Legislature(2003 - 2004)

03/06/2003 01:39 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
          SENATE LABOR AND COMMERCE STANDING COMMITTEE                                                                        
                         March 6, 2003                                                                                          
                           1:39 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Con Bunde, Chair                                                                                                        
Senator Ralph Seekins, Vice Chair                                                                                               
Senator Gary Stevens                                                                                                            
Senator Bettye Davis                                                                                                            
Senator Hollis French                                                                                                           
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 72                                                                                                              
"An Act extending the termination date of the Regulatory                                                                        
Commission of Alaska; and providing for an effective date."                                                                   
     MOVED CSSB 72(L&C) OUT OF COMMITTEE                                                                                        
PREVIOUS ACTION                                                                                                               
SB 72 - See Labor and Commerce minutes dated 2/25/03.                                                                           
WITNESS REGISTER                                                                                                              
Ms. Nan Thompson, Executive Director                                                                                            
Regulatory Commission of Alaska                                                                                                 
701 East Eighth Ave., Ste 300                                                                                                   
Anchorage AK 99501                                                                                                              
POSITION STATEMENT: Supported SB 72.                                                                                          
Ms. Pat Davidson                                                                                                                
Legislative Auditor                                                                                                             
Division of Legislative Budget and Audit                                                                                        
PO Box 113300                                                                                                                   
Juneau AK 99811-3300                                                                                                            
POSITION STATEMENT: Commented on SB 72.                                                                                       
Ms. Kristi Catlin                                                                                                               
AT&T Alascom                                                                                                                    
210 E. Bluff Dr.                                                                                                                
Anchorage AK 99501                                                                                                              
POSITION STATEMENT: Commented on SB 72.                                                                                       
ACTION NARRATIVE                                                                                                              
TAPE 03-9, SIDE A                                                                                                             
CHAIR CON  BUNDE called  the Senate  Labor and  Commerce Standing                                                             
Committee meeting to order at 1:39 p.m. Present were Senators                                                                   
Ralph  Seekins, Gary  Stevens, Bettye  Davis,  Hollis French  and                                                               
Chair Con Bunde.                                                                                                              
         SB  72-EXTEND REGULATORY COMMISSION OF ALASKA                                                                      
CHAIR CON BUNDE announced SB 72 to be up for consideration.                                                                     
MS. NAN  THOMPSON, Executive  Director, Regulatory  Commission of                                                               
Alaska  (RCA), said  she prepared  remarks to  respond to  issues                                                               
raised  at  the   last  meeting  and  to   provide  members  with                                                               
information about  the agency. She  supports the  governor's bill                                                               
that reauthorizes the  agency for four years.  She explained that                                                               
every state in the nation has  a regulatory agency to insure that                                                               
utility  services  are  available  at reasonable  prices  to  its                                                               
citizens.   Markets  transitioning   to   competition  are   very                                                               
different and  the RCA  assures that  services are  fairly priced                                                               
and reliable during and after transitions. She continued:                                                                       
     Timing  is everything  in this  process. The  utilities                                                                    
     want  less   regulatory  oversight  immediately   in  a                                                                    
     transitional market and  consumers are often frustrated                                                                    
     when  they can't  count on  us to  resolve billing  and                                                                    
     service  quality problems  with  the cellular  Internet                                                                    
     providers. We strive to  strike the appropriate balance                                                                    
     and  to constantly  adjust the  level of  regulation as                                                                    
     the markets develop.                                                                                                       
     Because  the  telecommunications   industry  and  their                                                                    
     lobbyists  have   played  out  the  "phone   wars,"  as                                                                    
     everyone  calls  them  in your  halls,  I'll  use  that                                                                    
     industry  as an  example and  try to  put some  of what                                                                    
     you've  been  hearing  from them  in  perspective.  The                                                                    
     reason there  is competition in  the telecommunications                                                                    
