Alaskans need it.  Thank you.                                                                                               
CHAIRMAN  TAYLOR: The  reason I ask,  Patrick,  was that when  Nan                                                              
Thompson  replied to  the  committee's request  for  communication                                                              
that she had  had with both lobbyists, or not  lobbyists, but with                                                              
utilities and  others, she  voluntarily contributed  the substance                                                              
of the same statement,  only hers came from Marguerite  Stetson of                                                              
the Alaska Executive Council member  for advocacy of AARP and that                                                              
was dated June  17.   And  that's why the committee  already had a                                                              
copy of that because  we distributed all this stuff  from Nan.  At                                                              
the top it says that it was a sample  being sent by email and U.S.                                                              
mail to AARP activists.   Can you tell me who sent  that out?  Was                                                              
it Marguerite Stetson?                                                                                                          
MR.  LUBY:  Marguerite and  I  work  together.   She's  a  retired                                                              
volunteer who lives  here in Anchorage and she's  appointed to the                                                              
executive council for AARP.  Every  state has an executive council                                                              
and the staff works with them to actually do the paperwork.                                                                     
CHAIRMAN TAYLOR: When were you contacted by Nan on this?                                                                        
MR. LUBY: We contacted her.                                                                                                     
CHAIRMAN TAYLOR: Okay, you contacted her about when?                                                                            
MR. LUBY: When we first found out  there was going to be a special                                                              
session, I  talked to  our - we  have a  utilities section  at our                                                              
headquarters,  a  couple  of  attorneys   that  split  the  states                                                              
basically.  And  our position is basically that we  need an RCA or                                                              
a  PUC or  whatever you  call it.    They're the  only place  that                                                              
consumers can go and we'd like to  see it reauthorized for as long                                                              
as possible to give as much stability as possible.                                                                              
CHAIRMAN  TAYLOR: But  you don't  remember when  that was,  it was                                                              
some time after you learned of the special session?                                                                             
MR. LUBY: It  was probably within the  last two weeks.   I think I                                                              
sent that to her two days ago.                                                                                                  
CHAIRMAN TAYLOR: And you were not  contacted by anybody?  You just                                                              
voluntarily came up with this one on your own?                                                                                  
MR. LUBY:  Well, our  attorneys at  our headquarters  who work  on                                                              
utility issues, I  talked to them about it.  They  had heard about                                                              
it  through   some  of  the   newsletters  that  they   get  about                                                              
telecommunications and  other utility companies.  We  did not have                                                              
an office in Alaska until last October.   And generally, AARP, you                                                              
know, we're  not technicians,  we don't get  involved in a  lot of                                                              
the battles  that you've been hearing  about over the  last couple                                                              
of days in these  hearings.  But we are concerned  because the PUC                                                              
and the RCA is the only place we  can go as an organization or our                                                              
members can  go if they  have a complaint.   I moved up  here from                                                              
California, I  worked for AARP down  there.  Over the  last couple                                                              
of years because of the energy issue  down there, our members were                                                              
being hurt extremely  hard by high utility costs.   The only place                                                              
that  we could  go to  register any  of  our concerns  was to  the                                                              
California PUC  and we  feel that it's  very vital that  consumers                                                              
have some type of an organization  that we can go to when there is                                                              
a problem.                                                                                                                      
CHAIRMAN TAYLOR: We feel that way too.                                                                                          
MR. LUBY: Thank you, sir.                                                                                                       
1:47 p.m.                                                                                                                       
CHAIRMAN TAYLOR: Thank you.  I guess  there are no more questions.                                                              
Judy White already  left, I guess she hasn't come  back today.  Is                                                              
it Dale  Lehman?  Oh it's  Dr. Dale, excuse  me.  Could  you raise                                                              
your right  hand please, sir?  Do  you solemnly swear to  tell the                                                              
truth, the  whole truth,  and nothing but  the truth, so  help you                                                              
God before this committee?                                                                                                      
DR. DALE LEHMAN: I do.                                                                                                          
CHAIRMAN TAYLOR: Thank you.                                                                                                     
DR. DALE  LEHMAN, Alaska  Pacific University:  I have one  copy of                                                              
written comments.                                                                                                               
CHAIRMAN  TAYLOR: Yeah,  if you'll  just  give that  to our  staff                                                              
person, she'll have copies made and distributed.                                                                                
DR.  DALE  LEHMAN:    I'm  the director  of  the  MBA  program  in                                                              
telecommunications  management at  the Alaska Pacific  University.                                                              
I'm here representing  my own views, not those of  APU and I'm not                                                              
working for any company in Alaska.   I have 25 years of experience                                                              
in teaching university level and  publishing and consulting in the                                                              
telecommunications  industry.  The purpose  of my testimony  is to                                                              
urge you, to be perfectly clear,  I'll use your own words, Senator                                                              
Taylor,  to reauthorize  the RCA  for four years  free and  clear.                                                              
This is  not to  indicate that I  endorse the  RCA decisions.   In                                                              
fact,   I   disagree   with   many,    if   not   most,   of   the                                                              
telecommunications decisions they've made.  The reason for…                                                                     
SENATOR COWDERY: Could you spell your name for the record?                                                                      
DR. LEHMAN: L-E-H-M-A-N.                                                                                                        
SENATOR COWDERY: Thank you.                                                                                                     
DR. LEHMAN:   I  reached my  decision to  urge you to  reauthorize                                                              
mostly from  what I've heard  in these  hearings.  To  begin with,                                                              
Dr. Furchtgott-Roth  on the first day explained how  he thinks the                                                              
FCC  failed  in  implementing  the   telecommunications  act.    I                                                              
actually also  am way out of the  mainstream and I agree  with his                                                              
conclusions  on that.   They were  actually well  documented  in a                                                              
book   I  wrote   that   was  published   two   years  ago   about                                                              
telecommunications.   The biggest failure  of the FCC was  that it                                                              
moved  the competition  from  the market  place  into a  regulated                                                              
hearing room.  That's  largely the FCC's doing.   And I think that                                                              
these hearings  are an  indication of  moving, potentially  moving                                                              
these  out of  the regulatory  hearing room  into the  legislative                                                              
hearing room  and I think  that's a step  in the wrong  direction.                                                              
I'll explain that  as we go along.  The FCC's  mistakes here, it's                                                              
important to realize that they are  pretty much irrelevant to this                                                              
proceeding.  The  FCC, I think, was mistaken. They  did bad policy                                                              
implementation.  And  your characterization of what  the UNE rates                                                              
that   were  set   I   think   is  a   correct   characterization.                                                              
Essentially, the FCC  has subsidized competitive entry.   They are                                                              
asking incumbents  to sell things  at a loss.   I think that  is a                                                              
fair description  of what  the FCC rules  have done.   The Supreme                                                              
Court has recently  heard this case and unfortunately  I think for                                                              
policy, the Supreme Court has said  it is perfectly legal what the                                                              
FCC did.   In  other words, they  have the  room to implement  bad                                                              
policy if they  so desire and I  think that's what they  did.  The                                                              
RCA, whether it  was there or not, would not change  the fact that                                                              
the FCC has  messed up the application  of the act.   None of that                                                              
would change  in the  absence of the  RCA.  We've  heard a  lot in                                                              
this hearing about  interim rates.  I actually  don't like interim                                                              
rates.   Interim rates  that go on  for a long  time I think  is a                                                              
very difficult  environment  to do business  in.   But I  think we                                                              
should take  into account,  Illinois has  had interim rates  since                                                              
1996.  Arizona set permanent rates,  a very worthwhile goal.  They                                                              
just lowered their permanent rates,  cut them in half, last month.                                                              
Makes  you wonder  what permanent  rates are  when you're  cutting                                                              
them  in  half  after  you've set  permanent  rates.    Texas  set                                                              
permanent  rates.   It took  two  years of  proceedings with  more                                                              
paperwork than  probably has been  processed in this  entire state                                                              
in one proceeding.   A week  after they set permanent  rates, they                                                              
opened a new  docket to reexamine permanent rates.   So, against a                                                              
benchmark of how  the act has been played out  nationally, I think                                                              
it's important  to look at the RCA  and say, this is  not unusual,                                                              
this is the stage  the FCC has set.  And even  though I think it's                                                              
the wrong  stage, this is the  way regulations have played  out in                                                              
this industry.   The point I'm making with those  examples is that                                                              
these are complex  multi-dimensional issues and I  don't think the                                                              
legislative hearing  room is really the right place  to hear this.                                                              
I've heard a lot of…                                                                                                            
SENATOR COWDERY:  We're the lawmakers.  You understand that.   And                                                              
if you was setting  here and you thought that there  was a problem                                                              
