02/11/2010 02:00 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB227 | |
| SB205 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 205 | TELECONFERENCED | |
| *+ | SB 227 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
February 11, 2010
2:06 p.m.
MEMBERS PRESENT
Senator Joe Paskvan, Chair
Senator Joe Thomas, Vice Chair
Senator Kevin Meyer
Senator Con Bunde
MEMBERS ABSENT
Senator Bettye Davis
COMMITTEE CALENDAR
SENATE BILL NO. 227
"An Act relating to public accounting; and providing for an
effective date."
MOVED SB 227 OUT OF COMMITTEE
SENATE BILL NO. 205
"An Act relating to the power of the Regulatory Commission of
Alaska to fix rates after an investigation and hearing."
HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 227
SHORT TITLE: PUBLIC ACCOUNTING
SPONSOR(s): SENATOR(s) PASKVAN
01/19/10 (S) READ THE FIRST TIME - REFERRALS
01/19/10 (S) L&C, FIN
02/11/10 (S) L&C AT 2:00 PM BELTZ 105 (TSBldg)
BILL: SB 205
SHORT TITLE: RCA RATE CHANGE
SPONSOR(s): SENATOR(s) WIELECHOWSKI, FRENCH
01/19/10 (S) PREFILE RELEASED 1/8/10
01/19/10 (S) READ THE FIRST TIME - REFERRALS
01/19/10 (S) L&C, FIN
01/19/10 (S) SPONSOR SUBSTITUTE INTRODUCED-REFERRALS
01/19/10 (S) L&C, FIN
02/11/10 (S) L&C AT 2:00 PM BELTZ 105 (TSBldg)
WITNESS REGISTER
JAKE HAMBURG
Staff to Senator Paskvan
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Commented on SB 227 for the sponsor.
JULIE OLSON, President
Alaska Society of CPAs
POSITION STATEMENT: Supported SB 227.
LISA ROGERS
Alaska Society of CPAs
POSITION STATEMENT: Supported SB 227.
MAX MERTZ, CPA
Representing himself
Juneau, AK
POSITION STATEMENT: Supported SB 227.
SENATOR WIELECHOWSKI
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Sponsor of SB 205.
TIM MCCLOUD, President and General Manager
Alaska Electric Light and power (AEL&P)
Juneau, AK
POSITION STATEMENT: Opposed SB 205.
JAN WILSON, Commissioner
Regulatory Commission of Alaska (RCA)
POSITION STATEMENT: Answered questions on SB 205 and stated no
position.
RICH GAZAWAY, Staff
Regulatory Commission of Alaska (RCA)
POSITION STATEMENT: Answered questions on SB 205 and stated no
position.
MATT WALLACE
Alaska Public Interest Research Group (AKPIRG)
POSITION STATEMENT: Supported SB 205.
BOB GRIMM, President and CEO
Alaska Power and Telephone
POSITION STATEMENT: Opposed SB 205.
PAT LUBY, Advocacy Director
AARP-Alaska
POSITION STATEMENT: Supported SB 205.
ACTION NARRATIVE
2:06:28 PM
CHAIR JOE PASKVAN called the Senate Labor and Commerce Standing
Committee meeting to order at 2:06 p.m. Present at the call to
order were Senators Bunde, Meyer, Thomas and Paskvan. Senator
Davis was excused.
SB 227-PUBLIC ACCOUNTING
2:07:12 PM
CHAIR PASKVAN announced SB 227 to be up for consideration.
JAKE HAMBURG, staff to Senator Paskvan, sponsor of SB 227, said
that he and Senator Paskvan worked closely with the State Board
of Public Accountancy and the Alaska Society of Certified Public
Accountants in developing this bill and it enjoys their full
support. He said SB 227 updates Alaska's uniform accountancy
statutes to keep up with today's business demands and the needs
of the accounting profession. Forty-five states have already
enacted some version of this bill that simply does three things.
The first is that it establishes mobility provisions to allow
licensed certified public accountants (CPAs) from other states
to practice certain functions within Alaska without unnecessary
filings, forms and fees. Mr. Hamburg explained that this will
allow Alaska CPAs to practice in other states without the same
hassles due to reciprocity requirements by some of those states.
He said this provision allows consumers or clients to receive
timely services from CPAs best suited to the job regardless of
their location, without the hindrances of unnecessary filings,
forms, and increased costs that do not protect the public
interest.
