Legislature(2005 - 2006)CAPITOL 124


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Bills Previously Heard/Scheduled
HB 108-WATER & SEWER UTILITIES OF POLIT. SUBDIV.                                                                              
CO-CHAIR THOMAS announced that the  final order of business would                                                               
be HOUSE  BILL NO.  108, "An  Act relating  to the  regulation of                                                               
water and sewer utilities of  political subdivisions that are not                                                               
in competition with other water and sewer utilities."                                                                           
8:20:04 AM                                                                                                                    
JOSH APPLEBEE, Staff to Representative  Tom Anderson; House Labor                                                               
and  Commerce  Standing   Committee,  Alaska  State  Legislature,                                                               
introduced  HB 108  on behalf  of  the House  Labor and  Commerce                                                               
Standing Committee,  which Representative  Anderson chairs.   Mr.                                                               
Applebee   paraphrased  from   the   following  written   sponsor                                                               
statement [original punctuation provided]:                                                                                      
     House  Bill  108  would exempt  Anchorage  Waste  Water                                                                    
     Utility  from regulation  by the  Regulatory Commission                                                                    
     of Alaska  (RCA).  Except  for the City of  Pelican, no                                                                    
     other  municipal  owned   water/wastewater  utility  is                                                                    
     regulated by  the RCA.   (Pelican  requested regulation                                                                    
     of its water utility by the RCA).                                                                                          
     The  Municipality  of   Anchorage  [MOA]  believes  the                                                                    
     current RCA regulation  processes are cumbersome, slow,                                                                    
     expensive,   and   non-responsive   to   local   needs.                                                                    
     Ratepayers are  required to pay  for the  expensive RCA                                                                    
     regulatory  process  as  a  surcharge  on  every  bill,                                                                    
     whether or not  their utility has a case  pending.  For                                                                    
     example,  from 1993  until 2003  AWWU [Anchorage  Water                                                                    
     and Wastewater Utility] never had  a rate increase from                                                                    
     the  RCA  or  the  APUC, yet  ratepayers  have  paid  a                                                                    
     regulatory  assessment  to the  RCA  as  part of  every                                                                    
     bill.   In 2004  AWWU ratepayers  are projected  to pay                                                                    
     about  $500,000  to  the  RCA to  cover  the  costs  of                                                                    
     regulation.  The  greatest costs appear in  the form of                                                                    
     regulatory delay  in obtaining approval of  a requested                                                                    
     The MOA  is directly  accountable to  ratepayers served                                                                    
     by the utilities  - they are voters.   The Municipality                                                                    
     has   experience  successfully   regulating  enterprise                                                                    
     activities.    The  Port   of  Anchorage,  Solid  Waste                                                                    
     Services and  Merrill Field  are all  financially sound                                                                    
     and provide  first class  customer service.   Municipal                                                                    
     public hearings are held on  any proposed rate increase                                                                    
     and  the  public  is  very   involved  in  the  hearing                                                                    
     HB 108  changes existing law  by adding lines 5  thru 8                                                                    
     on Page 2.  This language  states that a water or sewer                                                                    
     utility owned  by a political subdivision  not directly                                                                    
     competing  with  another  water  or  sewer  utility  is                                                                    
     exempt from RCA regulation.                                                                                                
     I would ask for your support on HB 108.                                                                                    
8:22:52 AM                                                                                                                    
REPRESENTATIVE  NEUMAN asked  if AWWU  receives funding  from the                                                               
Department  of   Commerce,  Community,  &   Economic  Development                                                               
(DCCED).   If AWWU  does receive funding  from DCCED,  would AWWU                                                               
lose  that funding  [were HB  108  to pass],  he asked.   If  the                                                               
aforementioned is the case, would  it cause any rate increase, he                                                               
also asked.                                                                                                                     
MR. APPLEBEE deferred to the general manager of AWWU.                                                                           
8:23:40 AM                                                                                                                    
REPRESENTATIVE SALMON inquired as to how Anchorage came to be                                                                   
under the RCA.                                                                                                                  
MR. APPLEBEE deferred to the general manager of AWWU.                                                                           
8:24:19 AM                                                                                                                    
MARK PREMO, General Manager, Anchorage Water and Wastewater                                                                     
Utility (AWWU), testified in support of HB 108.  He explained:                                                                  
     This bill  would exempt  AWWU from  economic regulation                                                                    
     by the Regulatory Commission of  Alaska and place it in                                                                    
     the  same  status  as  every  other  municipally  owned                                                                    
     water,  wastewater  utility   in  Alaska,  except  one:                                                                    
     Pelican.    First,  some  background:     AWWU  is  two                                                                    
     separate  utilities,  both   subject  to  economic  and                                                                    
