Legislature(1997 - 1998)

05/06/1998 03:45 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
              SENATE RESOURCES COMMITTEE                                       
                     May 6, 1998                                               
                      3:45 p.m.                                                
                                                                               
MEMBERS PRESENT                                                                
                                                                               
Senator Rick Halford, Chairman                                                 
Senator Lyda Green, Vice Chairman                                              
Senator Loren Leman                                                            
Senator Bert Sharp                                                             
Senator Robin Taylor                                                           
Senator John Torgerson                                                         
Senator Georgianna Lincoln                                                     
                                                                               
MEMBERS ABSENT                                                                 
                                                                               
All members present                                                            
                                                                               
ALSO IN ATTENDANCE                                                             
                                                                               
Senator Jerry Ward                                                             
                                                                               
COMMITTEE CALENDAR                                                             
                                                                               
OVERSIGHT HEARING - FIBER OPTICS RIGHTS-OF-WAY                                 
                                                                               
HOUSE BILL NO. 73                                                              
"An Act extending the termination dates of the salmon marketing                
programs of the Alaska Seafood Marketing Institute and the salmon              
marketing assessment; and providing for an effective date."                    
                                                                               
     - SCHEDULED BUT NOT TAKEN UP                                              
                                                                               
CS FOR HOUSE BILL NO. 204(RES)                                                 
"An Act revising the procedures and authority of the Alaska                    
Commercial Fisheries Entry Commission, the Board of Fisheries, and             
the Department of Fish and Game to establish a moratorium on                   
participants or vessels, or both, participating in certain                     
fisheries; and providing for an effective date."                               
                                                                               
     - SCHEDULED BUT NOT TAKEN UP                                              
                                                                               
CS FOR HOUSE BILL NO. 284(FIN)                                                 
"An Act relating to infestations and diseases of timber."                      
                                                                               
     - SCHEDULED BUT NOT TAKEN UP                                              
                                                                               
PREVIOUS SENATE COMMITTEE ACTION                                               
                                                                               
HB  73 - See Labor and Commerce minutes dated 2/24/98 and 3/3/98               
         and Resources Committee minutes dated 4/29/98.                        
                                                                               
                                                                               
HB 204 - See Resources Committee minutes dated 4/22/98, 4/28/98.               
                                                                               
HB 284 - No previous action to record.                                         
                                                                               
WITNESS REGISTER                                                               
                                                                               
Commissioner John Shively                                                      
Department of Natural Resources                                                
400 Willoughby Ave.                                                            
Juneau, AK 99801-1724                                                          
                                                                               
Ron Duncan, President                                                          
GCI                                                                            
2550 Denali St., Suite 1000                                                    
Anchorage, AK 99501                                                            
                                                                               
Lowell Humphrey, General Manager                                               
KANAS Telecom, Inc.                                                            
Anchorage, AK                                                                  
                                                                               
John Burns, Vice President, Alaska Projects                                    
World Net Communications, Inc.                                                 
1029 West 3rd Ave.                                                             
Anchorage, AK 99501                                                            
                                                                               
Ms. Laurie Herman, Director                                                    
External Affairs                                                               
AT&T Alascom                                                                   
210 E. Bluff Drive                                                             
Anchorage, AK 99501                                                            
ACTION NARRATIVE                                                               
                                                                               
TAPE 98-39, SIDE A                                                             
Number 001                                                                     
                                                                               
CHAIRMAN HALFORD called the Senate Resources Committee meeting to              
order at 3:45 p.m.                                                             
                                                                               
CHAIRMAN HALFORD stated the overview on the fiber optics rights-of-            
way question was scheduled primarily based on a letter he received             
from Governor Knowles on May 1.  He then invited Commissioner                  
Shively to the table to address the committee.                                 
                                                                               
COMMISSIONER JOHN SHIVELY, Department of Natural Resources, stated             
he would present a brief overview of the situation and then respond            
to questions from the committee.  He noted it was actually the                 
third hearing held on the issue.                                               
                                                                               
COMMISSIONER SHIVELY said there are a variety of state agencies                
that can give rights-of-way, and fiber optics, because it is                   
somewhat new technology and because there is a lot of money                    
involved, has raised some interest on behalf of both the state                 
administration about how we go about giving rights-of-way to                   
private companies.  Traditionally, the state has sought to                     
encourage infrastructure development, and a lot of law that's on               
the books or regulations that are on the books lead towards                    
encouraging development.                                                       
                                                                               
