Legislature(2017 - 2018)HOUSE FINANCE 519
04/06/2017 09:00 AM House FINANCE
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| HB114 | |
| HB121 | |
| HB120 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 114 | TELECONFERENCED | |
| + | HB 120 | TELECONFERENCED | |
| + | HB 121 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 120
"An Act relating to the Department of Law public
advocacy function to participate in matters that come
before the Federal Energy Regulatory Commission."
9:32:43 AM
ED SNIFFEN, ATTORNEY, DEPARTMENT OF LAW (DOL), shared that
he supervised the Regulatory Affairs and Public Advocacy
(RAPA) section within the department. He explained that the
bill aimed at allowing DOL the flexibility to spend money
it received from a regulatory cost charge (RCC) for matters
currently done in front of the Federal Energy Regulatory
Commission (FERC). All of the utilities and pipelines in
Alaska were regulated. The Regulatory Commission of Alaska
(RCA) received filings from pipelines and utility companies
to adjust their rates frequently and the RCA was charged
with ensuring the rates were fair and reasonable. To pay
for the regulation, the RCA imposed a regulatory cost
charge on all utilities. He noted it appeared as a small
charge on users' utility bills. The cost went to pay for
the function of the RCA to provide its administrative
regulation of utilities. The DOL also received a portion -
RAPA also appeared before the RCA to protect consumers. The
agency operated to protect individual consumers' interest
in their rates. For example, when a company (e.g. Enstar,
Chugach, or Juneau Electric) wanted to raise its rates, DOL
went to the Public Utility Commission to ensure the rates
were fair and reasonable. The department was able to use
money from the regulatory cost charge to pay for its
services. He provided a PowerPoint presentation titled
"HB120: Regulatory Cost Charge for FERC Matters." dated
April 6, 2017 (copy on file). He addressed slide 2:
The RCC is a fee assessed on public utilities and
pipelines that are regulated by the Regulatory
Commission of Alaska (RCA).
It is created by AS 42.05.254 and AS 42.06.286.
Mr. Sniffen briefly discussed slides 3 through 5. He
elaborated that charges assessed by the RCA were generally
passed on to customers - those were the customers who
received a benefit of the regulation. Each year the RCA
assessed the RCCs to utilities and pipelines based on the
amount of work required by each industry sector. It meant
that if in a particular year there was much time spent
doing electric utility regulation, the electric utilities
would pay a little more of the regulatory cost charge and
if the following year more in gas regulation was conducted,
gas utilities may pay a little more of that cost charge.
The money paid for the work of the RCA and DOL to perform
the functions and to ensure the rates were just and
reasonable.
Mr. Sniffen turned to slide 6 and relayed that the
legislature had established a cap of 0.87 percent on RCCs,
which was split between the RCA and RAPA sections of DOL.
The RCA could not exceed 0.70 percent of the adjusted gross
revenue of all of the utilities and pipelines in Alaska and
RAPA could not exceed 0.17 percent of the amount. He
addressed slide 7, which included a pie chart of RAPA's
2017 budget. The statutory cap in 2017 had been $2.374
million and its budget submitted to the RCA had been $2.3
million. He detailed that approximately 7 percent of the
total had been used for work related to pipelines and 93
percent had been used for work conducted on utilities. He
explained that the bill would not alter or grow the pie
represented on slide 7. The department was asking the
legislature to allow DOL to include matters it was
currently doing before FERC. He detailed that over the last
couple of years DOL had tried to control its costs a little
more and it was bringing work in-house on FERC matters that
had been traditionally done by outside council. The
department had reduced its outside council fees by very
significant amounts and it was trying to build expertise
and do the work in-house; therefore, RAPA was spending more
of its time on matters coming before FERC for Trans-Alaska
Pipeline System (TAPS) pipeline tariff work. As the
department saw its work in the area growing, it had found
an opportunity to amend the statute to allow it to recover
from the RCC, work it was currently doing before FERC.
Currently, RAPA could only recover money from the fund for
work that came before the RCA.
9:38:23 AM
Mr. Sniffen explained the way the cases usually worked. For
example, when pipeline carriers filed a tariff increase
they were required to file it with FERC and the RCA because
there was an interstate and intrastate jurisdictional
component. An interstate tariff paid for the cost of
shipping oil outside of Alaska and an intrastate tariff
pertained to instate shippers taking oil from the pipeline.