     industry is because in  1996 Congress...gave the states                                                                    
     enormous   responsibility  in   the   Telecom  Act   to                                                                    
     transition  monopoly  markets  to  competition  markets                                                                    
     because they recognized that markets  vary by state and                                                                    
     that  national rules  wouldn't get  the  job done.  The                                                                    
     larger local  markets in Alaska  are ahead of  the rest                                                                    
     of  the country  in the  transition to  competition. We                                                                    
     got  a  head  start  because  Ma  Bell  never  provided                                                                    
     service in Alaska. All the  state had to go through was                                                                    
     the telecommunications 271  process, the [indisc.] Act.                                                                    
     That  act  is designed  to  insure  that the  incumbent                                                                    
     carrier  network  is  open to  competitors  before  the                                                                    
     local company can enter  the long-distance business. We                                                                    
     skipped that step  and the three to five  years it took                                                                    
     most states  to complete  it and  went directly  to the                                                                    
     next   step,  which   is  arbitrating   interconnection                                                                    
     Just  after the  Telecom Act  was passed,  GCI filed  a                                                                    
     petition  for  interconnection  and  asked  us  to  set                                                                    
     prices for  leasing parts of the  incumbent's networks.                                                                    
     The APUC, as it was  then called, finished that process                                                                    
     even  before the  FCC adopted  regulations telling  the                                                                    
     state commissions  how to set prices.  The APUC's board                                                                    
     acknowledged  that  the  FCC  was  in  the  process  of                                                                    
     setting  national  pricing  rules  and  invited  either                                                                    
     party to  ask them to  revisit the results  after those                                                                    
     rules were clear. That request  has come in and the RCA                                                                    
     is  now  in  the  process of  redoing  prices  for  the                                                                    
     Anchorage market.                                                                                                          
     It's  important for  you to  know that  the controversy                                                                    
     you see  here about the appropriate  level of continued                                                                    
     regulation  and the  best way  to set  prices is  being                                                                    
     played out in almost every  state nationwide and in the                                                                    
MS. THOMPSON  said Verizon  took the argument  that the  FCC went                                                               
too  far  in leasing  its  network  to  competitors to  the  U.S.                                                               
Supreme  Court.   The  Supreme  Court  said   the  FCC  correctly                                                               
interpreted the  Telecom Act.  Verizon said  investment incentive                                                               
was being  destroyed, but the  court noted that  competitors were                                                               
making significant  investments. (Verizon v. FCC,  122 S.Ct.1646,                                                               
She explained that the FCC  defined the costing mechanism as what                                                               
it  would  cost for  another  efficient  carrier to  replace  the                                                               
incumbent's network with the best  available technology, not what                                                               
the  incumbent  spent  or  would spend  to  rebuild  an  existing                                                               
network. Costs  are very  different than  regulators historically                                                               
thought them to be.                                                                                                             
SENATOR HOLLIS FRENCH asked if this relates to testimony the                                                                    
committee heard last week.                                                                                                      
MS.  THOMPSON explained  the testimony  the committee  heard last                                                               
week was  about costs. The  Supreme Court opinion  also addressed                                                               
that subject  and paralleled some  arguments the  committee heard                                                               
last week. She continued with her statement:                                                                                    
     The agency's appeal record tells  you that we are doing                                                                    
     our  job well.  As an  administrative agency,  we don't                                                                    
     make the  law; we apply it.  If we are not  applying it                                                                    
     correctly,  parties  may  appeal to  state  or  federal                                                                    
     court  and ask  them to  set us  straight. The  RCA has                                                                    
     issued  hundreds of  final orders  since we  started in                                                                    
     July  1999. So  far,  sixteen have  been appealed.  The                                                                    
     agency's   decisions  have   not  yet   been  reversed,                                                                    
     although  there are  several  appeals  pending. In  one                                                                    
     case the court remanded a  case to us with instructions                                                                    
     to hold  a hearing before  making a decision,  but none                                                                    
     have  reversed  a   substantive  decision.  That  track                                                                    
