Legislature(2003 - 2004)

03/09/2004 01:30 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 9, 2004                                                                                          
                           1:30 p.m.                                                                                            
                                                                                                                              
TAPE(S) 04-21                                                                                                                 
                                                                                                                                
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. 357                                                                                                             
"An  Act  relating  to the  regulation  of  insurance,  insurance                                                               
licenses, qualifications  of insurance producers,  surplus lines,                                                               
fraud  investigations,  electronic transactions,  and  compliance                                                               
with federal  law and  national standards;  and providing  for an                                                               
effective date."                                                                                                                
                                                                                                                                
     HEARD AND HELD                                                                                                             
                                                                                                                                
SENATE BILL NO. 350                                                                                                             
"An Act  relating to the four  dam pool joint action  agency; and                                                               
providing for an effective date."                                                                                               
                                                                                                                                
     MOVED CSSB 350(L&C) OUT OF COMMITTEE                                                                                       
                                                                                                                                
SENATE BILL NO. 323                                                                                                             
"An  Act relating  to a  project owner's  liability for  workers'                                                               
compensation  and the  exclusiveness  of  liability for  workers'                                                               
compensation."                                                                                                                  
                                                                                                                                
     MOVED SB 323 OUT OF COMMITTEE                                                                                              
                                                                                                                                
HOUSE BILL NO. 340                                                                                                              
"An Act  relating to  damages in  an action for  a defect  in the                                                               
design, construction,  and remodeling  of certain  dwellings; and                                                               
providing for an effective date."                                                                                               
                                                                                                                                
     SCHEDULED BUT NOT HEARD                                                                                                    
                                                                                                                              
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB 357                                                                                                                  
SHORT TITLE: INSURANCE                                                                                                          
SPONSOR(s): LABOR & COMMERCE                                                                                                    
                                                                                                                                
03/01/04       (S)       READ THE FIRST TIME - REFERRALS                                                                        
03/01/04       (S)       L&C, FIN                                                                                               
03/09/04       (S)       L&C AT 1:30 PM BELTZ 211                                                                               
                                                                                                                                
BILL: SB 350                                                                                                                  
SHORT TITLE: 4 DAM POOL JOINT ACTION AGENCY                                                                                     
SPONSOR(s): SENATOR(s) STEVENS G                                                                                                
                                                                                                                                
02/16/04       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/16/04       (S)       L&C, FIN                                                                                               
03/09/04       (S)       L&C AT 1:30 PM BELTZ 211                                                                               
                                                                                                                                
BILL: SB 323                                                                                                                  
SHORT TITLE: WORKERS COMPENSATION AND CONTRACTORS                                                                               
SPONSOR(s): SENATOR(s) SEEKINS                                                                                                  
                                                                                                                                
02/13/04       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/13/04       (S)       L&C, JUD                                                                                               
03/04/04       (S)       L&C AT 1:30 PM BELTZ 211                                                                               
03/04/04       (S)       Heard & Held                                                                                           
03/04/04       (S)       MINUTE(L&C)                                                                                            
03/09/04       (S)       L&C AT 1:30 PM BELTZ 211                                                                               
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
Ms. Linda Hall, Director                                                                                                        
Division of Insurance                                                                                                           
Department of Community & Economic Development                                                                                  
PO Box 110800                                                                                                                   
Juneau, AK 99811-0800                                                                                                           
POSITION STATEMENT: Supports SB 357.                                                                                          
                                                                                                                                
Mr. Thomas Lovas, Chief Executive Officer                                                                                       
Four-Dam Pool Power Agency                                                                                                      
Department of Revenue                                                                                                           
PO Box 110400                                                                                                                   
Juneau, AK  99811-0400                                                                                                          
POSITION STATEMENT:  Supports SB 350.                                                                                         
                                                                                                                                
Mr. Bob LeResche, Financial Advisor                                                                                             
Four-Dam Pool Power Agency                                                                                                      
703 W. Tudor, Suite 102                                                                                                         
Anchorage AK 99503                                                                                                              
POSITION STATEMENT: Commented on SB 350.                                                                                      
                                                                                                                                
Mr. Phil Eide                                                                                                                   
Counsel to the State Chamber of Commerce                                                                                        
217 Second St., Ste. 201                                                                                                        
Juneau AK 99801                                                                                                                 
POSITION STATEMENT: Commented on SB 323.                                                                                      
                                                                                                                                
Mr. Jack Miller                                                                                                                 
Counsel to the State Chamber of Commerce                                                                                        
217 Second St., Ste. 201                                                                                                        
Juneau AK 99801                                                                                                                 
POSITION STATEMENT: Commented on SB 323.                                                                                      
                                                                                                                                
Ms. Mary Shields, General Manager                                                                                               
Northwest Technical Services                                                                                                    
Anchorage AK                                                                                                                    
POSITION STATEMENT: Supports SB 323.                                                                                          
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 04-21, SIDE A                                                                                                            
                                                                                                                                
                        SB 357-INSURANCE                                                                                    
                                                                                                                                
CHAIR CON  BUNDE called  the Senate  Labor and  Commerce Standing                                                             
Committee meeting  to order  at 1:30  p.m. Present  were Senators                                                               
Gary Stevens, Ralph  Seekins, Hollis French and  Chair Con Bunde.                                                               
Senator  Bettye  Davis  arrived  at  1:40.  The  first  order  of                                                               
business to come before the committee was SB 357.                                                                               
                                                                                                                                