Generally the RCA would let the department litigate an
issue in front of FERC and when it was done the RCA would
generally adopt whatever results happened in the FERC
proceedings. The FERC work directly benefited work the
department would otherwise have to do before the RCA.
Instead the work was done in front of FERC in Washington
D.C. - the results of the efforts flowed through to the RCA
and intrastate shippers. He explained it may make referred
to the pie chart on slide 7 and noted that the change may
make the pipeline wedge of the chart a bit bigger; it would
result in a decrease in the utility RCC because the pie was
only so big.
9:40:10 AM
Representative Grenn asked if the bill would help decrease
outside counsel costs. Mr. Sniffen replied in the
affirmative. For example, DOL had paid its outside council
FERC attorneys something like $90 million over the last 30
years. He recognized it was a substantial amount of money,
but it had returned a multitude of results and the state
had saved billions of dollars because of that. The
department was taking the multi-million dollar annual
contracts was scaling them back substantially by doing the
work in-house. The bill would enable the department to pay
for some of that work as well. He detailed that the outside
council contract the previous year had gone from over $1
million to about $350,000. The department was trying to
economize where possible.
Representative Guttenberg referred to Mr. Sniffen's
testimony that the pie was not getting any larger. He noted
that the cap was statutory. He asked what would happen if
major pipeline work was going on in the state. He remarked
there would be a "little advance on all of that stuff." He
asked if DOL would come back and ask for an adjustment.
Mr. Sniffen answered in the affirmative. The department
would seek some General Fund sources if additional money
was required.
Representative Guttenberg thought the additional work would
be paid for by receipt supported services that DOL could
charge to someone else. Alternatively, he asked if the
department would only be doing the state's position.
Mr. Sniffen responded that the department represented the
state on matters before FERC because the results of its
work there also effected the production taxes and royalties
paid by the state. In the past the department had used one-
time increment budgetary sources to pay for outside council
to help with the work. However, if something went wrong and
the department had to litigate to save the state revenue,
the department would probably ask for the funds in a one-
time appropriation.
9:42:38 AM
Representative Guttenberg spoke to the "all utilities"
portion of the pie chart on slide 7. He asked if the
reference included water, sewer, power, telephone, and
other. Mr. Sniffen replied in the affirmative.
Representative Guttenberg remarked that he had been having
discussions about the issue of broadband with the
department for some time. The issue pertained to some
positions the RCA had with the FCC [Federal Communications
Commission]. He had been told that broadband work was not
under RCA's domain. He remarked that they had done some
things and he wondered if they would fall under incidental
costs. He asked if incidental costs were a category -
relating to things that did not result in major cases and
were not time consuming.
Mr. Sniffen believed Representative Guttenberg was correct.
However, he corrected that he would not specify the issue
as outside the domain of the RCA - he believed there was
jurisdiction there. He expounded that RAPA was focused more
on rate making cases and advocating for consumers who had
to pay a tariff. The telecom items pertained more to
licensing and other things that the RCA had some
overlapping jurisdiction in. He detailed that RAPA did not
really intersect with the issue. He agreed that the issue
was one of the lesser things that arose that did not take
much of the agency's attention. He was not aware of any
matter before the FCC that RAPA had been involved with.
9:44:46 AM
Representative Guttenberg noted he would show Mr. Sniffen
the documents. He was trying to determine who had
jurisdiction over broadband rates. He wondered if it was a
utility or in a public utility or not. He wondered if it
was not regulated at all. He asked who looked after the
public's interest in terms of charges and other related
items. He noted the issue could be discussed later.
Vice-Chair Gara referred to slide 7. He had a concern about
the bill and asked Mr. Sniffen to discuss the consumer
function at the RCA. He added an aside that he and Mr.
Sniffen had first met on opposite sides of a [legal] case -
he believed the state was lucky to have Mr. Sniffen working
at the Attorney General's Office. He discussed that under
the former Murkowski Administration, the consumer function,
where the state had represented consumers on whether a rate
increase was proper, had fallen under the RCA. There had
been complaints and the consumer function had been moved to
the Attorney General's Office. He asked for the accuracy of
his statements.
Mr. Sniffen believed the explanation was fair.
Vice-Chair Gara stated there had always been a consumer
function because of the existence of monopolies or close to
monopolies; it was necessary to have regulation to ensure
the price increases were reviewed by someone. He asked if
his statements were fair.
Mr. Sniffen answered in the affirmative.
Vice-Chair Gara wanted consumers to have a voice in rate
setting. He was concerned that the public's voice on
utility rate increases may underrepresented if the pie [on
slide 7] did not grow and more in-house work was done
related to FERC. He detailed that the department was not
overloaded with staff.