     record  should  tell  you   that  we  are  successfully                                                                    
     analyzing  the  facts  presented   to  us  and  issuing                                                                    
     decisions  that are  consistent  with legal  precedents                                                                    
     and  supported by  the  facts in  the  record. We  make                                                                    
     decisions  based   on  evidence  presented   through  a                                                                    
     process  designed to  insure that  all parties'  rights                                                                    
     are protected, not on rhetoric.                                                                                            
     Consumers win  when there is competition.  I agree with                                                                    
     Mike Felix when he told  you last week that competition                                                                    
     serves  the customer  well. You  need  look no  further                                                                    
     than your own  phone bill for evidence.  Your local and                                                                    
     long distance rates are low  and you have the option to                                                                    
     purchase  many   additional  services  that   were  not                                                                    
     available five years ago. I  hope that competition will                                                                    
     soon bring high-speed Internet  access to all residents                                                                    
     of the state of Alaska.                                                                                                    
     The  RCA   does  more  than   settle  phone   wars.  We                                                                    
     administer the  Power Cost Equalization  Program (PCE).                                                                    
     We are reviewing  our PCE regulations in  response to a                                                                    
     resolution  from ARECA  to improve  the reliability  of                                                                    
     the information  we use to  administer the  program and                                                                    
     to   increase   efficiency    amongst   the   program's                                                                    
     beneficiaries.  We   also  review  tariff   prices  for                                                                    
     pipelines   to   insure   that  those   who   ship   to                                                                    
     destinations in  Alaska pay just and  reasonable rates.                                                                    
     We also review costs  incurred by providers of monopoly                                                                    
     services - water,  sewer, electric and gas  - to insure                                                                    
     that customers pay  a fair price for  the services they                                                                    
     receive.  We  set  rules  in  other  markets  that  are                                                                    
     transitioning to  competition, such  as refuse  in some                                                                    
     parts  of  the  state  and  the  long  distance  market                                                                    
     statewide. We  just finished modifying  our regulations                                                                    
     to  make  it easier  for  long  distance carriers  that                                                                    
     serve only  a small  part of the  market to  sell their                                                                    
     services to Alaskan consumers.                                                                                             
     Our  regulatory oversight  changes  as markets  change.                                                                    
     Knowledge of  the way service is  provided is important                                                                    
     to  regulating it  correctly.  In  the local  telephone                                                                    
     markets,  as  soon  as a  competitor  has  entered  the                                                                    
     market we allow the incumbent  to lower their prices in                                                                    
     response    to    market   pressures    without    cost                                                                    
     justification. It  is only rate increases  that must be                                                                    
     supported by  financial proof before they  are allowed.                                                                    
     The rules for  how much notice a  long distance carrier                                                                    
     has to give  the RCA and its customer are  eased when a                                                                    
     competitor enters the market.                                                                                              
     Responsible  deregulation  is   a  moving  target.  The                                                                    
     standards  for   when  less  regulatory   oversight  is                                                                    
     required vary by industry and  market. It is our job to                                                                    
     figure  out  the  complexities  and  best  options.  We                                                                    
     carefully review  any petitions by utilities  to remove                                                                    
     unnecessary regulatory requirements.  I look forward to                                                                    
     seeing Alascom's  effort to define market  dominance. I                                                                    
     look forward to seeing their  proposal on that. We will                                                                    
     need  to  carefully balance  their  desire  to be  less                                                                    
     regulated  in competitive  markets with  the fact  that                                                                    
     they provide  the only  telecommunications link  to the                                                                    
     rest of the state for many of our rural communities.                                                                       
     I  offer a  few final  notes  to respond  to things  we                                                                    
     heard last  week and others. First,  about the infamous                                                                    
     backlog -  it is  gone. The  chart I  distributed shows                                                                    
     the change  since 1999, which  has been  dramatic. This                                                                    
     was accomplished with  a lot of hard  work by dedicated                                                                    