He said that is one of the paths we can go down here, and the other            
is maximizing revenue.  There are least six state agencies that                
could provide rights-of-way to fiber optics companies.  Two of                 
those, the University of Alaska and the Mental Health Lands Trust,             
generally do not have large pieces of land, and, therefore, aren't             
big players here.  The Alaska Railroad, which has negotiated some              
very lucrative arrangements with a couple of companies, is another.            
There are two parts of DNR: their general public lands and an                  
application for a right-of-way through Chugach State Park along the            
power line.  He said ordinarily they probably wouldn't lease in                
parks, but because there is a utility right-of-way that existed                
before the parks, they could do that. The final state agency is the            
Department of Transportation and Public Facilities.  DOT/PF is                 
basically prevented by law from charging for rights-of-way.  They              
can charge a one-time fee for the permit, which is essentially a               
processing fee, but they cannot charge an annual rental rate.                  
                                                                               
Traditionally,  the Department of Natural Resources has done one of            
two things with utility rights-of-way.  One, which they are                    
required to do for nonprofits by law, and the other, which they                
have sometimes done even for profit making utility companies, is to            
charge a one-time 10 cents a linear foot fee.  Recently, the                   
department has been more accustomed to charging an annual rate                 
based on a value of land or the right in land that they are giving             
away, and that, by regulation, equates right now to about $100 an              
acre.  That equates to about six cents a foot, although that is for            
about a 20-foot wide right-of-way.  If people wanted a wider right-            
of-way, it would be more.                                                      
                                                                               
COMMISSIONER SHIVELY related that the Alaska Railroad has                      
negotiated rights-of-way that basically started around 47 and 48               
cents, and then they have some ability to share revenues.  DNR has             
never, at least on public lands, thought that they really                      
negotiate; they have the ability to set this fee.  The  department             
has another ability, by regulation, which they have never used                 
before, and that is to make a value of use.  And here the value of             
the right and the land to put in a cable, particularly because a               
big portion of this is across the bottom of Prince William Sound,              
can equate to around $100 an acre or six cents a linear foot, but              
they believe that if that was valued on the use to the customer, in            
this case the fiber optics people, and based on what they've seen              
at the railroad, they could get that up to 50 cents a foot.                    
                                                                               
CHAIRMAN HALFORD asked what he meant about a recently changed                  
attitude.  COMMISSIONER SHIVELY said in the last three years, as               
the  Alaska Railroad negotiated these more lucrative deals, it                 
caused DNR to relook at what they were doing.                                  
                                                                               
CHAIRMAN HALFORD asked the difference to the state in fiber optics             
and putting up 500 paired phone cables.  COMMISSIONER SHIVELY                  
responded that there is no difference to the state.  Fiber optics,             
because so much can go across it, is a much more lucrative use of              
the land, so you are basically trying to determine what that use               
could be.                                                                      
                                                                               
COMMISSIONER SHIVELY said DNR is not convinced that the 50 cents               
would necessarily survive an appraisal.  If they had set the 50-               
cent per foot rate for whichever of  the three companies that are              
in front of them, they would have the right to come in and do an               
appraisal, and so it could be lower.  What they ultimately chose to            
do was do is what they have traditionally done, which was to take              
the $100 an acre.  He related he received a letter from the four               
Finance Committee co-chairs in February that indicated that was an             
appropriate amount.                                                            
                                                                               
COMMISSIONER SHIVELY said after the correspondence that transpired             
between the Governor and the Legislature and the two hearings that             
took place, they just wanted to make it clear to the Legislature               
where they were.  In March, it was initially spelled out that it               
was their intent to proceed using what they traditionally use,                 
which was $100 an acre for public lands.  In their letter they                 
agreed, as had been suggested in a Sense of the House motion, to               
put together a group in the interim to look at setting what is                 
called a consistent state policy, and that they would issue the                
rights-of-way at their existing rate for a period of five years.               
                                                                               
CHAIRMAN HALFORD noted in a letter from Speaker Phillips to the                
Governor, she urged equal treatment for all, and he asked how that             
compared to a previous communication from the Legislature.                     
COMMISSIONER SHIVELY replied that he didn't believe it was possible            
unless the Legislature wants to set a state policy for all state               
lands, and it means amending DOT statutes, DNR statutes, railroad              
statutes, etc.                                                                 
                                                                               