Mr. Sniffen responded that the question was fair. The
department had added staff to the RAPA section to deal with
pipeline matters - the position was largely paid out of
DOL's budget. He stated that because the pipeline
experience was going to grow and potentially tap into more
of the RCC - the cap could grow a little - he did not see
it as affecting the department's ability to effectively
represent consumers as zealously as it always had.
Currently, the department did not really know what would
happen from year-to-year in terms of who would file a rate
case. The agency was currently doing a couple of big cases
involving ML&P and Enstar that was taking much of its time.
The agency was also doing a bit of pipeline work, but it
had slowed down. The agency was currently directing its
energy to the utility cases. In other years there may be
more pipeline work and less utility work. He detailed that
RAPA did not control when tariff filings were made - the
department responded to the filings when they came in and
always responded when the commission asked it to. The bill
would give flexibility in the years where there were fewer
utility cases and more pipeline work to adjust its revenue
sources to compensate the agency for work done in both
sectors a bit more evenly. If there was a year like the
present where RAPA did not have numerous utility filings
and it did not spend much of its budget, the funding would
lapse. If in the same year, there was significant pipeline
work, RAPA would be unable to recover the lapsed money
because it did not have the authority to do so.
9:50:05 AM
Vice-Chair Gara surmised that the department would be doing
the same amount of work and the bill would give it more
flexibility to access the fees coming in. He noted that at
present RAPA was using general funds to pay for some of the
pipeline work. He believed that in a lower utility cost
consumer protection year and a higher pipeline cost year,
the bill would give the agency flexibility to access the
funds. He believed the amount of money would be roughly the
same but sometimes the general funds would go to the
utility attorneys and sometimes it would go to the pipeline
attorneys.
Mr. Sniffen replied that the department would always be
doing the utility work as contemplated by statute. Anything
the agency did before the RCA could be billed to RCC; if
the agency ran out of RCC funds and had remaining utility
work, it would still have to do the work. In that case, the
agency would most likely request supplemental funding. The
funds had been adequate to cover all of the agency's needs
thus far, but in a year with more pipeline work and a full
plate of utility work, the work would get done one way or
another. The question would be who would pay for the work -
the agency would most likely need to seek additional
funding.
Representative Kawasaki asked about a recent time when the
consumer protection unit [RAPA] and the RCA had disagreed
on a case. Mr. Sniffen responded that he did not have an
example on hand, but would follow up.
Representative Kawasaki spoke to the process of RCA members
being submitted by the governor and approved by the
legislature and individuals within the department were
generally career individuals. He was interested in cases
when the department had a disagreement with RCA rulings. He
wondered what happened in that case when the department was
essentially fighting with itself.
9:53:10 AM
Mr. Sniffen clarified that DOL had a consumer protection
unit that was different from RAPA. The agency disagreed
with the RCA frequently on a variety of matters. The agency
advocated before the commission on certain costs that
should or should not be included in rates (e.g. bonuses for
utility representatives and other). When RAPA argued
against something and the commission ruled in favor, it
became commission precedent and RAPA would decide whether
it was worth appealing. The agency had recently appealed a
matter when RCA had ruled against involving rate case
expense. He detailed that one of the odd things about the
process was the utilities got to roll all of their
litigation fees and money spent to bring a case on any
issue into their cost. The utilities had no incentive to
not litigate aggressively on every issue because all of the
costs were rolled into rates. The agency had stood up
against the concept in a recent pipeline case and had
communicated the decision seemed odd, especially in a case
where there had been a finding of imprudence or something.
He relayed the case was currently in appeal in the Alaska
Superior Court. There had been tensions between the RCA and
RAPA; RAPA tried to act independently on behalf of the
public interest.
Representative Guttenberg spoke about a Petro Star Inc.
case and Quality Bank issue. He stated that the company had
not won the case, but received another hearing over the
justification for the formula. The courts had ruled the
state did not have standing, which he found concerning. He
elaborated that the state represented the citizens and
there could be quite a bit of money in terms of rate
paying. He believed Petro Star paid around $25 million
annually into the Quality Bank. He stated that a
significant change would impact consumers. He asked if
there was a difference between the state's position and the
public's position related to the outcome of the case.