     staff   and   commissioners.   Our  caseload   is   now                                                                    
     stabilized with  around 200 open  dockets. We  have met                                                                    
     the deadlines imposed by the  Legislature last year. We                                                                    
     hope  to be  able to  focus  on some  of the  important                                                                    
     policy issues  that arise  in markets  transitioning to                                                                    
     competition this  year. We have  an open  proceeding on                                                                    
     changes to the competitive local market rules.                                                                             
     Second, our budget  - all of the money used  by the RCA                                                                    
     comes from  utility ratepayers through  regulatory cost                                                                    
     charges. We get no general fund money.                                                                                     
     Third, the reports you got  last week - the legislative                                                                    
     auditor spent time  in our office and  is familiar with                                                                    
     our mission. I  commend their report to  you. The study                                                                    
     that   was   commissioned    by   the   Department   of                                                                    
     Administration  has  some  helpful  background  on  the                                                                    
     telecommunications industry in  our state. The recently                                                                    
     released   Darby   report   is  the   work   of   three                                                                    
     individuals,   not  the   seven  contemplated   by  the                                                                    
     statute, and  did not include  any input from  the RCA.                                                                    
     It can  hardly be called  a comprehensive study  of the                                                                    
     agency  when  they didn't  speak  to  us. Many  of  the                                                                    
     recommendations are  for actions  that we  have already                                                                    
     begun   that  the   author   could   have  learned   by                                                                    
     researching on our website.                                                                                                
     I encourage you  to let this agency continue  to do its                                                                    
     job.  Participation   in  the   sunset  reauthorization                                                                    
     process is  time-consuming for the agency  and detracts                                                                    
     from our  ability to handle cases.  The Legislature has                                                                    
     the option  any year  to redirect  our mission.  I urge                                                                    
     you to reauthorize the agency  for four years so we can                                                                    
     get back to work.                                                                                                          
CHAIR BUNDE asked if she thought the RCA should be split up to                                                                  
deal with different industries.                                                                                                 
MS. THOMPSON acknowledged that the idea was discussed last year,                                                                
but the determination was that the RCA wouldn't be as efficient                                                                 
as they are now. She added:                                                                                                     
     Even  though  we're  regulating  different  industries,                                                                    
     we're still  doing basically the  same thing,  which is                                                                    
     understanding how  a utility's cost  structure operates                                                                    
     and how  they provide  services to customers.  What you                                                                    
     would  lose  is the  efficiencies  that  we see  across                                                                    
     different  industries.... In  our  state sometimes  the                                                                    
     utilities  themselves  offer  more  than  one  type  of                                                                    
     service....  Alaska   Power  Telephone   provides  both                                                                    
     telephone and electric....                                                                                                 
CHAIR BUNDE  highlighted the fact  that the RCA does  not operate                                                               
on  general fund  money and  it's the  Legislature's job  to make                                                               
sure it is as efficient as possible.                                                                                            
SENATOR  RALPH  SEEKINS  noted  that  Mr.  Felix  testified  that                                                               
although  AT&T  is still  considered  the  dominant carrier,  its                                                               
long-distance market is shrinking while  GCI has 46 to 48 percent                                                               
of the  long-distance business and  it is growing. He  then asked                                                               
Ms. Thompson for her definition of a dominant carrier.                                                                          
MS.  THOMPSON replied  that it's  important to  distinguish which                                                               
long  distance  market   Mr.  Felix  was  talking   about  -  the                                                               
intrastate or the  interstate - because the  RCA has jurisdiction                                                               
over  one  and the  FCC  has  jurisdiction  over the  other.  She                                                               
pointed out  that the  FCC is  in the process  of looking  at its                                                               
rules for  dominant and non-dominant  carriers as well.  She then                                                               
advised  that her  definition might  relate to  market share  and                                                               
with who owns the equipment over which the service is provided.                                                                 
SENATOR SEEKINS said  that AT&T is still  considered the dominant                                                               
carrier  despite  a four-year  attempt  to  get relief  from  the                                                               
