SENATE LABOR AND COMMERCE COMMITTEE March 16, 1999 1:38 P.M. MEMBERS PRESENT Senator Jerry Mackie, Chairman Senator Tim Kelly, Vice Chairman Senator Dave Donley Senator Loren Leman Senator Lyman Hoffman MEMBERS ABSENT All members present COMMITTEE CALENDAR HOUSE BILL NO. 10 "An Act extending the termination date of the Board of Certified Direct-Entry Midwives; and providing for an effective date." -MOVED HB 10 OUT OF COMMITTEE CS FOR SENATE BILL NO. 48(HES) "An Act relating to health insurance provided by and provisions relating to the Comprehensive Health Insurance Association." -MOVED CSSB 48(L&C) OUT OF COMMITTEE SPONSOR SUBSTITUTE FOR SENATE BILL NO. 10 "An Act requiring a utility that provides services in a municipality with a population of more than 100,000 to have an ongoing program of placing existing overhead utility lines underground; and relating to rates for recovering the cost of placing existing overhead utility lines underground." -HEARD AND HELD SENATE BILL NO. 88 "An Act relating to licensure of dietitians and nutritionists; and providing for an effective date." -SCHEDULED BUT NOT HEARD PREVIOUS SENATE COMMITTEE ACTION HB 10 - No previous action to consider. SB 48 - See Hess minutes dated 2/24/99. SB 10 - No previous action to consider. WITNESS REGISTER Representative Bill Hudson State Capitol Bldg. Juneau, AK 99801-1182 POSITION STATEMENT: Sponsor of HB 10. Ms. Melissa Mayo Certified Direct Entry Midwife 4125 Ruth Dr. Wasilla, AK 99654 POSITION STATEMENT: Supported HB 10. Ms. Catherine Reardon, Director Division of Occupational Licensing Department of Commerce and Economic Development P.O. Box 110806 Juneau, AK 99811-0806 POSITION STATEMENT: Strongly supported HB 10. Mr. Dave Gray, Aide Senator Mackie State Capitol Bldg. Juneau, AK 99801-1182 POSITION STATEMENT: Commented on SB 48 for Senator Mackie, sponsor. MS. Marianne Burke, Director Division of Insurance Department of Commerce and Economic Development P.O. Box 110805 Juneau, AK 99811 POSITION STATEMENT: Supported SB 48. Mr. Bob Niebrugge P.O. Box 4187 Palmer, AK 99645 POSITION STATEMENT: Supported SB 48. Ms. Sandra Cole P.O. Box 874165 Wasilla, AK 99687 POSITION STATEMENT: Supported SB 48. Mr. Don Edwards, General Counsel Chugach Electric Association 5601 Minnesota Dr. Anchorage, AK 99519 POSITION STATEMENT: Opposed SB 48. Mr. Sam Cotten, Executive Director Alaska Public Utilities Commission 1016 W 6th Anchorage, AK 99501 POSITION STATEMENT: Supported SB 10. ACTION NARRATIVE TAPE 99-7, SIDE A Number 001 HB 10-EXTEND CERTIFIED DIRECT-ENTRY MIDWIVES BD CHAIRMAN MACKIE called the Senate Labor and Commerce Committee meeting to order at 1:38 p.m. and announced HB 10 to be up for consideration. REPRESENTATIVE HUDSON, sponsor of HB 10, explained that it extends the very important Board of Certified Direct Entry Midwives for another four years to June 30, 2003. This is valuable to the State, because their services under the Medicaid rates cost the State about half of what it costs through normal hospitalization/nursing type of procedure. MS. MELISSA MAYO, Certified Direct Entry Midwife, said she works in a free-standing birth center in the Palmer/Wasilla area. They provide a different type of care for women than the medical type. Certified Direct Entry Midwives are able to work one-on-one with pregnant women and make a big difference in their lives - especially working with pregnant teens. They work on nutrition, healthy babies, and parenting. They are able to spend more time with a client and the service is half the price. MS. CATHERINE REARDON, Director, Division of Occupational Licensing, supported HB 10. CHAIRMAN MACKIE noted there was a zero fiscal note and that the program was funded through program receipts. SENATOR KELLY moved to pass HB 10 from committee with individual recommendations. There were no objections and it was so ordered. SB 48-STATE HEALTH INSURANCE MR. DAVE GRAY, Aide to Senator Mackie, sponsor, explained that the Comprehensive Health Insurance Association (CHIA) was established in 1992 by the legislature. It's made up of insurers and is a pooled health insurance system that was established for Alaskans who couldn't get insurance anywhere else, because their health condition was uninsurable and who could not otherwise find adequate health coverage. The legislation mandated that all providers of health insurance in the State must participate in the pool. The Association, then, makes health insurance available to Alaska residents who are high risk or are federally defined eligible individuals. These people typically suffer the most severe health conditions and face insurmountable costs in medical treatment and care. In addition