CHAIR BUNDE explained  that SB 357 is the  insurance omnibus bill                                                               
that ensures state consistency with  federal law and the National                                                               
Association  of  Insurance   Commissioners  (NAIC)  and  contains                                                               
reforms to  standards and guidelines.  It updates  procedures and                                                               
transactions  within  the  Division of  Insurance.  He  generally                                                               
summarized that it would:                                                                                                       
                                                                                                                                
     Provide   an   electronic  communications   opportunity                                                                    
     between  the Division  of  Insurance,  the public,  the                                                                    
     industry  and   other  regulators  with  the   goal  of                                                                    
     promoting efficiencies.  It has provisions  and changes                                                                    
     for reinsurance, contains  recommendations on licensing                                                                    
     revisions  that   have  been   suggested  by   an  NAIC                                                                    
     accreditation team. It changes  the liability for civil                                                                    
     damages when filing  reports concerning fraudulent acts                                                                    
     to a  person involved  in the prevention  and detection                                                                    
     of  fraudulent insurance  acts. It  contains provisions                                                                    
     that clarify  that a Guaranty Fund  deposit is required                                                                    
     for title  insurance companies and it  provides changes                                                                    
     to  tax  and  late  payments  to  make  penalties  more                                                                    
     consistent with  the Department of  Revenue's statutes.                                                                    
     It  includes penalties  for  surplus  line brokers  who                                                                    
     submit  late  payments  on  taxes.  In  general,  these                                                                    
     changes to  Title 21  will promote  consistency between                                                                    
     Alaska  and   other  states,  promote   more  efficient                                                                    
     operations and provide better public protection.                                                                           
                                                                                                                                
MS. LINDA  HALL, Director, Division  of Insurance,  Department of                                                               
Community & Economic  Development (DCED), said SB  357 deals with                                                               
changes to Title 21.                                                                                                            
                                                                                                                                
     The changes that we have  proposed in this bill are, we                                                                    
     feel,  necessary  to  keep Alaska  statutes  consistent                                                                    
     with some federal  law. There were a  number of changes                                                                    
     to   licensing   several   years  ago   to   meet   the                                                                    
     requirements  of the  Gramm-Leach-Bliley  Act and  with                                                                    
     model acts  and standards  of the  National Association                                                                    
     of  Insurance  Commissioners  (NAIC)....  Some  of  the                                                                    
     changes are  a result of the  accreditation process. We                                                                    
     are accredited by  the NAIC. Some are the  result of an                                                                    
     industry task  force and others are  just reflective of                                                                    
     what we think are good business practices....                                                                              
                                                                                                                                
     I  have   categorized  what  I   think  are   the  most                                                                    
     significant changes  into six categories.  [Indisc.] We                                                                    
     thought that  was appropriate. We did,  however, on the                                                                    
     other end in  each of those sections  include a $10,000                                                                    
     penalty  for  willful   violation  of  these  statutes.                                                                    
     [Indisc.]                                                                                                                  
                                                                                                                                
MS. HALL  explained that reinsurance  is basically  insurance for                                                               
insurance  companies and  if a  non-admitted [to  Alaska] insurer                                                               
takes  over the  insurance of  a domestic  insurer, the  division                                                               
needs to  be involved  in that.  That situation  typically occurs                                                               
when the state  has an insolvent insurer.  Further, she explained                                                               
that  there  were  changes  for   domestic  seeding  of  insurers                                                               
requiring  them  to be  licensed  in  the  state where  they  are                                                               
domiciled.                                                                                                                      
                                                                                                                                
SENATOR BETTYE DAVIS arrived at 1:40 p.m.                                                                                       
                                                                                                                                
MS. HALL stated  that sections 12 and 13 deal  with the licensing                                                               
of  a  reinsurer and  use  language  taken  from the  NAIC  model                                                               
regulation. She explained  that a number of years ago,  a pool of                                                               
life  insurers,  Unicover,   provided  reinsurance  for  workers'                                                               
compensation   coverage,  called   a  carve-out.   It  eventually                                                               
unraveled and  became insolvent. Out of  this situation, probably                                                               
the  most  important  activity  that really  came  to  light  for                                                               
regulators is  when they realized  life insurance  companies were                                                               
reinsuring  workers'  compensation  and weren't  licensed  to  do                                                               
that.                                                                                                                           
                                                                                                                                
     Section 12  sought to provide some  assurances that the                                                                    
     state  of  domicile  is aware  that  the  reinsurer  is                                                                    
     writing the workers' compensation  line of business and                                                                    
     does not object.                                                                                                           
                                                                                                                                
MS. HALL explained that the  financial statements and analyses of                                                               
life  insurance companies  are significantly  different from  the                                                               
financial statements and analyses  of property casualty insurers.                                                               
NAIC is the regulatory joint  body of regulators from each state.                                                               
They recently  recognized this  difference in  financial analyses                                                               
by  requiring  an  additional supplemental  financial  form  that                                                               
could be done with just a  letter. We're looking to make sure the                                                               
state of domicile  of domestic companies in  Alaska who currently                                                               
reinsure  portions   of  their  workers'  compensation   book  of                                                               
business is aware of that.                                                                                                      
                                                                                                                                