out there and  you had a lot  of complaints, you don't  think that                                                              
we should hear the complaints, or set any policy or anything?                                                                   
DR. LEHMAN: No,  I'm glad you're hearing them and  I think that it                                                              
is perfectly  appropriate for  you to set  policy.  In  fact, I've                                                              
noted that  there are at  least ten issues  that I think  that are                                                              
worthy  of being looked  at.   My point  is going  to be,  I don't                                                              
think you should tie it to the reauthorization.   If you feel that                                                              
is politically  necessary, I  just, I mean,  I have some  problems                                                              
with that.                                                                                                                      
SENATOR  COWDERY: I  make decisions  based  on the  merits that  I                                                              
think  is the  best  interest of  this  state,  regardless of  the                                                              
political, and  I think most of us  do here.  But I  think there's                                                              
some  problems that's  got  to be  corrected  by the  legislature,                                                              
legislation, whatever  that takes, there's  problems in there.   I                                                              
don't  think  anybody wants  to  do  away with  it.   I  agree  to                                                              
somewhat  on  what  you  said about  the  need  for  a  regulatory                                                              
commission,  but I  think on  this one  we have problems.    If we                                                              
could solve them I think that's our…                                                                                            
DR. LEHMAN:  I've heard at least  ten issues come up that  I think                                                              
are worthy of attention.  They are  not all equal and they are not                                                              
in a  prioritized order.   There's an  issue about how  UNE prices                                                              
were set  and what the  level [indisc.].   There's an  issue about                                                              
what type of  arbitration was used in the proceedings.   There are                                                              
issues about  what the public  advocacy section of  the Commission                                                              
should or shouldn't  do.  There's issues about how  ex parte rules                                                              
work.   There are issues  about perceived  or actual  conflicts of                                                              
interest that  may have  been present  with commissioners.   There                                                              
are issues  about time factors in  reaching decisions.   There are                                                              
issues about  the relevance of state  and federal law.   One thing                                                              
that  I learned  in these  proceedings  is that  court of  appeals                                                              
rulings  are  not  applicable  in Alaska  which  has  presented  a                                                              
particular problem for  ACS I think in the rural  exemption issue.                                                              
There   are  issues   about  public   meetings,  public   meetings                                                              
[indisc.].  There  are issues about how much  regulatory deference                                                              
is given from  the courts.  And there are issues  about burdensome                                                              
regulations.   I mean, [indisc.]  come up,  but 36 states  now use                                                              
price cap  regulations because it,  at least potentially  offers a                                                              
reduced  regulatory  burden.    That  is  [indisc.]  of  something                                                              
appropriate in terms of changing policy directions.                                                                             
SENATOR DONLEY: Could you explain what that means, price cap?                                                                   
DR. LEHMAN:  Rate cases  are very burdensome  because there  is an                                                              
awful lot of  information has to be presented to  justify how much                                                              
money is needed and what rates are  set.  Price caps was designed,                                                              
it originated in England but it has  now pretty much spread around                                                              
the world, it was designed to say  consumers need rate protection.                                                              
So as  long as the  rates aren't  rates, basically, companies  are                                                              
free to  earn anything  they want.   They've [indisc.]  to reduced                                                              
cost proceedings, while less protracted.   I don't want to mislead                                                              
you, it's not a panacea and we've  run into some problems and it's                                                              
not necessarily the  way you'd want to go.  But  there is at least                                                              
a model out there  that has reduced regulatory  overhead that many                                                              
states have found appropriate.                                                                                                  
SENATOR  DONLEY: That's  something that's  done by  statute or  is                                                              
that something that the Commission can just do on their own?                                                                    
DR.  LEHMAN:  That  depends  on   the  state.    Some  states  the                                                              
legislature  has actually  passed  statutes ordering  that.   Some                                                              
commissions have actually negotiated  that within their purview to                                                              
be able  to negotiate  that with  utilities.  It  varies.   All of                                                              
these issues  I think are valid issues.   I'm glad that  they have                                                              
gotten the attention  you're looking at them.  The  problem I have                                                              
with tying  them to reauthorization  is the only sure  effect that                                                              
will have,  if you  reauthorized for  a very  short period  or you                                                              
allow  the Commission  to sunset,  is this  will politicize  these                                                              
issues  further.   In the  next year  it  will become  legislative                                                              
hearing rooms that  examine these particular issues.   And I think                                                              
that's  a   step  in  the   wrong  direction,  it's   already  too                                                              
politicized.   So I would urge  you, reauthorize the  RCA, address                                                              
these issues  on their own  merits, pass whatever  legislation you                                                              
think  is  appropriate.    I  would be  happy  to  assist  you  in                                                              
identifying  which  of these  issues  might need  attention,  what                                                              
alternatives are  available.  I just  see the only value  of tying                                                              
them to  reauthorization  is to politicize  this process  further,                                                              
and  that's  what  I object to.    I  think  the  FCC has  made  a                                                              
political  process  that shouldn't  have  been that  political  to                                                              
begin with.                                                                                                                     
CHAIRMAN TAYLOR: It was politicized  when somebody decided to yank                                                              
us all  back to  Juneau.  That  wasn't a decision  I made  or this                                                              
legislature made.   If in fact we're  going to take the  issue up.                                                              
I can only  speak to you from  my 18 years of experience  in being                                                              
on  the periphery  most of  the time  of these  utility and  phone                                                              
wars.  I  can tell you that the  only time that things  come up is                                                              
during a  review process  or when somebody's  trying to  gain some                                                              
advantage  over somebody  else in  passing a  particular piece  of                                                              
legislation.  And  none of it comes up because  of some altruistic                                                              
motivation on the part of the legislature  to do what's right with                                                              
the regulatory commission or APUC.                                                                                              
DR. LEHMAN: I  think the legislature does not  have the expertise,                                                              
the interest  or the  patience to  properly deal  with these  very                                                              
complex  issues.   Which  is  why  I would  like  to see  it  less                                                              
politicized.  These  issues can be taken up one by  one.  They can                                                              
be  addressed,  if  they  are  serious  enough  and  they  warrant                                                              
legislative  attention.   To me,  that's an ultimate  test,  is if                                                              
they are that serious then you should  take them up.  And if there                                                              
is  not  enough  legislative  interest   out  of  the  process  of                                                              
reauthorization then  that's a statement  to me that  the problems                                                              
may be there, but are not worth fixing.                                                                                         
CHAIRMAN TAYLOR: That's understood.  Yes, John?                                                                                 
SENATOR   COWDERY:  Do   you  understand,   you  think  that   the                                                              
legislature in setting up here?   Do you think that?  Is that your                                                              
understanding of  what we do?  Or  do we make the  decisions based                                                              
on just what we know?                                                                                                           
DR. LEHMAN: I  think you get outside expertise just  like even the                                                              
Commission gets outside expertise.                                                                                              
SENATOR COWDERY: And we hire that, too.                                                                                         
DR. LEHMAN: Yes.                                                                                                                
SENATOR COWDERY:  And we hire what we  think is the best.   To say                                                              
that, I mean, I'll be the first to  admit, I don't know everything                                                              
about a  lot of things.   Some things I  do, some things  I don't.                                                              
And I don't understand  this.  I've had a better  understanding in                                                              
the last four  days.  But this  is not my expertise and  field.  I                                                              
do  understand profit  and  motivation and  survival  in the  real                                                              
world.  And that's what I've had to do all my life.  So…                                                                        
DR. LEHMAN: Every  one of the issues that you've  heard come up in                                                              
this hearing  have been subject of  a lot of regulatory  attention                                                              
in a lot of states  in a lot of court rooms.   And you've heard an                                                              
argument  here and there  and to  fully hear  these arguments  you                                                              
have to basically  sit in the chairs  that the RCA has  sat in and                                                              
hear an awful lot of information  before you can reach an informed                                                              
decision.   And that's what I  think politicizing will  make these                                                              
issues come before you - you don't  have the time because you have                                                              
too many other things on your plate  to be able to deal adequately                                                              
with these decisions.  You should  reauthorize the agency that has                                                              
been charged  with doing  that and  then you  should sit  down and                                                              
say, have  we set the  right rules for  the agency  that's charged                                                              
with doing this.  And if you don't  think they're the right rules,                                                              
then you  change the rules.   All you  will achieve by  failing to                                                              
reauthorize is  that you're  all going to  have to hear  about the                                                              