to operating the insurance pool, the Board of Directors of CHIA, is directed to periodically report on the effectiveness of the association in promoting rate stability, product availability, and affordability of coverage, and to make recommendations on further legislative or administrative improvements. SB 48 is a direct result of the efforts by the Association to make the program work better and is supported by the Division of Insurance. It amends AS 21.55 to do the following: 1. It allows the Board greater flexibility to design more cost effective health insurance plans for individuals eligible for coverage under the CHIA plan. 2. It increases the number of potential administrators by CHIA by eliminating the requirement that the administrator be an insurer. 3. It allows greater flexibility in evaluating an administrator and in setting terms of the administrative contract. 4. It simplifies administration by decreasing the number of declinations required for eligibility. 5. It makes technical corrections relating to the determination of premium rates, terminology, premium payment modes, board member terms, and voting by members. 6. It gives the Director of the Division of Insurance a more effective and appropriate mechanism to enforce the requirement that members pay their share of CHIA assessments on a timely basis. This legislation will allow the Board to manage the Association and insurance plan in a more cost effective and efficient manner. Also, it is particularly important in light of new federal requirements in the use of CHIA as a mechanism to guarantee portability of health insurance coverage to federally eligible individuals. CHAIRMAN MACKIE asked for a list of illnesses that CHIA deals with. MR. GRAY deferred to the Division of Insurance for that information. MS. MARIANNE BURKE, Director, Division of Insurance, explained that individuals who turn to CHIA for insurance coverage are dealing with truly life-threatening situations like dying of cancer to hemophilia, to AIDS, and severe heart problems and diabetes, high blood pressure and cholesterol. These are not rich or poor people, but individuals who are facing devastating health costs. CHIA gives them the opportunity to participate in the cost of their own coverage. A middle class family who has a son with hemophilia faces a $2,000 - $4,000 per month medical cost which for most of us isn't possible. With CHIA a person can pay what is still a very high premium, but those premiums pay for only 20 percent of the actual costs that are incurred by this mechanism. The additional 80 percent is assessed against the insurance companies who write insurance in the State of Alaska. We all basically pick up a portion of the cost. MS. BURKE explained that the individuals pays a premium, not a sliding scale, based on their age and what they choose as a deductible they can live with from $200 - $10,000 deductible. CHAIRMAN MACKIE asked how SB 48 would make her job easier and save money. Number 200 MS. BURKE explained that currently CHIA pays four times as much for administrative services as any other state in the nation. The reason is because the Board's hands are tied. They have to select as an administrator one of the insurance companies that writes in this state. Since its inception there has been only one company who has been willing to provide this service, Aetna. This bill would create an immediate cost reduction if we could apply good business practices and put an RFP out for an administrator who would do this appropriately, yet cost effectively. Additionally, since every insurance company that does business in this state must pay their fair share based on the premium dollars that they write, they all should pay and pay promptly. Currently, there are some who are less than prompt and there is nothing she can do to encourage them to make their payments on a prompt basis. This legislation would allow her to fine them if they do not pay in accordance with a reasonable time table. It also exempts companies who may write such a small amount that it's not really cost effective for the Division to assess them. If their portion is $10, it costs more to collect that than $10. SB 48 provides flexibility in providing more response to the customers who are seeking this coverage in that they can be offered a greater range of options. If they are willing to take managed care, for instance, it's their choice and that can help save money. Number 250 MR. BOB NIEBRUGGE supported the CHIA program and the amendments which fine-tune the original bill. MS. SANDRA COLE, Mat-Su Board member, said she has 26 years of medical experience and a law degree. She said this program is