     We're certainly  not looking to  make a  statute change                                                                    
     that puts our domestic  companies at a disadvantage....                                                                    
     When the  workers' compensation is a  property casualty                                                                    
     line, we  want to make sure  they are aware so  they do                                                                    
     the additional  analysis that's required of  a property                                                                    
     casualty carrier.                                                                                                          
                                                                                                                                
MS. HALL explained further that:                                                                                                
                                                                                                                                
     The  other two  reinsurance sections,  sections 47  and                                                                    
     48, require  a filing approval  by the director  of the                                                                    
     reinsurance agreements.  We have had  several inquiries                                                                    
     about  this item  and  it  is my  intent  to work  with                                                                    
     industry in  changing the language.  We would  make the                                                                    
     requirement  to file  with the  director. We  would not                                                                    
     necessarily think we would have  to approve the company                                                                    
     insurance  agreement and  ... to  make the  reinsurance                                                                    
     agreements  confidential.  They are  proprietary;  they                                                                    
     are the  financial terms on which  an insurance company                                                                    
     purchases  their  insurance  and  we  do  think  that's                                                                    
     appropriate.                                                                                                               
                                                                                                                                
     In some  past financial  examinations, there  have been                                                                    
     difficulties   [in]    obtaining   signed   reinsurance                                                                    
     agreements.  We   are  willing  to  make   the  changes                                                                    
     necessary to  address the concerns of  industry, but we                                                                    
     also  need   to  meet  the   needs  of   our  financial                                                                    
     examiners. So,  we would like  to make sure that  we do                                                                    
     have  the  authority to  obtain  signed  copies of  the                                                                    
     reinsurance agreements. The reinsurance  is part of the                                                                    
     financial examination  to determine  the level  of risk                                                                    
     an   insurance  company   can  afford.   So,  I   would                                                                    
     anticipate bringing  some changes in language  for your                                                                    
     consideration.                                                                                                             
                                                                                                                                
CHAIR BUNDE asked when he could anticipate those changes.                                                                       
                                                                                                                                
MS. HALL replied that she had the language today. She would                                                                     
bring it to him for review. She continued her explanation:                                                                      
                                                                                                                                
     The   fourth  section   that  has   major  changes   is                                                                    
     licensing.  Over  the  years,  we have  tried  to  make                                                                    
     Alaska  licensing  consistent  with  the  rest  of  the                                                                    
     country.  There  are   some  federal  regulations  that                                                                    
     require us  to make certain  provisions so that  we are                                                                    
     reciprocal with  other states. We have  attempted to do                                                                    
     that -  [it] allows our  resident licensees to  be able                                                                    
     to obtain  licenses in  other areas  as well  as allows                                                                    
     non-residents to do business here.                                                                                         
                                                                                                                                
     Changes briefly - we will  add crop insurance, not that                                                                    
     we  have  a  lot  of that,  and  surety  licenses  that                                                                    
     currently  are not  licensed  sections.  They are  just                                                                    
     included  in the  property  casualty  licenses. We  are                                                                    
     proposing to eliminate trainee licenses  so that we are                                                                    
     consistent  with national  regulations. There  are very                                                                    
     few trainee licenses today and  we feel it's better for                                                                    
     someone to  study to become licensed  before they start                                                                    
     dealing with the public.                                                                                                   
                                                                                                                                
     We have  removed some language  that could  impose some                                                                    
     barriers for  what we call limited  lines license, bail                                                                    
     bonds and  - I'm  drawing a total  blank. Then  we have                                                                    
     statutory  language that  said  they  must. Their  sole                                                                    
     purpose  is to  be appointed  by an  insurance company.                                                                    
     It's  a  burden  that  we don't  think  is  appropriate                                                                    
     today.                                                                                                                     
                                                                                                                                
     We   have   some   sections  that   delete   additional                                                                    
     experience  requirements  that  are  inconsistent  with                                                                    
     federal  regulations   that  would  put  some   of  our                                                                    
     licensees at  a disadvantage  with other states  and we                                                                    
     are  also  requiring  that  surplus  lines  brokers  be                                                                    
     licensed as producers before they  can become a surplus                                                                    
     lines  broker.  These  changes,  again,  are  basically                                                                    
     consistent with  the National Producer  Model Licensing                                                                    
     Act and to bring Alaska into compliance with that.                                                                         
                                                                                                                                
     This section is  surplus lines. In the  summer of 2003,                                                                    
     we  had an  industry task  force that  met three  times                                                                    
     with the  Division of  Insurance staff  to look  at our                                                                    
     statutes and  our regulations.  That's the  practice of                                                                    
     surplus  lines business.  Surplus lines  business -  we                                                                    
     have two  kinds of insurance placements.  One is called                                                                    
     admitted  insurance  companies.  We regulate  them;  we                                                                    
     have to  approve their rates.  We approve  their forms;                                                                    
     they  jump  through  all the  hoops  to  be  considered                                                                    
     admitted insurers.  We have another group  of insurance                                                                    
     companies  who   for  various  reasons  choose   to  do                                                                    
     business  on  a  non-admitted  basis in  not  only  our                                                                    
     state,  but in  many states.  These are  called surplus                                                                    
     lines companies. It doesn't mean  that they are of less                                                                    
     value  or of  less financial  stability; it  just means                                                                    
     they have chosen to operate differently.                                                                                   
                                                                                                                                