CHAIRMAN HALFORD said his concern is with getting a letter on May              
1 effecting a major resource policy to get changed with an                     
adjournment date 12 days away, and yet he doesn't want to be tied              
to the communication of individual legislators as that being the               
policy of the Legislature.                                                     
                                                                               
Number 220                                                                     
                                                                               
SENATOR WARD asked if any thought has been given to other options              
to resolve this issue.  COMMISSIONER SHIVELY replied there are a               
variety of ways to solve this, and they believe the appropriate                
method is to bring the various state interests together in the                 
interim and make a recommendation to the next Legislature.                     
                                                                               
CHAIRMAN HALFORD  asked if they feel that they have to issue leases            
under the existing policy.  COMMISSIONER SHIVELY responded that if             
the existing policy is the $100 an acre fee, he has the option of              
doing that or the option of doing a use value and subject                      
themselves to an appraisal.  They have chosen to do what they have             
traditionally done.  He added that DOT has no option to do anything            
else than what they've already done.                                           
                                                                               
In discussing the issue of the use of fair market value,                       
COMMISSIONER SHIVELY  said they have traditionally used the value              
of the land to determine the fair market value.  The value of the              
use is another way to get to fair market value.  They believe that             
would get a higher rate, although that can't be guaranteed because             
they have never seen an appraisal done on that.                                
                                                                               
SENATOR TAYLOR asked if when it came to Powerline Pass and Chugach             
State Park, were they charging for the use of the land or the land             
value, because there they charged well above 50 cents a foot and               
then required installation of a conduit large enough that it could             
handle future users that might want to go up through that same                 
area.  He concluded that DNR land right along side of the park gets            
charged six cents, but if it is in the park, it is 50 cents plus a             
conduit that is very expensive to put in. COMMISSIONER SHIVELY                 
explained that although they were required to put in an extra                  
conduit, they will get credit off of the 50 cents for putting that             
in.  That agreement has not been finalized, but that is the concept            
of it.  He added that he does believe that the park land is more               
valuable.                                                                      
                                                                               
SENATOR TAYLOR asked how they came up with the 50-cent rate.                   
COMMISSIONER SHIVELY answered that it was a negotiated rate, and               
they looked at what they thought the market was, but they did it               
because it was park land.  It was A different situation, and it was            
not a fee schedule the way that there is a fee schedule in their               
regulations for general public use lands.  They don't have a fee               
schedule for utilities across park lands because they basically                
don't do it.  The right-of-way was negotiated between the park                 
people and GCI.                                                                
                                                                               
SENATOR TAYLOR said his concern is that each of these decisions                
make huge dollar differences for the applicant, and he suggested               
that maybe that needs some semblance of stability or review of                 
policy other than just a two or three-day window.  COMMISSIONER                
SHIVELY responded that the issue was discussed for several months,             
not two or three days.                                                         
                                                                               
CHAIRMAN HALFORD noted that the Governor's May 1 letter indicated              
it was stated it was the Administration's intent to go ahead with              
the six-cent rate for a period of five years, and he asked why a               
five-year rate was picked.  COMMISSIONER SHIVELY replied that DNR              
has traditionally reappraised their rights-of-way at the end of                
five years.  CHAIRMAN HALFORD concluded that if the Legislature                
were actually going to do something next year, and there was a                 
committee that was going to work on it in the interim, they might              
choose to issue leases and have a two-year reopener, for example.              
COMMISSIONER SHIVELY agreed that was in the realm of possibility.              
                                                                               
Number 465                                                                     
                                                                               
RON DUNCAN, President of GCI, said there are three principle things            
that need to be looked at.  The first thing is three key issues                
with respect to rights-of-way:  (1) the importance of fiber optic              
facilities; (2) the fact that not all rights-of-way are the same;              
and (3) the fact that policy and tax stability are real important              
to industry investment.                                                        
                                                                               
MR. DUNCAN said fiber optics is a tremendously important                       
infrastructure for the state, providing the back bone of the modern            
communications systems.  The availability of fiber optics and the              
consequent low cost is becoming critically important to the                    
economic development of the state's infrastructure.  He noted that             
in  merely two years, the Telecommunications Information Council,              
in their assessment of state telecom policy, suggested that perhaps            
the state was going to have to subsidize, by as much as $50                    
million, the installation of the next fiber optic cable into Alaska            
because the participants in the marketplace didn't appear to able              
to make the market economics work  and the state had a critical                
need for the fiber optic infrastructure.  So in the space of 24                
months, the state has come from a state that had a                             
telecommunications policy concern where perhaps it was going to                
have subsidize fiber optics to a situation  where the state is now             
saying that maybe it should be heavily taxing these things by going            
to some sort of a value of use phenomena.                                      
                                                                               