vital to the people of the State of Alaska. She was disabled from an accident a year and a half into her law practice and she could testify to what sudden illness and loss of a job does to you in terms of your ability to get health insurance. Most of the changes in the bill keep lowering the continually raising costs of health care and she added that many people cannot afford the program as it is now. No one is choosing a $200 deductible because it is too costly. CHAIRMAN MACKIE asked Ms. Burke if there was any opposition to this bill. MS. BURKE responded that there is not. All of the insurance companies who comprise the largest writers in the State are on the Board and crafted this legislation. SENATOR KELLY moved to pass CSSB 48(L&C) with individual recommendations. There were no objections and it was so ordered. SB 10-APUC JURISDICTION: UNDERGROUND UTILITIES CHAIRMAN MACKIE announced SB 10 to be up for consideration. SENATOR DONLEY, sponsor, said that SB 10 requires that the utilities in a community over 100,000 people have an ongoing program for placing overhead utility lines underground. Currently, it would only apply to the Municipality of Anchorage. Through technological advances over the past number of years, underground utilities are much easier to maintain and less costly. They are aesthetically more pleasing. Having a minimum amount that utilities can contribute to a long range plan of putting existing overhead lines underground levels the economic playing field so there isn't the disincentive of competition where if one utility does it and another utility doesn't do it, they can charge lower rates. Unless there are mandates to protect the public interest and to encourage undergrounding, all incentive will be lost to do it. Many cities require "undergrounding" for new developments. The problem in Anchorage is that all new developments are "undergrounded," but the neighborhoods that were built before the law went into place have overhead utilities. Some areas of Anchorage that have two power deliverers have overhead power lines running down both sides of streets and it's a mess. The City tried to address this issue with an ordinance requiring utilities to have a 10-year plan for an ongoing program of "undergrounding" overhead lines. It requires utilities to spend up to four percent of their gross revenues per year towards "undergrounding." However, because of the words "up to" there's no minimum amount, so they spend nothing towards it. In the amendment he is asking for just one percent; he would be happy with even a half percent. Just so there is some established minimum towards an ongoing program of "undergrounding." SENATOR DONLEY said in the past objections from the utilities has been that the APUC would make them go through all kinds of reporting hoops and may not allow them to spend the money or charge for it in a rate base. When asked, the APUC commissioners have said they wouldn't do that. They think that underground is a great idea. That is why he exempts APUC totally from the process. SENATOR DONLEY said he thought it was important to make a public policy "call" in this direction. SENATOR LEMAN said he knows that cost of service studies for utilities are very expensive, even $1 million. He thought it was wrong for the APUC to require such an expensive exercise. He didn't know if one percent was a good amount, but it didn't sound like a lot. He asked if Senator Donley wanted to add the one percent as a surcharge. SENATOR DONLEY answered that they would just roll it into the rate base which is what they do with their current "undergrounding" programs. Number 405 MR. DON EDWARDS, General Counsel, Chugach Electric Association, said they are not opposed to "undergrounding" per se. It's a matter of cost and reliability. Reliable systems are built both overhead and underground. There are more underground distribution lines than overhead lines. It boils down primarily to the cost. MR. EDWARDS explained that roughly, as a rule-of-thumb, on the Chugach system, you can assume it would cost from $700,000 - $1,000,000 per distribution line mile to do underground distribution. There are 334 line miles in their entire distribution system. Chugach Electric's gross is around $140 million. Transmission is considerably more expensive to "underground" because of the high voltage use and having to use fluid-filled cables. Capital expenditures is the more important consideration. There are some savings one might expect to get on operation and maintenance, but they are dwarfed by the capital expenditures. They are very sensitive to their customers' concern for cost since they are a member-owned association. He