     Because the  business of insurance is  so protected for                                                                    
     our   consumers,  there   are   special  statutes   and                                                                    
     regulations  that  tell  how   that  business  must  be                                                                    
     conducted.  There are  particular disclosures  that are                                                                    
     given; the business  just operates somewhat differently                                                                    
     than the traditional insurance  market that most people                                                                    
     are aware of.                                                                                                              
                                                                                                                                
     The producer  group that met this  summer with division                                                                    
     staff evaluated how Alaska works  and this included not                                                                    
     only Alaskan surplus lines brokers,  we also had people                                                                    
     come  to these  meetings from  Seattle where  a lot  of                                                                    
     Alaska business is written. So,  we had a fairly broad,                                                                    
     I felt,  representation of industry  to look at  how we                                                                    
     do business, how efficiently we work.                                                                                      
                                                                                                                                
     The  changes that  I would  highlight for  you in  this                                                                    
     particular  section  - one  would  allow  that for  the                                                                    
     placement  of health  insurance  in  the surplus  lines                                                                    
     arena,  if  we  had  a  health  insurance  crisis.  The                                                                    
     criteria,   and   there    are   some   fairly   strict                                                                    
     stipulations in  that section,  but the  basic criteria                                                                    
     [is] we  have to find  it in the public  interest. This                                                                    
     was done  at the  suggestion of the  Washington Surplus                                                                    
     Lines Brokers. A  number of years ago, there  was a lot                                                                    
     of  publicity when  Washington literally  had [indisc.]                                                                    
     surplus lines markets lines for  coverage. If you can't                                                                    
     find coverage in the traditional  market, you go to the                                                                    
     surplus  lines  market.  They suggested  we  make  this                                                                    
     statutory  provision that  should  we ever  get into  a                                                                    
     crisis situation, it would allow us some flexibility.                                                                      
                                                                                                                                
CHAIR BUNDE asked her how she would define a health insurance                                                                   
crisis.                                                                                                                         
                                                                                                                                
MS. HALL answered:                                                                                                              
                                                                                                                                
     We don't  define it  in statute, but  we talk  about in                                                                    
     the  public's   interest.  If   we  had   no  insurance                                                                    
     companies that  were willing to write  health insurance                                                                    
     here... It  can't be done  for competitive  reasons, it                                                                    
     can't be  done for pricing  reasons; it truly  would be                                                                    
     when we  found a  real need  in our  market. Typically,                                                                    
     surplus  lines  placements  are done  after  there's  a                                                                    
     diligent  search. In  the traditional  market, coverage                                                                    
     is not  available or  at least not  on the  same terms.                                                                    
     That's the  only way that  coverage can be placed  in a                                                                    
     surplus lines market.                                                                                                      
                                                                                                                                
CHAIR BUNDE inserted, "There is very likely a premium for those                                                                 
premiums."                                                                                                                      
                                                                                                                                
MS. HALL affirmed:                                                                                                              
                                                                                                                                
     Yes, there  is. They  typically are  more expensive....                                                                    
     Basically  - the  health insurance  example -  if there                                                                    
     were no or maybe one  health insurer left in the state,                                                                    
     and I would hate to think  we'd get there, but we don't                                                                    
     know what will  happen going forward. If  there were no                                                                    
     insurance companies  or maybe one that  refused to take                                                                    
     your  business,   we  still  have  the   ACHIA  [Alaska                                                                    
     Comprehensive  Health Insurance  Association] high-risk                                                                    
     pool. But, it would allow  the Division of Insurance to                                                                    
     make provisions for  a company that did  not today have                                                                    
     a  certificate  of  authority to  do  business  in  our                                                                    
     state,  but that  was  a stable  company,  that we  had                                                                    
     their  financial  statements  that  we  reviewed  their                                                                    
     rates.  We could  allow  them to  do  business in  that                                                                    
     circumstance.                                                                                                              
                                                                                                                                
SENATOR FRENCH asked if it was the lack of a certificate of                                                                     
authority that classified them as a surplus line.                                                                               
                                                                                                                                
MS. HALL replied that is correct. She continued her explanation:                                                                
                                                                                                                                
     Section 32 requires some changes  in the documents that                                                                    
     are  provided. Today,  in  our  statutory language,  we                                                                    
     have  requirements   to  produce  documents   from  the                                                                    
     surplus  lines of  a  broker to  the  insured that  are                                                                    
     practically impossible to meet.  It asks for everything                                                                    
     that would  be in  the policy  from every  exclusion to                                                                    
     every condition; and it's very  difficult to do that in                                                                    
     any  effective way.  We  do feel  that  the insured  is                                                                    
     entitled to  a document that outlines  all the material                                                                    
     parts  of  an  insurance  policy it  needs  and  we  do                                                                    
     specify in  the proposed statute the  pieces that would                                                                    
     have  to  be  there.  When   we  name  the  subject  of                                                                    
     insurance,  the  insurance  company,  the  premium  and                                                                    
     material exclusions coverage  limitations, we think the                                                                    
     insured   certainly  have   a   right   to  have   that                                                                    
     information prior to purchase of the insurance policy.                                                                     
                                                                                                                                