CHAIRMAN HALFORD inquired if there were any operational fiber                  
optics right now.  MR. DUNCAN replied that the line along the                  
railroad is operational, but he didn't know if it was carrying any             
paying traffic as yet.                                                         
                                                                               
MR. DUNCAN said the second point on rights-of-way is that not all              
rights-of-way are the same, with seven different granting agencies             
within the state, and different rights-of-way also have different              
characteristics.  Those different characteristics create differing             
values in those rights-of-way to users.  They look at construction             
costs, security, maintainability, and market size.  He noted the               
installation process on a railroad has relatively high efficiency              
and relatively low unit cost, and there is less chance of a cable              
being dug up as can happen with highway rights-of-way.  Remote                 
rights-of-way are somewhat more secure although access to them can             
be a very significant problem if an outage occurs.  Maintainability            
is really the issue of what is the response time to repair.                    
Terrestrial rights-of-way have a tremendous advantage over under               
sea rights-of-way where the maintenance cost is much higher.  The              
market size in Alaska is potentially much smaller than in other                
parts of the U.S.                                                              
                                                                               
MR. DUNCAN said in Alaska there is the situation of where                      
exclusivity creates a potential value to the owner of a right-of-              
way.  If there is only one right-of-way available and there are                
potentially multiple users for that same right-of-way, that right-             
of-way has a lot more value than a situation where there are an                
unlimited number of rights-of-way and a very limited number of                 
users.  He said you have to be very careful in how you are valuing             
the fiber optic rights-of-way and what you are saying the market               
value of that right-of-way is.  This issue has been largely raised             
by World Net who is attempting to persuade people that the 50 cents            
a foot, if they really paid 50 cents a foot along the railroad,                
sets a price that should be used defacto for all other rights-of-              
way.  Doing that artificially raises the price of other rights-of-             
way, which are essentially in infinite supply, and by raising the              
price it chokes off consumption.  He suggested in addressing the               
World Net issue, you have to address first of all what they are                
paying, and second of all what is parity.  World Net negotiated                
one-on-one with the railroad without any public policy input from              
anyone, without any knowledge from competitors that this was going             
on, and they paid whatever they thought it was worth.  Now they're             
saying the terms and conditions negotiated in private by one                   
company to meet their specific interests now becomes the defacto               
standard to be imposed on all other companies.                                 
                                                                               
The third point on rights-of-way is that policy and tax stability              
are important.  In February 1997, KANAS, the company building the              
fiber optic cable along the pipeline corridor, was in the same box             
GCI is in today.  They had applied for their permits eight or ten              
months before then, and the state failed to issue those permits in             
a timely manner.  When it finally came down to the point that they             
had to have the permits or lose the project, the state came to them            
with a offer to pay them more than they are entitled to under the              
regulations or to give the state some free capacity in its fiber               
optic cable.                                                                   
                                                                               
TAPE 98-39, SIDE B                                                             
Number 585                                                                     
                                                                               
MR. DUNCAN said now this issue comes up again when GCI happens to              
be in the same box that KANAS was in where they have a $130 million            
project, which they've spent more than half on, there is no way to             
back out at this point, but they don't have their permits yet.                 
These permits have been in the process for eight months, and now               
they are in a political trap of where now that they are underway               
with the project, they ought to raise the price of the permits.                
He said that's not policy stability.  It is a tax stability issue              
too, because the value of use is essentially an excise tax or a                
royalty and it is an opportunity to stick industry for a little                
more money, and maybe even more still now that they are in a box               
where they have already spent $60 million starting this project.               
He said that is not the kind of stability that is going to induce              
the economic investment that the state said two years ago it was               
willing to subsidize to the tune of $50 million.                               
                                                                               