level of UNE rate.   And I can tell you, what  you've heard in the                                                              
last few days is not nearly enough  to know how you should set UNE                                                              
1:58 p.m.                                                                                                                       
CHAIRMAN TAYLOR: I don't think there's  any assumption on anyone's                                                              
part around  here that we as  a legislature should be  setting any                                                              
UNE rates.  I  think that would be foolhardy at the  least.  We do                                                              
surgery with a meat-axe.   And much of this, I  think, needs to be                                                              
done  very delicately.    But I  really  appreciate, Doctor,  your                                                              
taking the time  with this to come up with and  consolidate if you                                                              
will  the information  that has  been  presented to  us from  your                                                              
perspective.   And I agree with every  one of your points,  by the                                                              
way.    I  think  every  one  of   those  points  are  matters  of                                                              
legislative and policy  setting concern and they  avoid the detail                                                              
problems  of getting into  rate setting  or getting  into.   But I                                                              
can't imagine that  the RCA is the one that we  should look to for                                                              
setting up  it's own  conflict of  interest legislation.   They're                                                              
not even in  compliance with the conflict of  interest legislation                                                              
we have  on the  books right now.   And one  of the major  special                                                              
interest groups has  indicated that they're going to  go in and do                                                              
kind of  mea culpas, that's  their words,  in front of  the agency                                                              
that's  supposed to  look out  for that.   Public  meetings was  a                                                              
concern raised  by the commissioners  themselves as to  whether or                                                              
not they could  have certain discussions and when  they could have                                                              
them.   Public meetings  has been a  matter of legislative  debate                                                              
for  some time.    I  worked long  and  hard  on the  last  public                                                              
meetings  law.   But  I think  each of  these  things that  you've                                                              
brought up  are excellent points and  ones that I think  you could                                                              
assist  us  a  great  deal in  from  your  background  in  finding                                                              
legislative solutions for.                                                                                                      
DR. LEHMAN: I would add that all  of these issues are ones that in                                                              
themselves are more  complex than they appear.  Ex  parte rules, I                                                              
mean the FCC, if  you want to look to the FCC as  a model of using                                                              
ex parte, I think  it's a model of how this process  could work at                                                              
its  worst.   The  FCC  routinely gets  hundred-page  submissions,                                                              
particularly  from  one company,  on  a  weekly basis,  ex  parte,                                                              
substantive ex parte presentations,  that are not in an open forum                                                              
where other parties can contest it.   We're concerned with the RCA                                                              
being able to process things in a  timely fashion.  If you want to                                                              
make the ex parte  process work better, more like  the FCC, you're                                                              
going to  see them  slow down a  great deal,  they're going  to be                                                              
sitting  in their  office hearing  substantive  detailed ex  parte                                                              
presentations  that  are  a  side   process.    I  mean,  the  FCC                                                              
themselves  has  had  problems  that  it's  almost  [indisc.]  the                                                              
regulatory  process in  an  ex parte  world.   That  is a  complex                                                              
issue, there's a lot to be seen about  that.  That's where I think                                                              
the time  pressure of  doing this under  a sunset proceeding  will                                                              
not give  these the adequate  attention that  they need.   I think                                                              
you need  to prioritize  these issues and  then sit down  and pick                                                              
what the one or  two most important ones are, work  on them in the                                                              
next  year, free  of  reauthorization.   I  really  don't see  any                                                              
constraint  on you  to act  on any of  these issues,  even if  the                                                              
Commission were reauthorized  quote free and clear,  you could act                                                              
on any of these at any time.                                                                                                    
CHAIRMAN  TAYLOR:  Thank you  very  much,  Doctor.   Yes,  Senator                                                              
SENATOR THERRIAULT: Thank you for  your comments.  I think it must                                                              
have been  hard for you  to sit in the  audience and hear  the one                                                              
side and then  not that anybody comes  up and just boldly  lies to                                                              
us but they definitely  tell their side of the story.   And you're                                                              
sitting there and you know that there's  a whole lot more to this.                                                              
And in  the time that  we're able to  allocate to this  right now,                                                              
we're maybe going to get two slanted  stories, but that's probably                                                              
not even  the whole story.   So, I  thank you for  sitting through                                                              
that and  then boiling it  down to let's  not politicize  it more,                                                              
the reauthorization, while it has  spurred the discussion on these                                                              
issues.   The legislature  should pick  and choose.   And  I agree                                                              
with  you, if  it  catches the  attention  of enough  legislators,                                                              
either  through  expression  of  interest  from  their  utilities,                                                              
water, sewer, whatever,  then it probably should  be something the                                                              
legislature tries  to break  that off and  deal with  a particular                                                              
policy issue.  I  wanted to ask your opinion though  here on where                                                              
you just  have sort of a condensation  of, or a  condensed version                                                              
of the different testimony.  There  are some bullets here that I'm                                                              
not  sure  is supposed  to  be  a  position  paper by  the  Senate                                                              
Judiciary Committee…                                                                                                            
CHAIRMAN  TAYLOR:  It's  just  a  report  done  by  staff  off  of                                                              
SENATOR  THERRIAULT: There  appears to  be no  legal or  practical                                                              
reason   that  would   require   the  legislature   to   summarily                                                              
reauthorize  the  RCA.   I  don't  necessarily disagree  with  the                                                              
legal,  I mean  we can  reauthorize  whenever  we want.   But  the                                                              
practical,  it seems  to me like  there's been  lots of  testimony                                                              
that  there's  lots  of reasons,  practically  speaking,  why  the                                                              
legislature  should  reauthorize.    I  just wanted  to  get  your                                                              
opinion on that.                                                                                                                
DR. LEHMAN:  I agree with  that.  I  think the learning  curve and                                                              
the knowledge that  exists there is a practical reason  not to let                                                              
the  [indisc.].    The  potential  to  lose  especially  the  most                                                              
qualified staff  [indisc.] in a  sunset year is  another practical                                                              
reason not  to delay it.  I  think it's important you  look at the                                                              
RCA in  the context  of what  other state  commissions have  done.                                                              
And we've conferred  a lot about UNE rates.  You  should also know                                                              
in  Chicago, a  loop, an  unbundled  loop costs  $2.00 per  month.                                                              
That's the rate that was set by the  Illinois commission.  There's                                                              
a lot  of information out  there.  If  you're appalled by  the way                                                              
the act  has been interpreted  by the FCC,  I'm more appalled.   I                                                              
mean, I went on  the record two years ago and  published a book on                                                              
that fact.   I think this commission  has had a lot  of experience                                                              
and a lot of contact with the rest  of the industry and with other                                                              
regulators that  it would be extremely  damaging to disrupt  and I                                                              
would,  if you need  to disrupt  it because  you need  to go  in a                                                              
different  policy direction,  I'd support  you in  that.  But  you                                                              
could do that  with the existing commission and I  think you would                                                              
do  it more  easily with  the existing  commission  than in  sense                                                              
rewriting the  rules.   I'm new to  Alaska.  It  looks to  me that                                                              
what happened  in 1999 is that the  problem built up to  the point                                                              
that you  essentially  threw out  what you had  and put  something                                                              
else in.   I  don't think you  want to  establish a precedent  for                                                              
that.  If you do that again and you  continue a commission in some                                                              
form with  new commissioners  or new rules,  it's like  every new,                                                              
every time  you get a new  Administration or problems build  up to                                                              
the point,  you'll just  get rid of what's  there and  replace it.                                                              
That doesn't seem  to be the way of solving the problem.   So as a                                                              
practical matter,  I think you'll  make more progress to  take the                                                              
issues on their face and address  the ones that are most important                                                              
and  not disrupt  what is  functioning commission,  even though  I                                                              
think many of their  decisions are wrong.  I mean,  what's to say,                                                              
where are you going to get a commission  that is going to make all                                                              
the right decisions starting from scratch?                                                                                      
CHAIRMAN TAYLOR: Doctor, were you here in '94?                                                                                  
DR. LEHMAN: No.                                                                                                                 
CHAIRMAN TAYLOR:  In '94  this very  same commission went  through                                                              
the  very   same  process.    Not   one  staffer  left,   not  one                                                              
commissioner dropped out and all  business was done as usual.  And                                                              
in the  next year,  the legislature  took up  their extension  and                                                              
extended them.                                                                                                                  
DR. LEHMAN: In the area of telecommunications,  there's one really                                                              
important    difference.       And   that's    that   since    the                                                              
Telecommunications  Act, and  since the  amount of adversarial,  I                                                              
mean  it  used  to  be  the  adversaries   were  the  public,  the                                                              