regulation at  the RCA.  He asked  if the RCA  tried to  define a                                                               
dominant carrier.                                                                                                               
MS.  THOMPSON replied  that  she thought  Mr.  Felix was  talking                                                               
about the  proceeding that  has been pending  before the  FCC for                                                               
four  years. It  has to  do with  a waiver  of certain  tariffing                                                               
reforms that the  FCC imposes because of  their dominance. Before                                                               
last year's statutory  change that prevents the  RCA from talking                                                               
to the carriers,  AT&T Alascom filed a petition  [before the FCC]                                                               
for waiver  of certain tariffing requirements.  The RCA initially                                                               
objected, as did  GCI. The FCC encouraged  all interested parties                                                               
to talk and the RCA is  doing that through a more formal process.                                                               
She  said the  FCC  hasn't  had a  proceeding  open  to change  a                                                               
dominant/non-dominant rule for four years.                                                                                      
SENATOR  SEEKINS  asked if  she  was  saying  that Mr.  Felix  is                                                               
confused and there has been no effort to try to change this.                                                                    
MS. THOMPSON opined  that one of them is confused.  The RCA had a                                                               
proceeding that  closed three or  four months ago that  looked at                                                               
the  inter-exchange market  carrier  rules, and  that might  have                                                               
contained some issues related to the ones he brought up.                                                                        
SENATOR SEEKINS stated that that's why he is confused.                                                                          
MS. PAT DAVIDSON, Legislative Auditor, joined the committee.                                                                    
CHAIR  BUNDE asked  if a  two-year extension  is for  a full  two                                                               
years  or whether  the  RCA  would begin  to  perform its  sunset                                                               
activities after the first year.                                                                                                
MS. DAVIDSON explained  that if the commission is  extended for a                                                               
two-year period,  it wouldn't  go into  the wind-down  year until                                                               
2006.  She  continued,  "So,  it  would  be  two  full  years  of                                                               
operation, plus the additional one year wind down."                                                                             
She agreed  with Senator Bunde  that the same thing  would happen                                                               
with a four-year term.                                                                                                          
CHAIR BUNDE  said some  changes have taken  place within  the RCA                                                               
since the  audit and  asked Ms. Davidson  if she  would recommend                                                               
the two-year extension if the audit were performed today.                                                                       
MS. DAVIDSON  replied that she  recommended a  two-year extension                                                               
because she was  unable to give the committee a  feel for how the                                                               
changes  are taking  place  and impacting  the  utilities or  the                                                               
public.  She added  that a  process is  in place  for the  RCA to                                                               
report  on the  timelines it  missed  and that  process could  be                                                               
enhanced as a way of keeping track of the RCA's progress.                                                                       
SENATOR THERRIAULT said the committee  wants to be mindful of the                                                               
resources  the LBA  expends  and  asked if  they  talked about  a                                                               
shorter date.                                                                                                                   
MS. DAVIDSON  said it would  take at  least two years  before LBA                                                               
could evaluate  any changes. She  suggested considering  a change                                                               
in the  scope of the  audit, but she did  not think LBA  would be                                                               
able to  answer the big  questions that  might come up  until the                                                               
changes have  been in place for  some time. She pointed  out that                                                               
the LBA's 2003 workload is heavy  compared to other years and she                                                               
suggested  that an  alternative  would be  an enhanced  reporting                                                               
system  so the  Legislature  could look  at  and have  additional                                                               
measures of potential impact.                                                                                                   
SENATOR  THERRIAULT asked  if  it would  help  balance the  LBA's                                                               
workload to have the extension for three years.                                                                                 
MS. DAVIDSON  replied that would  be fine,  but she wanted  to be                                                               
sure  the  Legislature  is  kept informed,  because  the  RCA  is                                                               
undergoing significant changes.                                                                                                 
CHAIR BUNDE announced an at-ease from 2:13 to 2:17 p.m.                                                                         
MS. KRISTI CATLIN, Director of Government Relations, AT&T                                                                       
Alascom, clarified three points:                                                                                                
     First, the  market share of  42 percent was  taken from                                                                    
     the  telecommunications  study  and although  it's  not                                                                    
     stated   explicitly   in   the   study,   it   is   our                                                                    
     understanding  that this  is a  statewide market  share                                                                    