MR. DUNCAN said with respect to the existing cable, they are in                
box.  GCI has spent almost $80 million on the cable to Seattle and,            
while it is a certain this may result in endless litigation, that              
cable is going to be constructed at this point because there is no             
way to back away from that project.  He questioned if that is                  
reasonable and sends good signals to the industry.  He said when               
GCI clearly was encouraged to plan this project under existing                 
structures, they expected to pay $97,000 a year for their right-of-            
way, and it is now being suggested that right-of-way should cost               
perhaps as much as $800,000 a year.  Had GCI known that in advance,            
they would have designed a very different route. If they'd known               
that the state was thinking of charging 50 cents a foot, they would            
have dropped Valdez and Juneau from the construction program                   
because $30 million extra in cost to run the cable into those two              
locations, combined with an $800,000 increase in operating costs,              
would have simply wiped those markets off the economic feasibility             
scale.                                                                         
                                                                               
MR. DUNCAN said this situation makes a big difference for what                 
happens next.  Within five to six years, GCI will be building a                
second cable, not because the first will be out of capacity, but               
because there won't be an adequate capacity to back up the first               
cable.  Even though they won't make any more money by building a               
second cable, GCI will need to construct and the state will need to            
have a second cable so that if one of the two is cut the                       
communications can run around in the other direction.  This second             
route would run from Anchorage to Seattle and include all of                   
Southeast Alaska in a looped system.  Under the existing                       
regulations, that system would cost GCI $121,000 in rights-of-way,             
however, under the proposed 50 cents a foot rate, that system would            
cost more than  $1,000,000 dollars a year in rights-of-way, which              
would clearly sink the project.                                                
                                                                               
MR. DUNCAN said if the state wants single thread into Juneau, and              
it's going to get Juneau only because it didn't change the rates in            
time, then it ought to go ahead and bill with this market value of             
use price.  If the state wants a solid, redundant                              
telecommunications infrastructure, it should go with the policy                
that the Governor is proposing, which is a policy of keeping the               
rates low to induce investment.                                                
                                                                               
                                                                               
In his closing comments, MR. DUNCAN said what is going on is phone             
wars, and phone wars are always all about competition.  World Net              
wants less competition, and they want to stop GCI from building                
this year.   World Net is saying they are going to build a cable to            
Seattle, but he doesn't believe they have the customers or the                 
financing for that cable yet.  He said what is going on is an                  
effort to stop the issuance of the permits or condition them in a              
way that GCI doesn't make this year's construction season thus                 
buying World Net what it really wants, which is another year to                
decide to build to Seattle.                                                    
                                                                               
Number 463                                                                     
                                                                               
CHAIRMAN HALFORD asked if it would do any harm if the Governor were            
to go forward and issue these permits with a relatively short-term             
reopener.  MR. DUNCAN replied that it doesn't do the state any harm            
in the sense that it is going to get the current cable because GCI             
is in a corner that it can't get out of.  However,  it isn't                   
consistent with the message that the Legislature has on other                  
fronts attempted to send to industry that it's going to invite                 
investment by offering stable tax and investment policies.  He said            
it is unfair to GCI who planned the project based on rate and is               
now being asked to take an open-ended exposure for as much as a ten            
times increase in that rate.  He did say that GCI would go along               
with a reopener if that reopener was nondiscriminatory across all              
utilities.                                                                     
                                                                               
SENATOR TAYLOR expressed his displeasure with Mr. Duncan blaming               
the Legislature for trapping GCI in a box.  He said there wasn't               
one person in the room who did that, and he should be placing the              
blame on the Governor's office on the third floor.  He said he                 
personally wants to see something that is flat, equal and open for             
every single person out there that wants to build a cable.                     
                                                                               
MR. DUNCAN apologized for using the word "you" when he should have             
stated "the state," however, he did add that there are people in               
the Legislature who have made efforts to hold them up on their                 
project.  He agreed that there have been disagreements within the              
bureaucracy as to the appropriate amount to charge, but he pointed             
out that at this point, this is a case where the Governor is trying            
to do the right thing by keeping the rates low to induce                       
investments.                                                                   
                                                                               
Number 380                                                                     
                                                                               
LOWELL HUMPHREY, General Manager, KANAS Telecom, Inc., explained               
that three years ago, KANAS, which is made up of three Native                  
Corporations and MFS Network Technologies, made decisions on the               
financing of their projects, and pursued the Alyeska long-term                 
project.  In order to win that job, they had to bid a 15-year hard             
dollar price, which they did at that time based on the state's                 
historical approach to rights-of-way cost and all the associated               
risks with the project.  There were delays by DOT/PF from the                  
beginning of the project, and  it was suggested by them to allow               
the use of some of KANAS's fibers so that the state could put in               
their own network in direct competition to them.  It was finally               
agreed that DOT/PF would stick with what their regulations said,               
and KANAS  got their permits for DOT lands.  Close to half of their            
right-of-way is DOT, and they have 840 miles of fiber in the ground            
today, and they will be starting traffic on that the first of                  
September.  The total DNR right-of-way mileage is approximately 260            
miles.                                                                         
                                                                               