Mr. Sniffen was not entirely familiar with the case. He
added that he shared Representative Guttenberg's
understanding of the situation. He thought whether the way
the Quality Bank worked impacted the state to the extent
that it should have standing to participate in the case
versus whether or not it was arguing for transportation
costs in the pipeline, were two separate issues. He was
happy to have a conversation about the issue.
Representative Guttenberg commented that he believed it was
appropriate for the state to build the expertise in-house.
9:56:55 AM
Mr. Sniffen concluded the presentation with slides 8
through 12. He relayed that the bill would not increase the
cap, but it would give flexibility for the department to
arrange its caseload depending on the cases received in a
given year. Slide 9 addressed how the bill would impact
consumers, based on some questions from the House Judiciary
Committee about how pipeline shippers who would actually
pay ultimately for the increased pipeline charge. He stated
it was a small amount in the greater scheme of things for
the shippers. For example, adding $100,000 to the pipeline
RCC for the last two quarters of 2016 would increase the
surcharge by 0.041 percent. He furthered that on a $10,000
billing there would be an additional $4.10 to the shipper.
Mr. Sniffen turned to slide 10 and relayed that the
department was trying to save money by bringing the FERC
work in-house. Slide 12 conveyed that the bill would not
impact AKLNG. He moved to slide 12 and relayed there was a
check on RCC spending. He detailed that RCCs to fund RAPA
could not exceed the cap without the legislature's
permission. Second, RAPA was required to submit its budget
annually to the RCA. The process was public where any
interested party could comment.
9:59:12 AM
Vice-Chair Gara referred to a question raised by Mr.
Sniffen that he found slightly concerning. He guessed he
could see the argument for a utility to pass costs to
consumers from a rate setting case it had won; however, he
did not understand how a utility could pass along costs
accrued from challenging a rate setting and losing the
case. He asked if RAPA made the distinction in its
litigation. He did not want to make the bill heavier, but
he was concerned about the issue.
Mr. Sniffen answered that he understood the concern. He
stated that he and Vice-Chair Gara were of the same mind
and the courts were not. The issue was a frustration of
RAPA's. He explained the precedent seemed to be that if the
challenge was legitimate and reasonable, regardless of
whether there was a win or loss, the utility could recover
the costs.
Vice-Chair Gara surmised the impact seemed to be whether
RAPA could use the extra $40,000 [slide 7 indicated that
RAPA's budget was currently $40,690 under the cap]. He was
most concerned about the issue raised by Mr. Sniffen, which
he wondered about addressing in the legislation. He
surmised the governor probably did not have a position and
the department was probably not allowed to have a position.
He agreed with Mr. Sniffen's statements about what he
believed was fair and what was not.
Mr. Sniffen would be happy to discuss the issue later -
perhaps in some other legislation.
Representative Guttenberg discussed that when boroughs sued
the state and industry over the TAPS valuation issue, the
costs incurred by boroughs went back to its citizens and
the costs incurred by the pipeline (i.e. Alyeska) went into
the rate making of the state's royalty and severance. He
asked for the accuracy of his statements.
10:02:15 AM
Mr. Sniffen asked for clarification on the question.
Representative Guttenberg clarified that the state did an
evaluation of the pipeline, which was litigated annually in
court. When the borough was involved in a litigation the
citizens paid for the costs. When Alyeska was involved in a
litigation he surmised the cost was passed on to the state.
He asked if his assessment was accurate.
Mr. Sniffen responded that he was not certain. He shared
that the cost Alyeska got to include in its rates was set
by rate making principles. He believed Alyeska was able to
include in its costs the cost to defend the value of the
pipeline against a tax increase or property tax valuation
proceeding.
Representative Guttenberg asked to see a breakdown of the
information based on whether a company won or lost a case.
Mr. Sniffen agreed.
Co-Chair Seaton spoke to a problem he anticipated in the
RCA. He remarked there seemed to be very high executive
compensation in some of the coops and although there was a
board, it was heavily influenced by executives. It seemed
there was a potential situation where there were small
coops with disproportionate executive compensation bonuses.
He was trying to determine if there was potential to set
the maximum amount of executive compensation at the
governor's salary plus retirement bonus or to use some
mechanism to tie compensation amounts to some other manager
in Alaska. He continued that most of the executives were
managing people, they were not tradespeople. He had
received numerous complaints from people in coops who had
no method of controlling the issue. He asked if the issue
could be addressed.