     that  includes both  intrastate  and interstate  inter-                                                                    
     exchange long  distance operations.  For clarification,                                                                    
     our  intrastate   market  share  is   approximately  47                                                                    
     percent for intrastate only.                                                                                               
     The second point of clarification  is that a man made a                                                                    
     comment that dominance is linked  to the requirement to                                                                    
     provide  service to  a community,  which it  is in  the                                                                    
     statute. The language that we  have drafted and that is                                                                    
     currently  being reviewed  internally would  explicitly                                                                    
     retain  the  carrier   of  last  resort  responsibility                                                                    
     unless  or until  the RCA  would decide  otherwise. The                                                                    
     carrier of last  resort responsibility requires Alascom                                                                    
     to  provide service  to every  community in  the state.                                                                    
     So, our definition of dominance would not affect that.                                                                     
     And then,  finally, the proceeding  that Mr.  Felix was                                                                    
     referring to was  an RCA proceeding. It  was the market                                                                    
     structure  proceeding. It  addressed dominance  and the                                                                    
     commission  found  that  we  had  not  provided  enough                                                                    
     information to make  a ruling on that at  the time. The                                                                    
     proceeding was  closed in  April of  last year.  And if                                                                    
     you  have any  questions, I  would be  happy to  answer                                                                    
CHAIR BUNDE thanked her for sharing her views and announced that                                                                
the committee members had an amendment before them.                                                                             
SENATOR SEEKINS moved amendment 1 that would delete "2007" and                                                                  
insert "2006" on page 5, line 1. That would result in a three-                                                                  
year extension of the sunset for the RCA.                                                                                       
SENATOR DAVIS objected for the purpose of discussion. She asked                                                                 
for his rationale.                                                                                                              
SENATOR SEEKINS explained that if the auditors don't have enough                                                                
information to evaluate the RCA then he is nervous about trying                                                                 
to substitute his lack of information for their complete audit.                                                                 
SENATOR DAVIS said she appreciates  his concern, but she couldn't                                                               
see where  three years  would make that  much difference  and the                                                               
same thing could be said  of a four-year extension. The telephone                                                               
companies that  are complaining about  the RCA have made  it seem                                                               
like there's a war between  the companies. She opined that Alaska                                                               
should have  as many  telephone utilities  as the  population can                                                               
afford. If the phone companies  are having problems, they need to                                                               
work them out. She supported  the governor's recommendation for a                                                               
four-year extension.                                                                                                            
SENATOR SEEKINS responded that it  wasn't the telephone wars that                                                               
brought  him to  his decision.  Eric  Yould, of  ARECA, told  the                                                               
committee that  the RCA  has serious  problems that  involve time                                                               
process encumbrances and he recommended a one-year extension.                                                                   
SENATOR DAVIS  reminded Senator  Seekins that he  was not  in the                                                               
Legislature   last  year,   at   which   time  some   legislators                                                               
recommended that  the RCA be  sunsetted altogether. She  said the                                                               
Legislature  couldn't solve  the telecommunication  problems, but                                                               
the RCA could if it is given the opportunity.                                                                                   
CHAIR BUNDE said  he is inclined to reach a  compromise, but what                                                               
solidified  the  issue  for  him  is  that  he  doesn't  want  to                                                               
overburden  the  RCA  and  in  two years  the  RCA  will  have  a                                                               
significant challenge  reviewing numerous utilities. He  asked if                                                               
there was continued objection to amendment 1.                                                                                   
SENATOR DAVIS maintained her objection.                                                                                         
CHAIR  BUNDE  called for  a  roll  call vote.  Senators  Stevens,                                                               
Seekins, French  and Bunde  voted in  favor; Senator  Davis voted                                                               
against and amendment 1 was adopted.                                                                                            
SENATOR SEEKINS  motioned to  pass CSSB  72 (L&C)  from committee                                                               
with  individual recommendations  and the  attached fiscal  note.                                                               
Chair Bunde  asked for  a roll  call vote  and the  motion passed                                                               
with all members voting in favor.                                                                                               
CHAIR BUNDE adjourned the meeting at 2:30 p.m.                                                                                  

Document Name Date/Time Subjects