consumers, the ratepayers  and the utilities.   The environment is                                                              
a lot more complex and a lot more  politicized today.  And I think                                                              
that  comparing it  to pre-1996  in telecommunications  is just  a                                                              
mistake.  The environment is very  different now.  And what you'll                                                              
find, it's  hard to  keep staff in  regulatory commissions  at all                                                              
these days.  They  end up going to the utility  or the competitors                                                              
that have been created as a result of the act.                                                                                  
CHAIRMAN TAYLOR: That's competition in [indisc.] market.                                                                        
DR. LEHMAN:  I think that  it may work  out very differently  this                                                              
year than it did in 1994.                                                                                                       
CHAIRMAN TAYLOR:  But do  you have  anything to base  that on?   I                                                              
mean, somehow is  staff ready to all go out  and leave immediately                                                              
just because  they haven't  had a  four-year extension  granted to                                                              
them?  I mean…                                                                                                                  
DR. LEHMAN: I don't  have evidence that ties to the  extension.  I                                                              
do  have  evidence  that  staff  are  leaving  commissions.    The                                                              
turnover rate has increased dramatically.                                                                                       
CHAIRMAN  TAYLOR: Because  of workload and  so on.   Not  having a                                                              
damn thing to do with...                                                                                                        
DR.  LEHMAN:  And because  it's  more  profitable outside  of  the                                                              
public sector.                                                                                                                  
CHAIRMAN  TAYLOR:  Right,  and  not having  anything  to  do  with                                                              
whether or not they're extended or…                                                                                             
DR. LEHMAN:  So it just  follows that if  you add in  the question                                                              
about whether  the job will be  there, you certainly  aren't going                                                              
to make it any easier.                                                                                                          
CHAIRMAN  TAYLOR:   Well,  it  only  follows  if   you  make  that                                                              
assumption.   From the  historical record of  this state,  we know                                                              
that that  assumption is  fallacious.   Those people enjoyed  that                                                              
job and that paycheck  and they stuck right around  for it.  I can                                                              
only  suggest  to  you  that  had you  had  the  benefit  of  that                                                              
experience it might  have modified your conclusion  at this point,                                                              
but maybe not.   I only offer that as an example  of what actually                                                              
historically  has happened  in this state.   I  wish we  could de-                                                              
politicize  this whole  question.    But believe  me,  it is  only                                                              
politics and special  interest that brings us here  today and have                                                              
an opportunity to discuss this with you.                                                                                        
DR. LEHMAN: I believe that.                                                                                                     
CHAIRMAN  TAYLOR: It  hasn't  got  a thing  to  do with  anybody's                                                              
altruistic motives  on, oh  let's protect the  staff and  let's be                                                              
kind and gentle with the RCA.  That isn't why we're here.                                                                       
DR. LEHMAN: This  industry is too important to this  state to have                                                              
an  undue amount  of  special interest  and  politics judge  these                                                              
CHAIRMAN  TAYLOR:  I  agree  with  you.    That's  why  I've  been                                                              
resisting  this  entire  process  because  I think  it's  too  far                                                              
politicized and  I think it  ought to be taken  up next year  by a                                                              
new legislature and a new governor.                                                                                             
DR.  LEHMAN: [Indisc.]   It  sounds to  me like  you are  inviting                                                              
politicizing this further for another year.                                                                                     
CHAIRMAN TAYLOR: Whatever.  Doctor, thank you.  Go ahead.                                                                       
SENATOR COWDERY:  Your qualifications,  have you ever  worked for,                                                              
in the private sector for the utilities company?                                                                                
DR. LEHMAN: [Indisc.]                                                                                                           
SENATOR COWDERY: For who?                                                                                                       
DR. LEHMAN: I was a senior economist for SPC (ph) for one year.                                                                 
SENATOR COWDERY: One year.                                                                                                      
DR.  LEHMAN:   And  I  worked   for  BellCorp  (ph),   a  research                                                              
organization, a research arm for the RVOX (ph) for two years.                                                                   
SENATOR COWDERY: But do you think, where was that located?                                                                      
DR. LEHMAN: That was in New Jersey  and SPC (ph) was in St. Louis.                                                              
2:08 p.m.                                                                                                                       
SENATOR COWDERY:  Do you  think that  the environment of,  Alaskan                                                              
environment and to do business in  Alaska and the utility business                                                              
is the same as it is in New Jersey or someplace?                                                                                
DR. LEHMAN: Not at all.  And I think  that what you heard from Dr.                                                              
Furchtgott-Roth  is true.  Not  only is the  FCC kind of  alien to                                                              
rural interest in many ways, they  are completely in the dark when                                                              
it comes to Alaskan  issues.  The act was not  written with Alaska                                                              
in mind.   It  was not written  to serve  Alaskan interests.   And                                                              
that's where  I see your  job as  well.  I  mean, you can't,  as a                                                              
legislature,  urge the  federal government  to change policies  or                                                              
interpret them  differently as Alaska  demands.  And in  fact, you                                                              
are the only ones really in a position  to do that.  So you should                                                              
look  at the act  very closely  because  a lot of  the things  you                                                              
characterize as…                                                                                                                
TAPE 02-44, SIDE B                                                                                                              
DR. LEHMAN: ...they don't work out  particularly well here, things                                                              
like the rural exemption.                                                                                                       
CHAIRMAN  TAYLOR:  And changing  that,  which we  have  apparently                                                              
done.  Go ahead, Senator.                                                                                                       
SENATOR THERRIAULT:  Were you here  yesterday for the  testimony I                                                              
think  it was  from  Dana Tindall,  that the  1994  moving to  the                                                              
sunset of  the old  APUC was  a little  bit different because  the                                                              
legislature  said at the  end of  the session,  we didn't  mean to                                                              
sunset  you, rest assured,  we'll  take care of  this first  thing                                                              
next  session.  I  would  think   that  you'd  agree  that  that's                                                              
completely different thing.                                                                                                     
DR. LEHMAN: Based on second hand  knowledge, yes.  That definitely                                                              
sounded different to me than that  even though I've heard repeated                                                              
statements that nobody has asked  to shut down the RCA.  I've also                                                              
heard, none  of the reassurance statements  are not quite  as it's                                                              
portrayed from 1994.                                                                                                            
CHAIRMAN TAYLOR: Doctor, thank you.  Any further questions?                                                                     
SENATOR DONLEY: Yeah, I do.                                                                                                     
CHAIRMAN TAYLOR: David, go ahead.                                                                                               
SENATOR  DONLEY:  One of  the  fundamental principles  behind  the                                                              
sunset provisions  that we have is  that you get a review  and you                                                              
get an opportunity, at least you  get a shot, when something comes                                                              
to the  floor every four years  or whatever the  particular period                                                              
is to make reforms.  Frequently it's  the only chance that you get                                                              
to make a  reform on some of  these.  You know, I  understand that                                                              
sitting from outside  of the process, you may think  that it's all                                                              
easy and  fine to get  reforms through any  time you want,  but it                                                              
isn't.   And  that is  one of  the  fundamental principles  behind                                                              
sunset is - that would give you an  opportunity to at least get an                                                              
up and down vote on some reform issues  on the floor of the bodies                                                              
because there  would be  a proposal  before you  and it's  on that                                                              
subject  and  you'd  be able  to  have  a  chance.   So  from  the                                                              
political scientist point of view,  not from an economist point of                                                              
view, I'm here to tell you that that  sunset opportunity is a very                                                              
important  opportunity.  And  from a  reform -  any change  in the                                                              
status quo is  very difficult to accomplish.  From  a reform point                                                              
of view,  that sunset  process  is key  and to just  go ahead  and                                                              
renew something  for four years  without taking advantage  of that                                                              
opportunity to attempt  reforms is…  I don't accept  your point of                                                              
view on this.                                                                                                                   
DR. LEHMAN:  I don't  say complimentary  things about  economists,                                                              
but  I would  say that  I'm glad  I'm not  a political  scientist.                                                              
Because I have  to say I mean  from a lay person's point  of view,                                                              
sunset sounds to me like you really  should address whether or not                                                              
an agency is needed.                                                                                                            
SENATOR DONLEY: [Indisc.]                                                                                                       
DR. LEHMAN: Yeah, I know, what you're explaining...                                                                             
SENATOR  DONLEY:  You  go  through an  audit  process,  they  make                                                              
recommendations,  you agree  with the audit,  you know,  sometimes                                                              
the audits  are good, sometimes  you don't  agree with them.   You                                                              
know, but part of that process, it's  a lot more than just whether                                                              