     There is also  a provision currently in  statute that a                                                                    
     policy is not binding and does  not have to be paid for                                                                    
     until the  insured gets the  notices that  are required                                                                    
     under  the surplus  lines statute  and notices  of what                                                                    
     those coverages are.                                                                                                       
                                                                                                                                
     The other section I would  like to point out is section                                                                    
     33, which  places responsibility on a  producing broker                                                                    
     as well as  the surplus lines broker for  notice to the                                                                    
     consumer  of  a  surplus   lines  placement.  There  is                                                                    
     statutory  language that  requires  the  insured to  be                                                                    
     notified  of the  fact and  we've  all become  familiar                                                                    
     with… solvencies and  the Guaranty Fund. It  has a much                                                                    
     different meaning today. There  is a requirement on any                                                                    
     surplus lines policy that there  is a stamp and type 10                                                                    
     print.  So  it's  a particular  size  that's  on  every                                                                    
     policy and notice is to  be given to every insured that                                                                    
     surplus lines  polices are not subject  to the Guaranty                                                                    
     Fund. So,  that is another difference,  Senator French,                                                                    
     with the surplus lines coverages.  They do not have the                                                                    
     protection  of  the   Guaranty  Association.  So,  this                                                                    
     notice requirement  requires the  producer, as  well as                                                                    
     the surplus  lines broker, to  give that notice  to the                                                                    
     consumer.                                                                                                                  
                                                                                                                                
CHAIR BUNDE asked her to differentiate between surplus lines and                                                                
reinsurance. "In essence, wouldn't my company basically go to                                                                   
surplus lines to reinsure?"                                                                                                     
                                                                                                                                
MS. HALL replied:                                                                                                               
                                                                                                                                
     No,  reinsurance  companies  actually can  be  admitted                                                                    
     insurance companies  in their state of  domicile with a                                                                    
     certificate  of  authority.  Some   of  them  are  from                                                                    
     countries  other  than  the United  States.  Those  are                                                                    
     called aliens - in case we  wanted to know that. We are                                                                    
     the  domestic company  if  they are  in  your state.  A                                                                    
     company that is domiciled in  another state is called a                                                                    
     foreign  insurer and  if they  are in  another country,                                                                    
     they  are an  alien  insurer. Many  of the  reinsurance                                                                    
     companies are domiciled in  European countries. So, the                                                                    
     reinsurance  is  the  insurance  companies'  insurance.                                                                    
     They write your $1,000 policy.  They retain - I'm using                                                                    
     really general figures - they  retain $100 of that risk                                                                    
     and  they reinsure  the  other  $900. That  reinsurance                                                                    
     counts as part of the financial [indisc.].                                                                                 
                                                                                                                                
CHAIR BUNDE said that the committee looked forward to working on                                                                
a CS that would incorporate the changes she wants in about two                                                                  
weeks.                                                                                                                          
                                                                                                                                
                                                                                                                                
             SB 350-4 DAM POOL JOINT ACTION AGENCY                                                                          
                                                                                                                                
CHAIR CON BUNDE announced SB 350 to be up for consideration.                                                                    
                                                                                                                                
SENATOR GARY STEVENS, sponsor, moved to adopt CSSB 350(L&C),                                                                    
version \D, for discussion purposes. There were no objections                                                                   
and it was so ordered.                                                                                                          
                                                                                                                                
SENATOR  GARY STEVENS  explained  that CSSB  350(L&C) allows  the                                                               
Four-Dam Pool Power  Agency to refinance a  substantial loan that                                                               
they  have  owed  to AIDEA  [Alaska  Industrial  Development  and                                                               
Export  Authority]  returning about  $73  million  to the  state,                                                               
which  the Legislature  could use  or redirect  AIDEA to  use. It                                                               
also provides  several technical  corrections in support  of this                                                               
financing that have  been requested by bond  counsel. It supports                                                               
refunding  money to  consumers by  lowering their  interest rates                                                               
and also  enhances the  options available  to the  Four-Dam Power                                                               
Agency concerning Interties and other activities.                                                                               
                                                                                                                                
MR. THOMAS  LOVAS, Chief Executive  Officer, Four-Dam  Pool Power                                                               
Agency, said  SB 350  is supported by  the five  communities that                                                               
participate in  it -  the City  of Kodiak  and its  environs, the                                                               
Valdez  Copper Valley  Basin area  and the  Cities of  Ketchikan,                                                               
Petersburg and Wrangell.                                                                                                        
                                                                                                                                