KANAS believed that the state would follow its historical approach             
on appraisal so they proceeded with the project accepting the fact             
that the appraisal would happen at the conclusion of the project.              
They are now at the point of beginning the appraisal process since             
their route is now in the ground and ready to go forward.  He said             
it would be a pretty devastating financial hit to KANAS to go from             
the historical, just on the DNR lands where they expected                      
historically that it would be under $20,000 for the DNR rights-of-             
way, and now at the 50 cents, they are looking at closer to                    
$800,000 for rights-of-way.                                                    
                                                                               
MR. HUMPHREY related that KANAS has been looking at some other                 
projects to expand and serve the other communities where they have             
their existing system in place, but if they have to spend for real             
expensive rights-of-way to get to these other smaller communities,             
they are going to be very reluctant to spend it and they probably              
would not be able to bank the job.                                             
                                                                               
MR. HUMPHREY said at $100 an acre, it would cost KANAS                         
approximately $60,000 a year, which is an acceptable increase to               
them, but an $800,000 increase is not.  He said KANAS has said  in             
writing that everyone should be charged consistently.                          
                                                                               
Concluding, MR. HUMPHREY said the current statement by the                     
Administration that they would use the $100 an acre for five years             
is something KANAS believes they can live with.                                
                                                                               
Number 265                                                                     
                                                                               
CHAIRMAN HALFORD asked if he would object the five years being two             
or three years.  MR. HUMPHREY responded that if it includes all                
state agencies, all the utilities, all the people who desire                   
rights-of way, and everybody is even-handed, then he would be all              
for it.                                                                        
                                                                               
Number 254                                                                     
                                                                               
SENATOR TAYLOR said Mr. Humphrey had made reference to going                   
through an appraisal process, and he asked what he assumed the                 
words "appraisal process" meant.  MR. HUMPHREY replied it wasn't               
like they had never done an appraisal, it was traditionally the way            
an appraisal was done and what the value of the land was.  KANAS               
looked at the land and anticipated that some of the land might come            
in at more than $100 an acre, but they thought a lot of it would               
come in under $100 an acre.  Their expectation was that their                  
rights-of-way cost, just for the DNR lands, would be around                    
$20,000.                                                                       
                                                                               
SENATOR TAYLOR suggested that KANAS may well be better off to have             
this Legislature grant them an interim permit for two years, to get            
a committee to look at what this is really worth, do some kind of              
an appraisal and come up some kind of number.  He said he thinks               
they would be better off in that fashion and couldn't be held                  
hostage by the Administration in coming up with whatever they want             
to come up with.                                                               
                                                                               
Number 166                                                                     
                                                                               
JOHN BURNS, Vice President for Alaska Projects, World Net                      
Communications, Inc., testifying via teleconference from Anchorage,            
said through their investment in Alaska Fiber Star, World Net                  
participated in the construction of a high capacity fiber optic                
cable from Anchorage to Fairbanks last summer.  An affiliated                  
company is currently constructing a high capacity fiber optic                  
project between Alaska and Oregon.  Altogether, they have committed            
over $150 million for Alaska telecommunications projects.                      
                                                                               
MR. BURNS said he wanted to address some misconceptions.  First of             
all, the Administration has said that six cents a linear foot is a             
historic price, but it has been testified that there has never been            
a fiber optic project along a substantial corridor that has ever               
been priced at six cents a linear foot.  MFS KANAS project                     
documents dating back to 1996 show that the notion of an appraisal             
was first raised in the entry permit process and was committed to              
for the balance of the project.  In terms of historical                        
perspective, there other projects such as Alascom's permit with the            
railroad in 1994 which was established by appraisal. Alascom chose             
to get out of that permit the following year.  Subsequently, Alaska            
Fiber Star's permit, WCI's permit, GCI's permit with the railroad,             
all have utilized the railroad's appraisal process.                            
                                                                               
MR. BURNS said a second misconception is the Administration saying             
that an administrative  act is needed to pursue anything other than            
the six cents a foot proposal.  He said this is not true, because              
as was discussed earlier by the Commissioner, he does have the                 
means to use an appraisal with purely a decision between the                   
Commissioner and the Governor.                                                 
                                                                               