2:09:49 PM
Second, this bill updates Alaska's uniform accountancy statutes
to allow for simple majority ownership by CPAs of CPA firms. The
accounting profession has changed over the past several years,
as has the composition of today's typical CPA firms, he
explained. Non-CPA professionals who enhance accountants'
abilities to serve their clients, such as lawyers, computer
information specialists or consultants, now work for accounting
firms. Additionally, modern audits require input from and
participation by many different types of professions and
professionals in addition to CPA auditors. To maintain an
experienced multi-disciplinary audit force, firms need to be
able to offer ownership to different types of professionals.
Ownership can also be used to attract and retain talented
individuals that would be invaluable to a CPA firm.
MR. HAMBERG stated that competition for talented employees is
more intense than ever especially in an accounting firm and with
the current law non-CPA professionals cannot become partners.
Alaska CPA firms can have a tougher time hiring and retaining
these non-CPAs because they often have little incentive to make
a long-term commitment to them.
2:11:07 PM
Third, he said, this bill enhances the board's ability to
protect the public's interest by directing it to investigate a
complaint made by the accountancy regulatory body of another
state. It adds a fair way to take corrective action regarding
ownership by making it a basis for board action. It also
provides that persons with practice privileges, out-of-state
permits, or out-of-state exemptions and legal entities that hire
individuals with practice privileges consent to the jurisdiction
and disciplinary authority of the board. He said it will also
insure that CPA firms in Alaska are able to provide the best
services to their clients and remain competitive with their
peers from outside of Alaska.
2:12:32 PM
SENATOR BUNDE said this seems to be a common-sense improvement
of business and asked if he had heard of any "push-back."
MR. HAMBURG replied no.
2:13:14 PM
JULIE OLSON, President, Alaska Society of CPAs, said the Society
passed a resolution supporting SB 227.
2:14:10 PM
CHAIR PASKVAN asked if this does everything the Society wants it
to.
MS. OLSON replied yes.
2:14:37 PM
SENATOR THOMAS asked what percent of the accounting firms in
Alaska belong to the Society.
MS. OLSON replied a majority of the accounting firms here, and
the State Society has about 500 members.
2:15:26 PM
SENATOR THOMAS remarked that he didn't want to pass this lengthy
bill that seems innocuous and then have his phone "ring off the
hook" the next day about the legislature giving opportunities to
out-of-state firms.
MS. OLSON said the Society made every effort to make sure all
the CPAs in the state are aware of this through their newsletter
and they hadn't heard of any opposition to it.
2:16:09 PM
LISA ROGERS, Alaska Society of CPAs, supported SB 227. She said
it aligns Alaska statutes with three provisions set forth in the
Uniform Accountancy Act, which is model legislation drafted by
the National Association of State Boards of Accountancy (NASBA)
and the American Institute of Certified Public Accountants
(AICPA). She said the NASBA represents the regulators and is an
organization to which the boards of accountancy in all licensing
jurisdictions in the country belong. The AICPA represents the
profession and sets forth the professional standards to which
all CPAs must adhere. Although SB 227 is 21 pages long, it
accomplishes three things: mobility, uniform disciplinary
proceedings and a simple majority CPA ownership of firms. Forty-
five other states have already passed this legislation.
MS. ROGERS said they have spent over two years working on
drafting the legislation with the help of NASBA and AICPA. Both
the State Board of Public Accountancy and the Alaska Society of
CPAs have passed unanimous resolutions in support of legislation
that accomplishes these objectives and she knows of no
opposition to it. She urged passing it quickly, so Alaska can be
in sync with the rest of the nation.
2:18:25 PM
MAX MERTZ, CPA, Juneau, said he has been on the Board of Public
Accountancy for six years, and was chair for four years ending
in 2009. It was during his term as chair that the mobility and
firm ownership idea came to the state and this bill was
developed. He said the Board of Accountancy takes its mission of
regulating the accounting profession in Alaska and protecting
the public interest very seriously. One of the chief challenges
it has is to be able to effectively pursue licensees from other
states that come to Alaska but don't properly serve their
clients.
He explained that out-of-state practice becomes more common-
place in the electronic age. Prior to the mobility initiative in
2007, each state had its own rules for out-of-state licensees to
provide services in other states and for states to carry through
and enforce actions on Boards of Accountancy in other states.
This resulted in inefficient systems that are difficult to
navigate making further compliance and enforcement nearly
impossible.
With mobility, he said, the Alaska Board of Accountancy will
gain automatic jurisdiction over all CPAs practicing in the
state. This will enable the board to discipline out-of-state
licensees whether they are registered in Alaska and licensed or
not. The mobility bill can be likened to a driver's license that
will provide CPAs with mobility to practice in other states than
their home state while retaining and strengthening the state
board's ability to protect the public interest. Certainly, it's
only successful if it's passed in all the states and now three
of the remaining five have legislation pending and the other two
expect to have legislation very shortly. Likewise, Mr. Mertz
said he had heard of no opposition to the bill.