recommended making very sure customers want to buy this kind of "undergrounding." Also, the legislation might require "undergrounding" of perfectly good overhead lines which have not yet been depreciated. This could degrade equity levels and damage the organization financially. MR. EDWARDS advised the committee to have their lawyers look at the constitutionality of the "cap" on the amount of recovery that is allowed to the extent that expenditures of money are required to implement this legislation. SENATOR DONLEY responded that the cap only applies to the regulatory powers of the APUC. MR. EDWARDS replied that to him the cap means the annual recovery of revenue for "undergrounding" may not exceed 10 percent of a utility's annual gross income. SENATOR DONELY said it doesn't say that; it says the exception to the Commission's regulation only applies to the first 10 percent and after that it would be subject to regulation by the Commission. He said he would ask the drafters to make that clear. MR. EDWARDS said he thought discussions should take place among the utilities about what might be doable, but as it stands, Chugach would not support this legislation. Number 471 CHAIRMAN MACKIE asked if it was true that a majority of their lines are underground now and asked if that included high voltage distribution lines. MR. EDWARDS replied no and explained that they make a distinction between lower voltage distribution lines and higher voltage transmission lines. More than half of their distribution lines are underground now and all new distribution lines are underground. Burying transmission cable is much more expensive, because it is fluid-filled cable which are higher maintenance and are much more expensive to install. CHAIRMAN MACKIE asked if any transmission lines were underground now. MR. EDWARDS answered a few of them are and the main one is the submarine cable that cut across from the west side of Cook Inlet to a point close to the Anchorage airport. There is probably 8 - 12 miles on the entire system of "undergrounded" transmission lines. CHAIRMAN MACKIE asked if they are putting transmission lines underground now in new developments. MR. EDWARDS answered no, because transmission lines are expensive to put underground and there is a serious earthquake hazard. SENATOR KELLY asked what fluid-filled cable was like. MR. EDWARDS explained that a hollow cable has fluid in it that seeps through the conductor that is in segments. The fluid impregnates paper that is wrapped in many layers of thin sheets and has to be under light pressure at all times to make sure the paper stays impregnated and impervious to elements. Outside of that there are all kinds of armoring to try to keep the cable safe, particularly during installation. The fluid pressure has to be monitored constantly. SENATOR KELLY asked how much of their system is transmission line versus distribution line. MR. EDWARDS said he didn't even have a ballpark figure on that. Number 531 SENATOR LEMAN said he thought Senator Donley was referring to the distribution lines and asked if Mr. Edwards had identified his costs, breaking them down into generation, transmission, and distribution and what the distribution costs are in Anchorage. MR. EDWARDS answered yes, they have distribution and transmission cost data, but they have not really broken it down to residents within Anchorage, although he didn't think it would be difficult to do. Number 565 MR. SAM COTTEN, Executive Director, Alaska Public Utilities Commission, said the Commission decided to take a neutral position on this policy call. However, they have a couple of technical concerns. They suggested using the term "revenue" instead of the term "annual gross income" so there is no question about what money they are talking about. MR. COTTEN explained that the full actual cost might involve the potential for cost shifting. Typically, a utility has to justify cost and there is a prudency standard that has to be met, but in this case it wouldn't be. His staff recommended going with a surcharge rather than increasing rates, because it would be simpler to manage administratively. For instance, there are a couple of utilities that operate within the Municipality of Anchorage and it's only a small part of their business. Matanuska Electric and Matanuska Telephone provide service to Eagle River, which is part of the Municipality, so the rates for those people in Eagle River would be affected, whereas if they lived in Palmer or Wasilla, they wouldn't be affected (under this bill). Rather than doing a rate redesign, a simpler method would be to add a surcharge to the affected members. MR. COTTEN reported one commissioner