the Commission,  any given  commission or  whatever stays  around.                                                              
It's reforms that are needed, too.   And that's a specific part of                                                              
our legislative  audit process.  So  although it may sound  to you                                                              
like it's just an up or down decision,  it is not.  It's a crucial                                                              
opportunity for  the legislature to take reformative  action that,                                                              
in our American form of government,  where change is not promoted,                                                              
where the status quo always has the  advantage, it may be the only                                                              
opportunity that you  get to even articulate and  get a debate, or                                                              
a discussion,  on some  of these  proposed reforms.   So  don't, I                                                              
encourage you  to not think that  this is a light  opportunity and                                                              
oh you'll get another opportunity another time.                                                                                 
DR. LEHMAN: It's just that, during  1999, you did without a sunset                                                              
review make a dramatic change.                                                                                                  
SENATOR  DONLEY:  With  a  situation   in  chaos  -  and  you  did                                                              
acknowledge  that if  critical mass  builds up,  yeah, you  can do                                                              
any, you  know the government  can take  action under our  form of                                                              
government any  time critical mass  develops.  But it's  very very                                                              
hard  to get there  and it's  especially  hard to  get there  in a                                                              
state as diverse  and as non-homogeneous as this  state is.  Where                                                              
you have interests from Barrow to  Ketchikan, incredibly different                                                              
situations, incredibly  different economic situations,  incredibly                                                              
different political situations, cultural,  you name it.  This is a                                                              
very  very diverse  state.   And it makes  it very,  very hard  to                                                              
bring about change.                                                                                                             
DR.  LEHMAN: It  seems  to me,  you  have the  obvious  compromise                                                              
solutions available to you at renewal  with the understanding that                                                              
certain issues are going to be addressed in that time frame.                                                                    
CHAIRMAN TAYLOR: But they won't be.                                                                                             
DR. LEHMAN: Certainly something between the two extremes.                                                                       
SENATOR THERRIAULT: You're the second  person today that's brought                                                              
up the whole issue of don't get into  a situation where you become                                                              
frustrated  and you just  lop off  everybody's head, start  again,                                                              
and just  endlessly go  through that  loop.  And  I think  the big                                                              
difference between  now and '99, in  '99 we had a  situation where                                                              
the  commissioners  wouldn't  talk  to  each  other,  they'd  take                                                              
vacation time at  inopportune times just to throw  a wrench in the                                                              
works.  They hated  each other.  So that was  the decision, that's                                                              
why the  decision was  made, okay we'll  get rid  of you all.   We                                                              
didn't really  change the regulatory  process that much.   We just                                                              
decided that  the people that we  had there making  decisions were                                                              
at, fighting so much that there was  no way of curing that problem                                                              
without getting rid of them.  And  I've not heard anybody come, in                                                              
fact many  of the  people that  have testified  either written  or                                                              
verbally have said,  you know, these commissions are  doing a good                                                              
job.  I've not  heard anybody say that they're  fighting with each                                                              
other or  refusing to  come to work  and things  that we  heard in                                                              
CHAIRMAN TAYLOR: No,  but we did have direct testimony  from three                                                              
of  the five  that  they  had drafted  a  letter calling  for  the                                                              
chairman's resignation  or the rotation  of the chair.   They then                                                              
refused to  convey that to  the committee.   I subpoenaed it.   It                                                              
was provided yesterday  and you now have it as a  document in your                                                              
files.  So,  I'll guarantee you,  this is not just some  happy tea                                                              
party going on over there.  There  are problems, you've identified                                                              
ten of  them for  us on  policy matters,  Doctor.   And I'll  look                                                              
forward really  to working  with you on  any suggestions  that you                                                              
could  give us  on how  to make  these better  in the  legislative                                                              
process.   Thank you very  much.  Out  next, is there  any further                                                              
questions?   Doctor,  thank you again,  appreciate  it.  The  next                                                              
witness is Don is it Reese?                                                                                                     
MR. DON REED: Reed.                                                                                                             
CHAIRMAN TAYLOR: Reed, should've put a D down there.                                                                            
MR. REED: Well, it could have been my handwriting.                                                                              
2:18 p.m.                                                                                                                       
CHAIRMAN  TAYLOR: No,  when they  copied  it, it  kind of  blurred                                                              
things.    If you'll  raise  your  right  hand,  please.   Do  you                                                              
solemnly swear the  testimony you're about to  give this committee                                                              
to be the truth, the whole truth  and nothing but the truth and do                                                              
you so aver?                                                                                                                    
MR. REED: I do.   Mr. Chairman, Senators, my name  is Don Reed and                                                              
I represent  Matanuska  Telephone, I'm  a vice  president of  that                                                              
company and it's director of regulatory  affairs.  I work with the                                                              
Commission,  I've done that  for approximately  20 years,  not all                                                              
with MTA, formerly with ATU and with  the Alaska Exchange Carriers                                                              
Association.   I'm currently  with  ACA (ph) also,  which came  up                                                              
earlier here  on the first point  of switching the issue  that ACS                                                              
brought before  you.  As you may  know, MTA is the  second largest                                                              
local  telephone company  in Alaska,  next to  ACS.   We are  very                                                              
small compared to  them, relatively speaking, but we  are the next                                                              
one up, if  you will.  We  provide over 60,000 lines  to customers                                                              
from Eagle River  all the way past the Denali Park  into Healy and                                                              
all  the way  from Skwentna/Tyonek  to  Glacier View  in the  east                                                              
along the  Glenn Highway.   We  are a  rural telephone company  as                                                              
defined by  the 1996 act.  And  we are also a cooperative.  We are                                                              
owned  by  the  customers  that  we serve.    The  purpose  of  my                                                              
testimony here  today, I  won't, in deference  to the  lateness of                                                              
the hour and the fact that I think  I'm the last one here or close                                                              
to it, I won't repeat things that  others have said, although that                                                              
we  support,  and  primarily we  do  support  the  reauthorization                                                              
proposal that the  ATA has put forth.  We are a  member of ATA and                                                              
we  do  support that  testimony  that  Jim  Rowe  gave you.    The                                                              
purpose, I'd  like to  add though,  I think to  the record,  is at                                                              
least  our experience  in this  commission relative  to a  complex                                                              
rate case proceeding  that we recently completed with  the RCA.  I                                                              
contrast this somewhat  with the experience that  Chugach has had.                                                              
We're both cooperatives, we're both  about the same size, although                                                              
they're an  electric co-op and  we're a telecommunications  co-op.                                                              
We have a lot of similarities if  you will. And the one similarity                                                              
too that I want to talk to you just  a little bit about is that of                                                              
a complex  rate case.   We want to report  here, I think  that, to                                                              
balance  the  record   that  our  experience  with   RCA  and  its                                                              
adjudication of our rate case was  a satisfactory one.  When I say                                                              
satisfactory, I'm  talking primarily about the timeliness  and the                                                              
professional manner it  was handled in.  When I say  that, I don't                                                              
mean  to say  that we  got all  that we  asked for  or that  there                                                              
wasn't  controversy or  that there  weren't  major differences  of                                                              
opinion  between ourselves,  the  public advocacy  staff that  was                                                              
assigned as  an intervener  here and  even the Commission  itself.                                                              
In fact,  we expected that  to happen.   These are  complex cases,                                                              
and in  our view  though, the  public  arena is one  in which  all                                                              
points of  view should  be heard.   And it takes  some time  to do                                                              
that, but also  the way in which we found the  Commission handling                                                              
that schedule, handling that time  was satisfactory from our point                                                              
of  view.   We  did have  occasion  not only  of  a difference  of                                                              
opinion with  the Commission,  but we found  that even in  some of                                                              
their resulting  orders in  our cases, we  believe they  were flat                                                              
wrong.  But I will go on to say that  once we filed a petition for                                                              
them to  reconsider, they  not only  granted that petition,  which                                                              
under the current regulations they  operate under, these are state                                                              
regulations, they don't have to do  that, they could simply sit on                                                              
it for 30 days  and deny it by inaction.  The  previous commission                                                              
did that  a lot.   This commission,  in every  case, granted  us a                                                              
review of that  petition and in the majority of  them, upon review                                                              
of  the record,  they even  reversed their  original decision.  We                                                              
believe  this is  a mark of  a panel  that is  concerned with  the                                                              
fairness and the propriety and timeliness  of its decisions and is                                                              
not afraid to admit when it's wrong.  Our experience is that these                                                              
panelists are  honorable persons.   Now we have heard  through the                                                              
last  few  days   of  testimony  here  that  the   intent  of  the                                                              