2:21:43 PM
CHAIR PASKVAN asked if this statute gives Alaska jurisdiction to
discipline potential violations of the standard in other states.
MR. MERTZ replied yes.
2:22:29 PM
CHAIR PASKVAN closed public testimony and noted the zero fiscal
note.
2:22:38 PM
SENATOR MEYER moved to report SB 227 from committee with
individual recommendations and the attached zero fiscal note.
There were no objections and it was so ordered.
2:23:41 PM
At ease
2:26:42 PM
CHAIR PASKVAN called the meeting back to order at 2:26 p.m.
SB 205-RCA RATE CHANGE
2:27:03 PM
CHAIR PASKVAN announced SB 205 to be up for consideration.
2:27:45 PM
SENATOR WIELECHOWSKI, sponsor of SB 205, said this bill tells
the RCA in statute that it may not compensate a for-profit
public utility for its negligent conduct, recklessness, or
intentional violation of the law. For-profit utilities are
operating monopolies; therefore, if allowed to recoup from
reckless behavior, a for-profit utility has no incentive to be
efficient or to act as a reasonable or prudent company because
if a utility makes a mistake, the consumer can't go down the
street to another utility because they have a regulated
monopoly. This bill encourages efficiency and encourages
utilities to act in a reasonable and prudent manner that will
ultimately keep costs down and protect the consumers of the
State of Alaska. He said SB 205 has a zero fiscal note.
SENATOR THOMAS asked for an example of a case like this.
2:29:51 PM
SENATOR WIELECHOWSKI answered that he knew of a highly
publicized incident, but essentially a company could
intentionally be violating the law, and under current RCA law
they could pass that cost on to the consumers.
SENATOR THOMAS asked if this bill related to situations in the
realm of maybe a company extended some utility lines and did
sloppy work or used a product that wasn't for that application
and it failed; it would get replaced and then the company would
come back to the RCA who would then have the authority to deny
any increase in rates to consumers.
SENATOR WIELECHOWSKI answered something like that; SB 205 is not
trying to penalize companies for making a mistake if it was
legitimate; they could file with the RCA for it and be
compensated. But if the company was truly acting negligently,
typically defined as breaching their duty which was the cause of
the damages that follow, then they wouldn't be able to recoup
those expenses. He couldn't think of many instances in the
American free enterprise system where companies can be
compensated for their negligence like that.
2:32:29 PM
SENATOR THOMAS asked what the utilities' recourse would be if
they were found to be negligent.
SENATOR WIELECHOWSKI replied if the RCA ultimately determines
under this bill that there was negligence or recklessness for-
profit utilities would not be able to be compensated from the
consumers. That money would have to come from their profits.
SENATOR THOMAS asked if that decision could be taken to court.
SENATOR WIELECHOWSKI answered yes.
SENATOR BUNDE asked who makes the determination of reckless.
SENATOR WIELECHOWSKI answered the RCA, but he understands there
is a right to appeal that decision to the court.
SENATOR BUNDE asked if someone makes a huge mistake and it makes
the utility go bankrupt, is there something in place to make
sure it continues operating.
SENATOR WIELECHOWSKI answered that companies go bankrupt now,
but they just look for another better company to continue
operation.
SENATOR MEYER asked if recklessness already has some
ramifications.
2:35:19 PM
SENATOR WIELECHOWSKI answered that nothing in law says the RCA
can't allow a rate to compensate a utility for negligent
reckless conduct - and the RCA determines what is just and
reasonable - so it could find that allowing a rate for
negligence was just and reasonable. This bill would prevent them
from doing so.
2:35:56 PM
CHAIR PASKVAN said current statute, AS 42.05.431(a), indicates
that the Commission can find that a rate demand or a practice
affecting the rate is unjust, unreasonable, unduly
discriminatory or preferential. Is SB 205 adding anything here?
SENATOR WIELECHOWSKI answered yes; he thought it was. But the in
the specific case from which this issue stems, the RCA allowed
Enstar to collect on the backs of Southcentral consumers for
months and months even though it was clearly negligent. They
even admitted it was negligent conduct. He didn't think the
language is as clear as they would like; the facts of what has
been allowed already prove that.
CHAIR PASKVAN said he understood that a determination would be
coming out in a couple of weeks as to whether that collection
can be retained, and maybe it would be proper to defer this
issue until they know the outcome.
SENATOR WIELECHOWSKI answered that a decision in that particular
case is expected on March 1, but this is really about an
overarching principle. He explained that the RCA can come out
and say this particular case is unjust or unreasonable, but they
can't make law that will protect consumers in future cases.