     These communities  all banded together, as  you recall,                                                                    
     in the  year 2000  and formed  the Four-Dam  Pool Power                                                                    
     Agency  with the  intent that  it would  be a  priority                                                                    
     provided  by  the  Legislature   to  acquire  the  four                                                                    
     hydroelectric  projects previously  owned by  the State                                                                    
     of   Alaska.   The   financing   of   that   particular                                                                    
     transaction was with the loan  from the State of Alaska                                                                    
     through   the  auspices   of   the  Alaska   Industrial                                                                    
     Development  and Export  Authority. It  provided for  a                                                                    
     multiple year's financing  vehicle for the acquisition.                                                                    
     The  funds were  a cash  transaction from  AIDEA, which                                                                    
     was  transferred ultimately  over into  the Power  Cost                                                                    
     Equalization  Program.  At  this  point  in  time,  the                                                                    
     utilities  and the  agency  representing the  utilities                                                                    
     have paid  down a  portion of  that debt;  the interest                                                                    
     rate is  at about  6.5 percent. What  we have  found in                                                                    
     the past year  of operation is that the  history of our                                                                    
     organization and our structure is  such that we can now                                                                    
     consider alternative  forms of financing  including the                                                                    
     ability to actually form a  bond sale of the tax-exempt                                                                    
     note  [indisc.]  to offset  that  high  cost note  with                                                                    
     AIDEA. We  understand that the structure  of the agency                                                                    
     was  established  as  a tax-exempt  authority  for  its                                                                    
     purposes in providing public  power for the communities                                                                    
     and the  members and we  would like to move  forward on                                                                    
     the process.                                                                                                               
                                                                                                                                
     The  technical corrections  we  have  requested to  the                                                                    
     enabling legislation in the formation  of the pool do a                                                                    
     couple of  things. It  provides a  technical correction                                                                    
     to  ensure  our ability  to  issue  tax-exempt debt  on                                                                    
     behalf  of these  communities  and  their citizens;  it                                                                    
     also  includes a  clarification of  our ability  to use                                                                    
     the  project as  an effective  security for  a mortgage                                                                    
     note  or any  other  vehicle that  we would  ultimately                                                                    
     come up  with under a refinancing  alternative. It also                                                                    
     insures that  the projects will  remain in  the service                                                                    
     of the  communities when they are  assigned as security                                                                    
     for this debt.                                                                                                             
                                                                                                                                
     As  Senator  Stevens  indicated, the  legislation  does                                                                    
     provide   a  potential   significant  savings   to  the                                                                    
     communities  on  a  lower  interest  rate  as  well  as                                                                    
     bringing  in a  significant  amount of  money into  the                                                                    
     hands of  AIDEA in  the refinancing of  that particular                                                                    
     note.                                                                                                                      
                                                                                                                                
     I  might mention,  also, that  the Four-Dam  Pool Power                                                                    
     Agency  passed a  resolution  in  its December  meeting                                                                    
     supporting  the  concept  of  refinancing  using  these                                                                    
     types  of  tax-exempt  bonds  and  we  appreciate  your                                                                    
     consideration of the technical  amendments to help that                                                                    
     promise come  true. That clarifies, I  hope, the intent                                                                    
     of the  legislation. I believe  it's a  very beneficial                                                                    
     piece of legislation that works  for the benefit of all                                                                    
     residents of the State of  Alaska, as well as providing                                                                    
     for the needs of the  Four-Dam Pool Power Agency. Thank                                                                    
     you very much.                                                                                                             
                                                                                                                                
CHAIR  BUNDE  commented  that refinancing  costs  money,  in  his                                                               
experience, and  asked him  why this  method of  financing wasn't                                                               
chosen initially.                                                                                                               
                                                                                                                                
MR. LOVAS replied  that he became employed by the  agency about a                                                               
year  and a  half  ago,  but his  understanding  is that  various                                                               
mechanisms were  looked at then,  but the agency didn't  have any                                                               
history and  the most expedient  form of acquiring  financing was                                                               
the note through AIDEA.                                                                                                         
                                                                                                                                
MR. BOB LERESCHE, Financial Advisor,  Four-Dam Pool Power Agency,                                                               
agreed  and said  the  agency had  no credit  when  it was  first                                                               
formed and these bonds have  been very costly, if not impossible,                                                               
to issue. He pointed out that  when AIDEA did this financing, the                                                               
interest  rate  of  6.5  percent  was good  for  credit  of  this                                                               
quality.  "Times have  changed and  the agency  can get  a better                                                               
deal  for  their ratepayers  and  at  the  same time  return  $73                                                               
million cash to AIDEA."                                                                                                         
                                                                                                                                
CHAIR BUNDE asked when the  Four-Dam Pool communities issue debt,                                                               
will the  full faith and credit  of the State of  Alaska still be                                                               
the ultimate backer of those bonds.                                                                                             
                                                                                                                                
MR.  LERESCHE  replied,  "No,  there  will  be  no  state  credit                                                               
backing, whatsoever, of these bonds."                                                                                           
                                                                                                                                
SENATOR HOLLIS  FRENCH asked  what the  likely new  interest rate                                                               
would be on financing of this nature.                                                                                           
                                                                                                                                
MR. LOVAS  replied that  interest rates  could potentially  go as                                                               
low as 5 percent, maybe less.  Two things would be necessary, one                                                               
would be to obtain an  appropriate credit rating from a registrar                                                               
of a grading agency  of credit and the other would  be to look at                                                               
potentially insuring the bonds with a relatively modest fee.                                                                    
                                                                                                                                
     We believe  in the  range of  4.8 or  5.0 percent  is a                                                                    
     reasonable expectation  for us, if we  can move forward                                                                    
     immediately and act in the  markets within a very short                                                                    
     period of time.                                                                                                            
                                                                                                                                