legislature  is  not  to  replace  this panel  or  to  sunset  the                                                              
Commission out of existence.  We  find that encouraging and yet we                                                              
do question  if that is  the intent, why  would we go  through the                                                              
process  of sunset  and send  those  signals to  consumers and  to                                                              
investors that  the state of  regulations in Alaska  is uncertain?                                                              
And  we think,  and  we  do advocate  the  position  that Jim  had                                                              
expressed to  you that we extend  the Commission for  some period.                                                              
He had talked in  terms of two years, possibly even  one year that                                                              
we could  live with, while  we work on  some of these  issues that                                                              
Dr. Lehman  and others,  particularly ACS  folks, brought  to your                                                              
attention.  We concur  in most of those that some,  that these are                                                              
valid  things to  consider,  particularly  the relative  roles  of                                                              
staff, between  advisory and advocacy.   That's a big one  to MTA.                                                              
The time limits  guidelines that the ARECA amendment  addressed in                                                              
some of the  legislation this year  are ones that we've  looked at                                                              
and tend to think  that we can support.  We also,  in deference to                                                              
Dr. Lehman, I believe  that the FCC model at least  to some extent                                                              
for ex parte is  a good one, at least an improvement  over what we                                                              
have today.  I agree with ACS on  that.  That is something I think                                                              
the committee  should put  out and the  legislature take up.   And                                                              
lastly,  some  of those  issues  related  to UNE  policies,  rural                                                              
exemption policy,  quite honestly  are very dear  and near  to the                                                              
heart of the next local exchange  company that's likely to be teed                                                              
up for  unbundled interconnection.   So with that, we  would offer                                                              
the help of MTA,  the staff, myself, we have a  good staff in this                                                              
regard,  we've been  looking at these  issues  for some time  now,                                                              
knowing what  the horizon looks like  for us, in  addressing those                                                              
issues, though we would strongly  advocate not sending the signals                                                              
through  the actual implementation  of the  sunset of  uncertainty                                                              
and insecurity  in the  regulatory arena  of the  state.   So with                                                              
that, I close my comments.                                                                                                      
SENATOR COWDERY: We  had testimony, I was trying  to find it here,                                                              
about decisions  that  were postponed  for cause.   And there  was                                                              
some who indicated  they thought that terminology  or whatever was                                                              
being abused.   Do  you think there's  any abuse  in not  making a                                                              
decision? We  had people in here  that said that it  was difficult                                                              
for them to be  here because they got to go up,  but they were big                                                              
people, big  boys, I think  was the term,  and I think  they could                                                              
take a bad decision, but they just wanted a decision.                                                                           
MR. REED: If what you're asking is  that language, my answer is it                                                              
cuts both ways.   It's the old Oscar Wilde admonition,  be careful                                                              
what you  ask for  in this  regard.   Because I  found, in  my own                                                              
case, there were times I wanted an  extension to better prepare my                                                              
case  or my  response.   The  burden  of proof  in  any rate  case                                                              
adheres on  the incumbent  company asking for  a rate  increase to                                                              
charge  more to their  customers,  essentially.   And in order  to                                                              
make  that case  and present  it  well, you  know, we  do all  the                                                              
things that everyone does, we get  the experts, we do the numbers,                                                              
whatever it takes.   That does take some time.   It does take time                                                              
to also structure that appropriately  so you can convince a panel,                                                              
you can  instruct, you can  inform.  That  takes some time.   So I                                                              
think having that language there  for just cause or adequate cause                                                              
is a necessary addition.  Now, how  it's used again, is one that I                                                              
think you  have to address by  asking all the various  parties how                                                              
they feel, the very same question  you asked me.  I don't think it                                                              
was abused  in the cases that  we've had before the  Commission at                                                              
MTA or through the ACA (ph).                                                                                                    
CHAIRMAN TAYLOR:  Thank you.   Yeah, we  had testimony  that there                                                              
were  58 such  cases, so  you fortunately  didn't get  put off  or                                                              
didn't ask  for any delays  and didn't  end up getting  delayed by                                                              
good cause.   I want to thank  you for coming  forward, appreciate                                                              
your testimony.  If you have it in  written form, submit it to the                                                              
secretary and  we'll have it distributed.   And I  appreciate that                                                              
very much.  We have one other witness  who wished to testify.  Did                                                              
you wish to  come forward, Paula?   Raise your right, please.   Do                                                              
you solemnly  swear that the testimony  that you're about  to give                                                              
this committee  to be the truth,  the whole truth and  nothing but                                                              
the truth and do you so swear?                                                                                                  
2:28 p.m.                                                                                                                       
MS. PAULA  ELLER: My name  is Paula Eller  and I have  a [indisc.]                                                              
Telephone, Tanana  Power and [indisc.]  Cable TV.  It's  a family-                                                              
owned business.  We've been, had  the telephone company since 1960                                                              
when we  started this.   And we've  had Power  since 1966  and the                                                              
cable since  1986.  We serve in  Tanana, where we have  the power.                                                              
Ruby,  we have  phone and,  excuse me,  in Tanana  we have  power,                                                              
telephone,  and  cable.   In  Ruby  we  have  the telephone.    In                                                              
Whittier  we  have,  which  we purchased  in  1984,  we  have  the                                                              
telephone and  we have cable TV.   We provide  high-speed Internet                                                              
in Tanana  and Whittier  by cable  modem.   And we're planning  on                                                              
providing  high-speed in  Ruby.   I  guess  what I  would like  to                                                              
address at this time is my concern  about the small utilities that                                                              
have to go through  a rate case.  In 1999, Tanana  Power filed for                                                              
rate case. It had  not had one since 1985.  And my  PC (ph) was to                                                              
the place where it was much lower  than the customers should have.                                                              
I  had lost  money for  10 out  of 15  years.   So, my  accountant                                                              
talked me  into going for a  rate case in  1999.  And I  hired Joe                                                              
Franco (ph) and our accountant to  do the rate case.  And we filed                                                              
that in August  24  of 1999.   And we got an interim,  which after                                                              
6 weeks,  was given to  us on October 8th.   And that  was interim                                                              
refundable.  Well, that was fine,  because it did give us a little                                                              
more money to operate  with.  But we did not get  a permanent rate                                                              
increase until February of 2001.   So those were interim rates all                                                              
that time,  which would  be refundable, which  was a  real concern                                                              
because you're not  only, on the power, you've got  your rates but                                                              
then  you've got  your surcharge  which varies  according to  your                                                              
[indisc.] costs  and then  you have PCE  which could all  of these                                                              
things could  have been  refundable.   And for  a small  staff, we                                                              
have six people that run all of this  in the various areas, and it                                                              
was really  frightening to  think that maybe  we would have  to go                                                              
back, not just  the money refund, but the process  of getting that                                                              
done.  And I'm  not saying that it had anything  to, I don't know,                                                              
we had some letters come in from  our, I guess a number of letters                                                              
from our  people of  Tanana saying, rate  increases of  30 percent                                                              
increase.  Well,  in 15 years, 30 percent really  isn't that much.                                                              
But they were upset  over that.  Well, instead of  what could have                                                              
been done, even though we said, you'll  in the end pay less per kw                                                              
because PCE will  come up to where it's supposed to  be.  Well, us                                                              
telling them  that doesn't  work.   But a  letter could  have come                                                              
from the  staff person  at the  Commission and  explained to  them                                                              
because  it was a  revenue requirement  there  that that could  be                                                              
justified.   And so, hence, that went  on for almost a  year and a                                                              
half  that we were  in interim  and we  were not  getting what  we                                                              
should have  to keep our  business going.   So what I'm  asking is                                                              
that  at  this  time  if  you  would  consider  looking  at  maybe                                                              
economically   deregulating  smaller   companies.   We  have   170                                                              
customers, and  at that time it  was $500,000 gross revenue.   And                                                              
to go through that period of time  for that, it seems like there's                                                              
a lot bigger  fish out there that  could be taken.  So  there is a                                                              
statute that Bob Blodgett put in  when he was in the Senate and it                                                              
was regarding  economically deregulating utilities  with less that                                                              
$100,000 in  revenue.  And that was  many more years ago,  I don't                                                              
know if any of  you were around when Bob Blodgett  was down there.                                                              
I guess I'm that old and I've been  around for all of these years.                                                              
I wish you  would consider that and  this might be a  good time to                                                              
do that.   I don't  think changing the  Commission would  make any                                                              
difference because they have procedures  they follow.  But I think                                                              
that  deregulation of  the smaller  utilities  might be  something                                                              