Whatever happens to this bill will have no bearing on that case;
it would not be ex post-facto.
2:39:07 PM
SENATOR MEYER said he supported protecting consumers, but wanted
to know how far-reaching this bill would be. He asked if it was
going after the for-profit utilities that include ACS, GCI, and
AT&T and what it would do to ML&P that is owned by the City of
Anchorage.
SENATOR WIELECHOWSKI answered that ML&P is not considered a for-
profit utility; it is owned by a political subdivision. As he
was thinking this through, he concluded that it would be very
difficult to cover co-ops or companies that are owned by
political subdivisions because they have nowhere else to go for
the compensation. Chugach Electric Association, for instance, is
owned by all the ratepayers. The co-ops and companies that are
owned by political subdivisions are held in check by the
citizens who have a right in those cases to vote out the members
of the boards or assemblies. For-profit companies, however, can
pay for mistakes out of their profits.
2:42:41 PM
TIM MCCLOUD, President and General Manager, Alaska Electric
Light and power (AEL&P) Juneau, opposed SB 205, because he said
it discriminates against the investor-owned utilities. If it
included the other utility structures they would be expressing
similar concerns, because they all operate under the same
regulatory principles.
MR. MCCLOUD said he is confident that the RCA would not allow a
utility, profit or non-profit, to receive compensation under
existing regulations unless it could demonstrate that the
rationale is just and reasonable. The proposed language would
eliminate the RCA's discretion to rule on very complex issues.
It could lead to higher utility rates by encouraging
unreasonable investments in system redundancy, maintenance
operations, and inspections that a company might want to have to
protect themselves from being considered negligent for a system
failure. For instance, he asked if under this bill a utility
could recover the cost of repair as a result of a heavy snow
storm or would it be negligent for not burying the lines even
though the investment would result in a higher rate to the
customers.
2:45:13 PM
SENATOR BUNDE asked where AEL&P gets its money and if it
provides a dividend to its investors.
MR. MCCLOUD answered that it pays a small dividend. Most of
their profits go into repairs and upgrades to the existing
system - the same as a non-profit utility's would be used.
SENATOR BUNDE said under current law, the public ends up paying,
but under this law it would just be another part of the public
that would end up paying, because with reduced profits there
would be reduced dividends and return on investment.
MR. MCCLOUD said that is correct. It is important for utilities
of all types to be healthy, because the financing is critical to
maintaining low rates. The cost of borrowing money, which is how
they get their money, could end going up very high.
2:47:00 PM
SENATOR THOMAS asked if they generally self-perform on
interties.
MR. MCCLOUD replied that AEL&P is not an intertie, but generally
they do their own construction work on transmission lines.
Sometimes they subcontract.
SENATOR THOMAS asked if he was concerned that this measure would
make him responsible for someone else's work.
MR. MCCLOUD answered that he hadn't considered that.
CHAIR PASKVAN asked his current understanding of how the RCA
deals with reckless conduct.
MR. MCCLOUD answered that the RCA rules correctly on these
issues. A company could not be compensated for intentionally
being reckless. He would hate to take away that discretion
because these cases are very complicated.
2:49:54 PM
CHAIR PASKVAN asked what the RCA experience and capacity is to
conduct hearings on reasonable practice.
JAN WILSON, Commissioners, Regulatory Commission of Alaska
(RCA), answered that the RCA has conducted extensive hearings in
many proceedings on those kinds of issues.
2:50:52 PM
SENATOR BUNDE asked if this bill would be a tool in their
endeavors.
MS. WILSON answered that the commission had no position on this
bill.
SENATOR BUNDE asked if it would be a help or a hindrance to
their work.
MS. WILSON answered that the commission takes its guidance from
statutes the legislature passes and executes them in the best
way they can. Currently the commission operates under the just
and reasonable standard, and the concept of cost-based rates
underlies that standard. However, she suggested that the just
and reasonable standard may not be a very good standard by which
to judge the kind of conduct this bill is trying to prohibit.
She added that a "prudent management" concept also underlies
utility rate making principles. Even if a utility spends money
that is definitely for the service it is providing, but it does
so imprudently, then the commission would normally not allow
those actions to be collected in rates.
SENATOR BUNDE asked if the commission needs more clarification
on the standard.
MS. WILSON replied that the general rate making principles under
which they now operate have always guided them since enactment
of AS 42.05, but if the legislature wants to give them more
specific guidance, the commission is capable of administering
it.
SENATOR BUNDE stated that the commission's job is to protect the
consumer and asked if they are able to do that now or do they
need this bill.