was interested in knowing who would be responsible for setting the standards they deal with in cost cause or cost repair. This bill leaves it unclear who is responsible. TAPE 99-7, SIDE B Number 590 MR. COTTEN said the fiscal note the Commission endorsed is $91.8 thousand for a half-time engineering analyst. Not all the members agreed that there was a high risk of litigation, but they allotted $54,000 per year for three years for it. SENATOR DONLEY responded that the bill says the APUC would have no role in the one percent, so he didn't understand what the fiscal notes are for. MR. COTTEN asked how the actual cost would be placed on the rates. SENATOR DONELY answered that the utilities would make that assessment themselves and if it's under the cap that's in the bill, the APUC would just accept those numbers. MR. COTTEN replied that he understands that, but the Commission approved the proposition that they would have to be involved in establishing rates regardless of the wording. He asked if Senator Donley meant for the surcharge to be added on to what the Commission approves as a rate. SENATOR DONLEY replied that is what he intends. Number 561 SENATOR DONELY moved to delete "income" on page 1, line 9 and page 2, line 1 to "revenue". There were no objections and it was so ordered. MR. COTTEN commented additionally that the FY2000 budget for the Commission proposed by the Governor includes some new positions and they feel if that budget is approved, "they could get by with the resources contained in that budget." This was an effort by the staff and Commission to identify the cost a account for it. If the budget were approved, the Commission could agree to a zero fiscal note. CHAIRMAN MACKIE asked if the Commission would have to review the rate increases if they occur. MR. COTTEN replied that he wasn't clear how that would work. The Commission is still responsible for approving rates and he would review the issue again knowing what Senator Donley's intent is. CHAIRMAN MACKIE asked if he would have problems with the bill if there was clarification of the intent in the bill. MR. COTTEN replied that if it's as simple as Senator Donley thinks it is, he couldn't imagine any expense for the Commission other than the potential for litigation which he didn't think existed. He said he would work with Senator Donley on clarifying the rate issue. SENATOR DONLEY proposed further clarifying language on page 1, line 14. He moved to replace the last sentence of the bill with, "This Section only applies to undergrounding programs that do not exceed five percent of the utilities' annual gross revenue." This makes it really clear there is no cap on what they do for "undergrounding" and limiting the APUC jurisdiction up to five percent. There were no objections and it was so ordered. SENATOR LEMAN wanted to see the distinction between distribution versus generation and transmission revenues. This legislation would make more sense to know what revenues come from distribution. He thought they wanted to address situations like the ones on Northern Lights Blvd. and Muldoon Rd. SENATOR LEMAN suggested on line 9 after "utilities annual gross revenue from" insert "distribution to". He said they are only talking about electric lines now, but there are probably some telephone cable that are not distribution lines. He wanted to limit the revenues to only those that are associated with the distribution instead of the generation and transmission. SENATOR DONLEY agreed with that change saying that it clarifies his intent. SENATOR LEMAN moved that as a conceptual amendment. SENATOR KELLY shared Senator Leman's concern, but hesitated because he thought they had to differentiate between high voltage transmission lines and all other distribution lines which are basically low voltage and could include telephone, electric, and cable. However, he thought the committee should figure out if they really want high cost transmission lines buried. They don't know how many transmission lines there are or how they are defined. SENATOR LEMAN explained that there is a break point of kilovolts and then it drops down and go to distribution. SENATOR DONLEY said it's clear with Chugach's numbers, it would take over 100 years to get to the point where they have to deal with transmission lines even if they were covered by the bill. The other issue is that there may be some perfectly good overhead lines and they would want to wait for them to depreciate before doing this. There is probably 150 years of flexibility here. CHAIRMAN MACKIE asked for a committee substitute to be prepared for further discussion with that language in it and adjourned the meeting at 3:40 p.m.