that would  take the workload  off of the  Commission as well.   I                                                              
think, by  the way, they still  have oversight because we  have to                                                              
file  our  [indisc.]  cost  change,  we  have  to  file  with  the                                                              
Commission, the  staff person  looks at that,  any changes  in our                                                              
surcharges to  the customers, as  well as our  PCE.  And  also, on                                                              
the telephone  side of things, we  have to file state  access with                                                              
the Commission  [indisc.] two  years.  So  they do have  oversight                                                              
and  perhaps maybe  you'd consider  that.   And  I'm speaking  for                                                              
myself.   I  haven't talk  to any  [indisc.] person  with a  small                                                              
utility that I know of.                                                                                                         
CHAIRMAN TAYLOR: Senator Cowdery.                                                                                               
2:32 p.m.                                                                                                                       
SENATOR COWDERY: I've  been approached and talked to  and I'd just                                                              
like to  get a  respect to  your thoughts  on this and  everything                                                              
that maybe  the workload on RCA is  too large, they have  too many                                                              
things to deal with.  And some suggested  say the pipeline and the                                                              
oil industry,  that should  be one  commission on the  regulation.                                                              
Maybe one  for telephone utilities,  and one for water  and sewer,                                                              
and this and that.  Do you think  that we'd get quicker decisions?                                                              
Do you think  that would be a good  or a bad idea?   Or should, do                                                              
you think their workload is too big for what they've got to do?                                                                 
MS. ELLER:  I think  they have  a heavy  workload.  And  actually,                                                              
didn't pipeline, wasn't pipeline separate at one point?                                                                         
CHAIRMAN TAYLOR: Yeah, it was added in '99.                                                                                     
MS. ELLER: It was added, yeah.  And  so that, there's another, and                                                              
all of  these things  are handled,  each utility  is unique.   You                                                              
know,  and  telephone  probably  is  the most  unique  of  all  in                                                              
particular.  But, you know, changing  the subject just a bit, like                                                              
when  ACS  and  GCI  they're  in   competition  now  and  it  that                                                              
competition  is sufficient,  ACS  should be  deregulated.   That's                                                              
just a thought to  say at some point.  And I don't  know if that's                                                              
the Commission's responsibility  to deregulate them or  how it is.                                                              
But at some point, maybe that's something  that you might consider                                                              
too.   I feel  too that,  by the  way, that  my customers  do need                                                              
someone to  go to and  I would like to  still see the  service and                                                              
safety  regulated.   I don't  have a problem  with  that.  And  if                                                              
there is something that I'm doing  wrong, then they have to have a                                                              
place to go to make sure that it's  corrected.  I feel responsible                                                              
for these  people.   I lived with  them for  twenty years,  so you                                                              
know they're, I know them quite well.                                                                                           
SENATOR COWDERY: Thank you.                                                                                                     
CHAIRMAN TAYLOR: Any further questions?   Yes, Senator Therriault.                                                              
SENATOR  THERRIAULT: In  regards to complete  deregulation  of the                                                              
small utilities -  one of the things that the audit  that was done                                                              
by Budget  and Audit  pointed out  is that  the current  statutory                                                              
requirement that  water and sewer  systems in rural  Alaska, small                                                              
ones, be  certified was not being  followed through on.   And that                                                              
is  a problem  that the  RCA inherited  from the  APUC.   Somebody                                                              
suggested,  the  auditor if  I  remember  correctly, was  that  we                                                              
should either  decide to completely  exempt them and give  the RCA                                                              
some statutory  guidelines  on how to  do that  or move  them into                                                              
compliance  with  the [indisc.]  statute.    And of  course  we're                                                              
putting incredible  amounts of state money and  federal money into                                                              
water  and sewer  systems out  there.   And  part of  what RCA  is                                                              
supposed to  be doing is certifying  that they're ready  to get up                                                              
and running.   Part  of that  is looking  at are  they charging  a                                                              
reasonable rate and  not just not gouging the  customers, are they                                                              
charging  a rate to  amortize equipment  and replace  and keep  up                                                              
with  stuff.   And that's  a concern  at  the congressional  level                                                              
because  of the amount  of federal  money going  into the  system,                                                              
it's  a concern  at the  state level.   So  I don't  know that  we                                                              
should  just   lift  that   certification  requirement   and  just                                                              
deregulate  all those  small water  and  sewers.   Because we  get                                                              
handed the  bill when the  system freezes  up, when it's  not been                                                              
maintained.  Then  there's no source of potable  water, there's no                                                              
sanitary system  and it's a  crisis.  So I  think there is  a need                                                              
for the continuation  of some kind of oversight to  make sure that                                                              
they're operating somewhat in a sensible business.                                                                              
MS. ELLER:  I understand  what you're saying.   The thing  is that                                                              
though - that people don't have anything  to appreciate, it's been                                                              
grants given  to them.   So they really  haven't.  And  that's the                                                              
problem on the electric side as well.   A lot of these communities                                                              
had their  power lines built for  them, they had  their generators                                                              
put in for them.  That is not the  case in the private enterprise.                                                              
It's a totally different  situation.  I mean, we  have put our own                                                              
sweat and  tears and money  into that.  And  we are going  to take                                                              
care.   We have to be  allowed to make  at least some profit.   It                                                              
may not be what is authorized and  oftentimes isn't, as I've said.                                                              
In ten  of the  fifteen years, I  actually lost  money.  And  if I                                                              
paid  myself,  we  would  lose  more  money.    So,  Mom  and  Pop                                                              
operations run  a lot different  than most situations  and there's                                                              
not many of us left, by the way.                                                                                                
CHAIRMAN TAYLOR:  Any idea what it  cost you to do your  rate case                                                              
for your 170 people?                                                                                                            
MS. ELLER:  In, for this last one,  I can't tell you  exactly.  We                                                              
tried to do as much in-house as we  could.  I worked, I was not on                                                              
the payroll,  but I did  as much  as I could  on it, and  then Joe                                                              
Franco and  he was very  reasonable.  I  did not have  an attorney                                                              
represent  us.    Because  when I  was  asked  what  attorney  was                                                              
representing  us, and  this was  not this  time, this  was in  the                                                              
past, they said to me, 'Who's your  attorney that represents you?'                                                              
And I  said, 'I  don't have  one, my  customers can't afford  it.'                                                              
You know, and they said, 'You can't  do that.'  And I said, 'Well,                                                              
I'm sorry, that's  the way it is.'  We never did  go to a hearing.                                                              
We stipulated  with the  staff on  that, on  what our rates  were.                                                              
You know, if you  have to bring an attorney in  to get involved in                                                              
it, you  have an  accountant.   You know,  it just,  all of  these                                                              
things, my one that  I did in '85 was actually  $30,000.  It takes                                                              
a long time.                                                                                                                    
CHAIRMAN TAYLOR: That was for Nenana?                                                                                           
MS. ELLER: Tanana.                                                                                                              
CHAIRMAN TAYLOR: Tanana.                                                                                                        
MS. ELLER:  And I have not [had]  a rate increase on  my telephone                                                              
company since '85 either.                                                                                                       
CHAIRMAN TAYLOR: You're still operating  at the same rate you were                                                              
in '85?                                                                                                                         
MS. ELLER:  Yeah, my customers, residential  pay $17.   But that's                                                              
about as far as [indisc.].                                                                                                      
CHAIRMAN TAYLOR:  It's too  bad that you're  not a small  water or                                                              
sewer system  because your odds are  50 percent that  you wouldn't                                                              
be regulated by this commission.   Of course, if you were unlucky,                                                              
you would be regulated.                                                                                                         
MS. ELLER:  Well, you know, there's,  I believe the  customer does                                                              
have to have some place to go to  if there is a problem and people                                                              
aren't you know  taking care of business and making  electric safe                                                              
and doing  the right  things for  the customer.   You know,  I do.                                                              
But anyway,  thank you for  letting me speak  to you.  I  hope you                                                              
think about perhaps  small utilities that are not  state funded or                                                              
federally funded [indisc.].                                                                                                     
CHAIRMAN TAYLOR:  That's all  the witnesses we  had signed up.   I                                                              
had promised we'd try to get out of here about 2:30, 3 o'clock.                                                                 
SENTOR DONLEY: Can we just take like a two-minute break?                                                                        
SENATOR  THERRIAULT: Mr.  Chairman, before  we do  that, could  we                                                              
just see with Buki Wright with Aurora  Energy was going to try and                                                              
be online at 2:30.  Could we just…                                                                                              
CHAIRMAN TAYLOR:  Buki, are  you there?   Buki Wright,  Fairbanks,                                                              
are you there?  I guess not.  Could he submit it to the…                                                                        
SENATOR  THERRIAULT: Yeah,  I  asked him  to  also try  to, if  he                                                              