The third misconception is that Alaska Fiber Star is using an                  
exclusive right-of-way.  The right-of-way language applied to the              
Alaska Fiber Star project is specific.  Within 25 feet other                   
utilities can be placed within 25 feet.  The only exception is                 
fiber optics.  The Alaska Railroad has a 200 foot right-of-way,                
therefore, theoretically, as many as eight corridors could be                  
available.                                                                     
                                                                               
The fourth misconception is that the pricing of six cents a foot               
needs to be made a decision now because pricing is holding up the              
development of projects is also untrue. He said projects have been             
finished and are underway and all these decisions were made months             
and months ago.                                                                
                                                                               
MR. BURNS said when World Net Communications came to Alaska and                
decided to invest in the Alaska Fiber Star project, it believed                
that Alaska provided opportunities to provide competitive                      
telecommunication services under a set of rules that applied to all            
competitors, and, in fact, that is what the Telecommunications Act             
of 1996 requires.  Fairness is the key to competition, but it                  
appears that his spring, beginning in March, fairness will not be              
offered in Alaska.  The fact is that the AFS permit from the                   
railroad was established by an independent third-party appraisal               
and will pay the railroad approximately $1.8 million a year in 35              
years as a minimum, and there is the opportunity for the railroad              
to earn much more.  On the other hand, the MFS KANAS permit issued             
by the Department of Natural Resources is only waiting for its                 
appraisal.  They agreed to have that value set by appraisal.  The              
question of fairness is why in March, 1998 the Administration                  
intervened, setting aside valuation by appraisal and unilaterally              
stated that all permits, including MFS KANAS permit, would be at               
six cents a foot.                                                              
                                                                               
MR. BURNS said he wanted to correct another misconception stated               
earlier by Mr. Duncan.  He stated WCI would never recommend a                  
single figure and has not advocated a policy of 50 cents a foot.               
WCI advocates a policy of appraisal, which, he said, is the only               
true fair way to get a value for the state that is also fair to the            
company that requests the right-of-way.                                        
                                                                               
Concluding his testimony, MR. BURNS said before we finish with the             
question of fairness, there is the issue of what is fair between               
companies such as AFS and the state.  When AFS wanted to utilize               
public access to make their commercial project viable, they agreed             
to pay a market-based fee because it was fair to the railroad and              
the state, because any corridor between two commercially                       
significant locations is a valuable asset, and if happens to be                
owned by the state, then the state should receive the appropriate              
compensation.                                                                  
                                                                               
CHAIRMAN HALFORD asked if the Alaska Railroad rates on Fiber Star,             
on GCI, and on the old Alascom permit were all set by appraisal.               
MR. BURNS responded that for AFS, GCI and World Net Communications             
the rates were all set by appraisal.  The old Alascom one was                  
before the railroad had instituted its appraisal process.                      
                                                                               
CHAIRMAN HALFORD asked what that Alascom rate was.  MR. BURNS                  
answered that there is a permit rate plus provision to the railroad            
of a spare fiber and copper wire.                                              
                                                                               
CHAIRMAN HALFORD asked if that Alascom permit had expired.  LAURIE             
HERMAN, representing the AT&T Alascom, related that the Alaska                 
Railroad permit he was speaking to was between Anchorage and                   
Fairbanks.  Alascom originally applied for a permit on the railroad            
right-of-way between Anchorage and Fairbanks, and shortly after the            
acquisition of Alascom by AT&T, they exercised their option not to             
pursue that lease.  There is an existing lease between Anchorage               
and Seward where the North Pacific cable spur comes from Seward to             
Anchorage.  That is in existence today and is the lease that was               
negotiated prior to there being an appraisal policy at the Alaska              
Railroad.                                                                      
                                                                               
CHAIRMAN HALFORD asked if the appraisal is based on the value of               
land or an appraisal based on value of use.  MR. BURNS replied that            
it is an appraisal based upon the value of land that is simpled                
into a corridor.  The notion is that value to someone desiring the             
corridor is based upon the two points or multiple points they chose            
to connect.                                                                    
                                                                               
CHAIRMAN HALFORD stated the Senate was about to go back into                   
session, and that discussion on fiber optic rights-of-way would                
continue the following day.  He adjourned the meeting at 5:15 p.m.             

Document Name Date/Time Subjects