MS. WILSON replied that the commission would have to have a
meeting to take an official position on it. She was speaking for
herself at that time. She added that the imprudent standard has
a lot of precedent, but if the legislature wants to establish a
negligent standard they could administer that, too.
SENATOR BUNDE suggested that the commission meet and take an
official position.
MS. WILSON said they could certainly do that.
2:55:50 PM
SENATOR MEYER asked if someone is intentionally negligent, would
that also be imprudent.
MS. WILSON answered probably, but the imprudent standard is one
that says "a prudent manager under the same circumstances at the
time the decision was made would not have made the decision that
lead to these costs" - a little bit different than the negligent
standard.
2:56:56 PM
SENATOR MEYER said the reason for this bill is to protect the
consumer from a for-profit utility and the fact that the
consumer doesn't have a choice. He was concerned that going
after one kind of utility would adversely impact others. The
telephone industry, for instance, is very competitive and the
consumer has multiple choices.
2:58:00 PM
RICH GAZAWAY, Staff, Regulatory Commission of Alaska (RCA), said
Senator Meyer was correct in that the telecom arena is
competitive in several markets. How the carriers are rated
depends in large part on how competitive the market is and
whether the competitor is the incumbent or the entrant.
2:59:08 PM
MATT WALLACE, Alaska Public Interest Research Group (AKPIRG),
said he supported SB 205 for two reasons. One is that companies
will respond to financial incentives and two, standard
competitive market forces don't apply to utilities. The
incentive in SB 205 provides additional protection for consumers
by prohibiting companies from putting their mistakes or reckless
behavior on their backs.
3:01:33 PM
SENATOR BUNDE said in his view, one of the reasons for the high
cost of medicine in this country is that providers practice
defensive medicine to avert lawsuits. Could something like this
cause a lot of similar defensive behavior by a utility company
with the unintended consequence that the rates go up for the
consumer - maybe doing more harm than good when that happens?
MR. WALLACE answered that this situation is substantially
different than with health care - mainly because those
situations often have very large awards that are the result of
civil suits for malpractice. This bill would simply prevent
companies from passing the costs of their negligence or reckless
behavior on to consumers.
SENATOR THOMAS asked if he is concerned that adding this
language creates a different standard for non-profits versus
for-profits and another classifications of utility that might
lead to confusion.
MR. WALLACE answered no one can say for sure, and he wasn't as
concerned about that type of situation mostly for the reasons
outlined by Senator Wielechowski. Other co-op utility structures
tend to have other avenues for consumers' voices.
3:07:06 PM
BOB GRIMM, President and CEO, Alaska Power and Telephone, said
he viewed this as a reaction to a single incident that will be
remedied by the RCA using existing statutes. This legislation,
while well-meaning, targets only one segment of the utility, and
the electric industry is a very small minority. It could
handicap that segment of the industry and become a potential
barrier for an IOU to enter into that segment of the industry.
He was also concerned that regulatory administrative law is a
body with precedent that goes back many years and is practiced
in every state of the union. SB 205 comes up with a remedy to a
situation which he was sure had occurred in the past in the
practice of public utility administrative law, and was dealt
with in an effective manner. He believed this is overreacting to
a single instance.
3:10:13 PM
Finally, Mr. Grimm said that by regulation, the RCA's powers and
duties are to be deliberately construed by the courts; this
means when they make a decision they have a higher standing than
a normal statute under the law. Also, under state law, the RCA
has the ability to levy civil penalties and fines upon public
utilities that exhibit repeated behavior that might be at the
root of this proposed legislation. Finally, Alaska Power and
Telephone is an investor-owned utility; the largest part of
their equity is owned by their own employees. So, the actual
burden for any hardship, due or undue under this change, would
be borne by them.
He directed this question to the sponsor - if any other state
has this specific language or provides specific guidance to
regulatory agencies dealing with public utility regulation
similar to the RCA.
3:11:42 PM
PAT LUBY, Advocacy Director, AARP, supported SB 205. He said if
a negligent error is made, the company should be responsible -
for instance, like Toyota. Their profits will be lower and their
shareholders will lose some of their profits, but Toyota's
customers are not responsible for the cost of the error. That is
how it should be for Alaska utilities. He said the RCA should be
empowered to hold the party who made the negligent error
responsible and the customer should be held harmless.
CHAIR PASKVAN thanked him and finding no further testimony, held
SB 205. He said he would reopen public testimony later if
needed.
3:14:09 PM
There being no further business to come before the committee, he
adjourned the meeting at 3:14 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 205 Bill Packet.pdf |
SL&C 2/11/2010 2:00:00 PM |
SB 205 |