wasn't  going  to  be  able to  testify  to  submit  something  in                                                              
writing.  He had submitted a letter  to you that is, I believe, in                                                              
the packet.   He was going to  just clarify that they  did wish to                                                              
see an extension being made and that  if it was just for a shorter                                                              
period, that would be fine.                                                                                                     
CHAIRMAN TAYLOR:  That would  be fine.   I remember in  writing, I                                                              
thought I had put the letter in the  packet.  I tried to get every                                                              
single email  that came  into either my  office in Wrangell  or up                                                              
here in  John's office, John, Senator  Cowdery's office to  you in                                                              
the packets.   Plus, anybody that  wished to, has  submitted stuff                                                              
to us now.   And I wanted  to let everybody know that  between now                                                              
and the time we convene in Juneau,  we're going to keep the record                                                              
open.   I'm assuming that  we will probably  end up with  the bill                                                              
being  referred to  this committee.    And as  a consequence,  I'm                                                              
going to  post a  notice at  this time  and as  when we arrive  in                                                              
Juneau and  the session is convened,  that we will have  our first                                                              
Judiciary Committee  hearing on Tuesday  at 10:00 a.m.   And we're                                                              
to  convene on  Monday, that'd  be the  25,   at 10  a.m.   Anyone                                                              
wishing to, and  actually, I've requested of almost  every witness                                                              
any ideas  or thoughts  that they  had about  how to improve  this                                                              
commission, to  submit them to us  and try to submit that  in some                                                              
sort  of  legislative  form.    In  other  words,  amending  title                                                              
whatever [indisc.]   If  they could do  that, that would  be great                                                              
and I'm sure  many people are going  to.  And it's my  intent that                                                              
we're  going  to try  to  come  up  with some  type  of  committee                                                              
substitute to  take care of these  matters that rise to  a certain                                                              
level of concern.   And I want  to thank everybody for  their very                                                              
candid testimony  I think before the  committee.  And in  a lot of                                                              
ways, I want to  thank the people that had courage  enough to come                                                              
forward and testify.   Because I honestly believe  there's a great                                                              
deal of difficulty  when you step up in front of  the person who's                                                              
going to act as your judge and then criticize them.                                                                             
SENATOR THERRIAULT:  Mr. Chairman, to  be clear with  your intent.                                                              
You plan  to mark  up, hold hearings  and plan  to mark up  a bill                                                              
that is  a reauthorization  bill with some  reforms?  Or  simply a                                                              
reform,  some of  these  suggested  changes, timelines  and  other                                                              
CHAIRMAN TAYLOR:  If we're  going to take  this thing up,  as I've                                                              
been saying from  day one, if we're going to be  forced to take it                                                              
up, then let's  hold the hearings, find out what  the concerns are                                                              
and let's take  the whole thing up.   It looks to me  like even if                                                              
you just took  the Doctor's good recommendations,  you've got ten.                                                              
If you throw in Paula's recommendation,  that takes you to eleven.                                                              
If you  get concerned about  some of  the other things,  I predict                                                              
you're probably looking  at a bill that's probably  20 or 30 pages                                                              
long.   But if somebody  wants to pay the  price to have  this, if                                                              
it's so important that we reauthorize  this year, then we'd better                                                              
reauthorize something that has some  good faith effort put into it                                                              
and not just a rubber stamp.                                                                                                    
SENATOR THERRIAULT:  Mr. Chairman, of course we  can reauthorize a                                                              
shorter  period  and  the  next legislature  could  take  up  that                                                              
CHAIRMAN TAYLOR: Well, we tried that, this session.                                                                             
SENATOR THERRIAULT: But if I remember  correctly, it was one of my                                                              
amendments  in Judiciary  Committee  that even  took the  electric                                                              
structure  from the  House and  amended it  to the  bill that  you                                                              
presented to us.                                                                                                                
CHAIRMAN TAYLOR:  Yeah, along with  the task force and  along with                                                              
the three-month extension, remember?   I had no objection to that.                                                              
SENATOR COWDERY: We've  had a lot of questions, too.   And some of                                                              
them have  been very timely  answered to.   And I think  that our,                                                              
hopefully our  staff is,  we're a little  bit short staffed  here,                                                              
but has got a list of all the questions that…                                                                                   
CHAIRMAN TAYLOR:  We have a tremendous  amount of material  yet to                                                              
come in from Dana who promised to  supply us with a whole bunch of                                                              
answers and  documentation and  so on.   And the committee  should                                                              
have  the benefit  of  that.   Apparently,  the  committee is  not                                                              
interested or at  least nobody has been interested  yet to testify                                                              
very succinctly about the $300,000  study that we as a legislature                                                              
are  trying to  do  on the  telecommunications  industry and  RCA.                                                              
Former Senator  Jim Duncan  just let that,  gave public  notice of                                                              
his  intent to  let that  bid about  a week  or ten  days ago.   I                                                              
personally would like  to see that study and see  it concluded.  I                                                              
think that  people ought  to have,  the public  ought to  have the                                                              
benefit  of that  before  we make  these  changes  in a  political                                                              
atmosphere as the Doctor has indicated.   But others don't wish to                                                              
do that.                                                                                                                        
DR. LEHMAN: Would you take another  minute of additional testimony                                                              
then about that study?                                                                                                          
CHAIRMAN TAYLOR: Yeah, we might as  well.  We've kind of fouled up                                                              
now on time anyhow.                                                                                                             
DR. LEHMAN: The first day, you handed  out a package with the full                                                              
60-odd pages  of the RFP.   You should  have attached  the winning                                                              
CHAIRMAN  TAYLOR: I  don't  think I  had  it at  that  time.   The                                                              
packets were made up before…                                                                                                    
DR. LEHMAN: It was available.                                                                                                   
CHAIRMAN TAYLOR: Was it?                                                                                                        
DR.  LEHMAN:  And   you  should  take  into  account,   I  was  an                                                              
unsuccessful bidder  on this. That  should be taken  into account.                                                              
But  it says,  'It  is KPMG  Consulting's  understanding that  the                                                              
State  of  Alaska  seeks  to  evaluate  options  for  a  statewide                                                              
telecommunications network  from a public policy  perspective.  It                                                              
will be important for the State of  Alaska to examine all possible                                                              
options,  from  fiber  landlines   to  cable  to  fixed  broadband                                                              
wireless,  as   well  as   mobile  wireless,  including   emerging                                                              
technology  standards such  as 3G  and satellite.'   Now, I  don't                                                              
know what you  think that you're going  to get out of  that, but I                                                              
don't  see  anything  in  that that's  going  to  be  particularly                                                              
relevant to the issues that have come up here.                                                                                  
CHAIRMAN TAYLOR: Well, that's part  of our frustration, Doctor, is                                                              
that there was a letter explaining  to Mr. Duncan exactly what was                                                              
intended that  came from  the Senate President  last year.   There                                                              
has now  been a second, as  I understand it, supplemental  letter,                                                              
to the people  awarded the contract  of what was intended  by that                                                              
$300,000.   And I agree with  you that it  is a far cry  from what                                                              
the   legislature   asked   for.     But   again   this   is   the                                                              
politicalization, if you will, of the process.                                                                                  
SENATOR  ELLIS:  Mr. Chairman,  I  know  you're  just one  in  the                                                              
process, but an important person  in this whole procedure.  Do you                                                              
have  any prediction  of how  long  the bill  that you  anticipate                                                              
working on  and the  hearings you  plan to hold,  do you  have any                                                              
prediction  for the rest  of us trying  to plan  our lives  of how                                                              
long  this,  how  long  would you  anticipate  taking  on  in  the                                                              
legislature?  Any idea?                                                                                                         
CHAIRMAN TAYLOR: I  really don't know.  I just don't  intend to do                                                              
the best job we can within the limited  time period we're probably                                                              
going to  have.  I don't foresee  us being given  the opportunity,                                                              
John, to have  much more than a day  or two.  And I  think at that                                                              
point, somebody  reaches  critical mass  and says, that's  enough.                                                              
And that's  the way  the process  works.    It's intended  to work                                                              
that way.  And  I'm sure it will continue.  It's  not my intent to                                                              
obstruct that  in any  way.  I'm  just holding  the hearing.   I'm                                                              
going to  continue to until  we have a  resolve, at least  in this                                                              
committee, as  to what  we're going to  do.  And  I'd like  to get                                                              
home much sooner  too.  I didn't want to go back  to Juneau in the                                                              
first place.   Is  that it?   I  want to thank  in particular  the                                                              
committee members  for taking the time  out of their lives  too to                                                              
be  there  with  us.    I appreciate  that  very  much.    We  are                                                              
adjourned.  [2:49 p.m.]                                                                                                         

Document Name Date/Time Subjects