SENATOR FRENCH asked if this would be a mortgage or a bond.                                                                     
                                                                                                                                
MR. LERESCHE replied,  "It's a bond, but it might  well include a                                                               
mortgage as part of the credit."                                                                                                
                                                                                                                                
SENATOR FRENCH speculated that was  the hitch - that ownership of                                                               
the pool could fall into hands  outside the state, if it couldn't                                                               
meet its obligations.                                                                                                           
                                                                                                                                
MR. LERESCHE replied:                                                                                                           
                                                                                                                                
     I  guess theoretically  so. However,  when you  issue a                                                                    
     bond in the  open market as the agency  is intending to                                                                    
     do, nobody wants  to own the project.  It's just mostly                                                                    
     really a  psychological crutch to make  them think they                                                                    
     really  have control  over these  people if  they don't                                                                    
     pay them.  I might point  out as well that  the current                                                                    
     AIDEA loan  includes a mortgage just  as we contemplate                                                                    
     attaching to the new bond.                                                                                                 
                                                                                                                                
SENATOR FRENCH queried:                                                                                                         
                                                                                                                                
     If  you  were  to  refinance  the  total  amount  at  5                                                                    
     percent, what would  that do for the  debt service? How                                                                    
     much  would it  go down  and  what do  you expect  that                                                                    
     would  do,  if  you've  calculated it  to  the  average                                                                    
     homeowner's electric bill?                                                                                                 
                                                                                                                                
MR. LOVAS replied:                                                                                                              
                                                                                                                                
     We've  estimated  as  much  as  an  annual  savings  of                                                                    
     between  $800,000 to  $1,500,000  depending on  certain                                                                    
     implications of  the use of the  tax-exempt debt. There                                                                    
     are  some complications  having to  do with  securities                                                                    
     laws  on how  the tax-exempt  debt could  ultimately be                                                                    
     applied   among    the   municipalities    versus   the                                                                    
     cooperatives  and  it  affects the  total  net  savings                                                                    
     we're likely to  see. In any case, it's going  to be at                                                                    
     least that minimum sum then.                                                                                               
                                                                                                                                
     I haven't  quite measured  it all the  way down  to the                                                                    
     ratepayer, frankly, because I'm  looking at it from the                                                                    
     agencies' point  of view -  a wholesale power  sale. We                                                                    
     don't sell retail. We sell  as wholesale at the G&T for                                                                    
     power delivered  to the utilities  for resale  to their                                                                    
     ultimate customers.  The impact  can vary  depending on                                                                    
     what the retail rate of each  of my members is. But, in                                                                    
     any  case, that  reduces the  debt service  cost rather                                                                    
     significantly by  about upwards of $1.5  million and it                                                                    
     would  have  a  multiple percentage  reduction  in  our                                                                    
     wholesale power rate.                                                                                                      
                                                                                                                                
SENATOR FRENCH asked what current debt service costs per annum.                                                                 
                                                                                                                                
MR. LOVAS replied that the debt service now is about $6.5                                                                       
million per year.                                                                                                               
                                                                                                                                
CHAIR BUNDE thanked them for their testimony and said there were                                                                
no further comments to come before the committee on SB 350 today                                                                
and that he would hold it for a time.                                                                                           
                                                                                                                                
2:15 - 2:20 - at ease                                                                                                           
          SB 323-WORKERS COMPENSATION AND CONTRACTORS                                                                       
                                                                                                                                
CHAIR CON BUNDE announced SB 323 to be up for consideration.                                                                    
                                                                                                                                
SENATOR RALPH SEEKINS,  sponsor, said he felt the  same way about                                                               
a contractor's  responsibility now  as he did  when he  first had                                                               
the  bill  drafted. When  a  homeowner  hires a  professional  to                                                               
perform work,  they shouldn't have to  rise to the same  level of                                                               
professional responsibility  as a project owner.  A contractor in                                                               
the business  of building homes,  who hires subcontractors  to do                                                               
framing, plumbing and electrical work,  should bear that level of                                                               
responsibility because  of their professional  capabilities. That                                                               
is why homeowners are deliberately left out of the bill.                                                                        
                                                                                                                                
MR. PHIL EIDE, Counsel to  the State Chamber of Commerce, offered                                                               
to answer  questions on the  bill along with his  colleague, Jack                                                               
Miller, both from the firm of Eide, Miller & Pate.                                                                              
                                                                                                                                
CHAIR  BUNDE  pointed  out  that  E-mail  from  Mr.  Jack  Miller                                                               
discussed  how the  chain of  responsibility  from project  owner                                                               
through subcontractor would occur.                                                                                              
                                                                                                                                
     As I read this, it  expands the obligation for workers'                                                                    
     compensation  up to  the project  owner and  the people                                                                    
     below  them   that  may  or   may  not   have  workers'                                                                    
     compensation, but the buck stops  at the top. That's if                                                                    
     I understand it correctly.                                                                                                 
                                                                                                                                
MR. JACK MILLER,  Counsel to the State Chamber  of Commerce, said                                                               
that is  a correct interpretation  and this bill does  not affect                                                               
the  state  statute  that  requires  companies  to  get  workers'                                                               
compensation insurance.                                                                                                         
                                                                                                                                