10:05:35 AM
Mr. Sniffen answered that executive compensation was
something RAPA struggled with when it reviewed rate cases
from the coops. The current standard was whether or not the
compensation was just and reasonable. He shared that RAPA
did scrutinize those things to make sure someone was not
over compensated, which could inflate rates to the point
they became unjust or unreasonable. A way to maybe address
limiting that could be through commission regulations.
There may be other statutory fixes that he would have to
think about. He shared the concern and would be happy to
work on the issue.
Co-Chair Seaton stated that another idea that had come
forward was that tax exempt coops would lose their tax
exempt status if they paid executives over a certain
amount. He stated that it would be in control of the board
to make sure they did not exceed the just and reasonable
levels. He wondered if the idea had been considered.
Mr. Sniffen replied that the idea had not been considered,
but it could be. He thought it may be a way to incentivize
the smaller coops to ensure their executive compensation
was fair.
Co-Chair Seaton asked for Mr. Sniffen to follow up with the
committee.
Co-Chair Foster OPENED and CLOSED public testimony.
10:08:24 AM
AT EASE
10:17:07 AM
RECONVENED
[Representative Pruitt joined the meeting]
Co-Chair Foster believed some committee members were
interested in moving the bill forward and others were
interested in understanding it more. He relayed that the
bill still needed to go to the House floor and it was
towards the end of session, so he suggested moving the bill
forward.
Vice-Chair Gara addressed the one zero fiscal note from the
RAPA section of DOL. The department did not anticipate it
woud incur any extra cost.
Representative Wilson remarked that the bill had only been
received the previous evening. She was not very familiar
with the subject matter. She communicated she would object
to reporting the bill from committee at present, not based
on its content, but because she needed more information.
Co-Chair Foster understood the issue. He was trying to
weigh all of the issues and hoped Mr. Sniffen would reach
out to committee members who may have some issues with the
bill. In the interest of time he relayed the decision to
move the bill would be put to a vote.
Representative Pruitt understood a bit of the bill and
probably supported the bill, but he would support his
colleague in her concerns. He wanted to ensure his
colleague had an opportunity to have some of her questions
answered. He understood they were under a tight schedule,
however, there were some questions.
Vice-Chair Gara remarked that he had spoken with Mr.
Sniffen, who had relayed he would have time to spend with
members if they did not understand the bill. He understood
the concerns, but he believed the bill should move forward.
Vice-Chair Gara MOVED to REPORT HB 120 out of committee
with individual recommendations and the accompanying fiscal
note.
Representative Wilson OBJECTED. She stated that the
[companion] bill was in the Senate Judiciary Committee and
still had to go through the Senate Finance Committee;
therefore, she did not believe passing HB 120 was a rush.
She added that now that she understood what the new rules
were - that legislation would come before the committee and
be passed out in one meeting - she planned to do things
differently.
A roll call vote was taken on the motion.
IN FAVOR: Gara, Grenn, Guttenberg, Kawasaki, Thompson,
Seaton, Foster
OPPOSED: Tilton, Wilson, Pruitt
Representative Ortiz was absent from the vote.
The MOTION PASSED (7/3).
There being NO further OBJECTION, HB 120 was REPORTED out
of committee with a "do pass" recommendation and with one
previously published zero fiscal note: FN1 (LAW).
Co-Chair Foster addressed the schedule for the following
meeting.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB120 summary statement (03.31.17).pdf |
HFIN 4/6/2017 9:00:00 AM |
HB 120 |
| HB 120 - Presentation for House Finance (04.06.17).pdf |
HFIN 4/6/2017 9:00:00 AM |
HB 120 |
| HB114 Sectional Analysis 3.6.17.pdf |
HFIN 4/6/2017 9:00:00 AM |
HB 114 |
| HB114 Sponsor Statement 3.6.17.pdf |
HFIN 4/6/2017 9:00:00 AM |
HB 114 |
| HB121 Sectional Analysis 3.6.17.pdf |
HFIN 4/6/2017 9:00:00 AM |
HB 121 |
| HB121 Sponsor Statement 3.6.17.pdf |
HFIN 4/6/2017 9:00:00 AM |
HB 121 |
| HB121 Support Document - Federal memo to state plans 02.23.17.pdf |
HFIN 4/6/2017 9:00:00 AM |
HB 121 |
| HB141 - Supporting Testimony - Maniilaq Association.PDF |
HFIN 4/6/2017 9:00:00 AM |
HB 141 |
| HB121 Additional Document-Sponsor's Reply to House Judiciary Committee Questions 3.10.17.pdf |
HFIN 4/6/2017 9:00:00 AM |
HB 121 |