TAPE 04-21, SIDE B                                                                                                            
                                                                                                                                
MR.  MILLER  said that  is  a  moot  point  in relation  to  this                                                               
legislation.                                                                                                                    
                                                                                                                                
MS. MARY SHIELDS, General  Manager, Northwest Technical Services,                                                               
said that she supports SB 323. She stated:                                                                                      
                                                                                                                                
     Workers' compensation, as we  all know, was established                                                                    
     to  cover workplace  injuries without  the  need of  an                                                                    
     employee to  file in  court for  just medical  and wage                                                                    
     compensation  occurred  at  the   job  site.  This  has                                                                    
     enabled employees  and employers to be  assured that if                                                                    
     the  employee  was injured  on  the  job, the  employee                                                                    
     would not  be abandoned  and we would  not end  up with                                                                    
     court  cases. However,  the increased  use of  contract                                                                    
     employees  in the  workplace has  left  an opening  for                                                                    
     additional    recoveries,    which   I    believe    is                                                                    
     inappropriate    except   in    the   most    egregious                                                                    
     circumstances.                                                                                                             
                                                                                                                                
     Northwest   Technical  Services   is   a  provider   of                                                                    
     personnel to a large variety  of companies in the State                                                                    
     of  Alaska.   It  is   our  responsibility   to  assure                                                                    
     appropriate  workers'   compensation  coverage   is  in                                                                    
     place.  It should  not also  be  our responsibility  to                                                                    
     cover tort liability lawsuits in  the event an employee                                                                    
     should  seek  action  against  a   client  based  on  a                                                                    
     workplace  injury,  as workers'  compensation  coverage                                                                    
     should extend  up the  line to  the client  company, as                                                                    
     well.                                                                                                                      
                                                                                                                                
     While there  may rest a  need in this law  to establish                                                                    
     an  exception  for   deliberate  negligence  action  or                                                                    
     inaction  in maintaining  a safe  workplace environment                                                                    
     by a  company, this  is a necessary  bill and  needs to                                                                    
     move  forward.  I  thank you,  Mr.  Chairman,  and  the                                                                    
     members of the committee for your time.                                                                                    
                                                                                                                                
CHAIR BUNDE asked  if anyone else in Juneau wanted  to testify on                                                               
SB  323. There  was no  response  and he  asked the  will of  the                                                               
committee.                                                                                                                      
                                                                                                                                
SENATOR  SEEKINS  moved  to  pass  SB  323  from  committee  with                                                               
individual recommendations and attached fiscal note.                                                                            
                                                                                                                                
SENATOR  FRENCH  objected  and  said that  he  thought  the  last                                                               
comment  from Mr.  Miller pointed  out  that this  bill would  do                                                               
nothing to increase the amount  of workers' compensation coverage                                                               
or  expand the  obligation  to procure  it and  it  takes away  a                                                               
workers' right to  sue a project owner for  unsafe conditions. "I                                                               
think that's  a bad exchange and  for that reason I'm  opposed to                                                               
that idea."                                                                                                                     
                                                                                                                                
SENATOR SEEKINS countered:                                                                                                      
                                                                                                                                
     It doesn't  change anything that  is there now,  but if                                                                    
     you look  at the last  part, if  they fail to  do so...                                                                    
     and  a contractor  or subcontractor  does not  have the                                                                    
     required insurance, a claim would  be covered under the                                                                    
     project owner's  policy - extending the  obligation for                                                                    
     paying workers'  compensation benefits for  an extended                                                                    
     worker  to  the  project  owner,  contractors  and  his                                                                    
     subcontractors.  That's the  intent of  the bill  and I                                                                    
     think it gives significant benefit to those people who                                                                     
     are on the job.                                                                                                            
                                                                                                                                
CHAIR BUNDE  asked for a  roll call vote. Senators  Gary Stevens,                                                               
Ralph  Seekins and  Chair  Con Bunde  voted  yea; Senator  Bettye                                                               
Davis  and  Hollis French  voted  nay;  and  SB 323  passed  from                                                               
committee.                                                                                                                      
                                                                                                                                
             SB 350-4 DAM POOL JOINT ACTION AGENCY                                                                          
                                                                                                                              
CHAIR  CON  BUNDE  announced  SB   350  to  be  back  before  the                                                               
committee.                                                                                                                      
                                                                                                                                
SENATOR RALPH  SEEKINS moved  to pass  CSSB 350(L&C),  version D,                                                               
from  committee  with  individual  recommendations  and  attached                                                               
fiscal note.                                                                                                                    
                                                                                                                                
SENATOR  HOLLIS  FRENCH asked  if  it  had another  committee  of                                                               
referral.                                                                                                                       
                                                                                                                                
CHAIR BUNDE  confirmed that it  went to  Finance. He asked  for a                                                               
roll  call  vote.  Senators Hollis  French,  Bettye  Davis,  Gary                                                               
Stevens, Ralph  Seekins and Chair  Con Bunde voted yea;  and CSSB                                                               
350(L&C) moved  from committee. There  being no  further business                                                               
to come before  the committee, Chair Bunde  adjourned the meeting                                                               
at 2:30 p.m.                                                                                                                    

Document Name Date/Time Subjects