     service area  regulations by the  Regulatory Commission                                                                    
     of  Alaska.    The  water utility,  a  former  City  of                                                                    
     Anchorage utility, has been  under RCA regulation since                                                                    
     inception   of  the   APUC  [Alaska   Public  Utilities                                                                    
     Commission  -  predecessor  to   RCA]  in  1970.    The                                                                    
     Anchorage sewer  utility, which  was formerly  owned by                                                                    
     the  greater  Anchorage  area borough  was  voluntarily                                                                    
     submitted  to the  APUC  for regulation  in  1971.   An                                                                    
     umbrella  organization,   AWWU,  was  formed   in  1975                                                                    
     following  the  unification   of  the  Municipality  of                                                                    
     Anchorage.    The  Municipality of  Anchorage  in  1991                                                                    
     petitioned  the  then-APUC  to   exempt  AWWU  and  its                                                                    
     electric  utility  from  regulation.    The  commission                                                                    
     split  evenly  by  a  2:2   vote  on  the  question  of                                                                    
     exempting the  electric utility and AWWU  at that time.                                                                    
     The  opinion   by  the  commissioners   opposing  self-                                                                    
     regulation  cited  competition  by  the  municipality's                                                                    
     electrical  utility and  telephone  utility with  other                                                                    
     utilities as the primary reason  why AWWU should remain                                                                    
     regulated  by the  state.    No commissioner  suggested                                                                    
     then, or  has suggested since that  competition between                                                                    
     water  and wastewater  was present,  nor  is there  any                                                                    
     competition today.   On   April 28, 2004, the  House of                                                                    
     Representatives approved House  Bill 515, approximately                                                                    
     in  a 3:1  margin.   This bill  would've exempted  AWWU                                                                    
     from economic regulation by the  RCA.  Time ran out and                                                                    
     the Senate did not act on the bill last year.                                                                              
8:27:01 AM                                                                                                                    
     Why   does  the   Municipality   of  Anchorage   desire                                                                    
     exemption from  RCA?  One,  the current  RCA regulation                                                                    
     process and  procedures are expensive.   From 1993-2003                                                                    
     AWWU  filed  only  minor  housekeeping  and  procedural                                                                    
     matters with  the RCA and  never requested  an increase                                                                    
     in rates.   Yet, during that same period  of time, AWWU                                                                    
     ratepayers   paid   approximately   $2.8   million   in                                                                    
     regulatory assessments  to the  RCA during  this period                                                                    
     as part of  every monthly bill.  In fact,  in 2004 AWWU                                                                    
     paid for $445,000  to cover the cost  of regulation and                                                                    
     we estimate  that will be  $550,000 in 2005.   However,                                                                    
     the greater  cost to AWWU  and its customers is  in the                                                                    
     form  of   the  cost  for  preparing   and  filing  and                                                                    
     regulatory lag.   AWWU filed for the initial  part of a                                                                    
     two-phase rate  increase in  a refundable  interim rate                                                                    
     in January  2004 with the expectation  that by year-end                                                                    
     2004,  the  RCA  would  rule on  both  phases  of  this                                                                    
     request.    The public  hearing  has  been delayed  and                                                                    
     rescheduled by the  RCA, and is now set  for June 2005,                                                                    
     15  months  later.    This  large  delay  substantially                                                                    
     increases  the jeopardy  for  the  AWWU ratepayers  and                                                                    
     AWWU  in the  event  that a  portion  of the  requested                                                                    
     rates have  to be  refunded.  In  addition, due  to the                                                                    
     extreme  amount of  discovery questions  in the  case -                                                                    
     over 530 in  all - this case has  also become extremely                                                                    
     expensive to  the utility.  History  and present events                                                                    
     show that local regulation  is faster, less structured,                                                                    
     and more economical.                                                                                                       
     Two,  current   RCA  regulations  and   procedures  are                                                                    
     nonresponsive  to local  needs.   The RCA  was designed                                                                    
     for public  utilities and  is not  entirely appropriate                                                                    
     for municipal  utilities.  The RCA  is very structured.                                                                    
     The municipality is more responsive  to local needs and                                                                    
     is  directly accountable  to  the  ratepayers who  were                                                                    
     served  by the  utilities.   These  customers are  also                                                                    
     municipal  voters.   Public hearings  are  held by  the                                                                    
     municipality  on  all rate  matters.    I ask  for  the                                                                    
     committee's  support of  HB 108.   Self-regulation  has                                                                    
     worked effectively across the  nation and other Alaskan                                                                    
     communities and in Anchorage.   Anchorage has regulated                                                                    
     its own public utilities for  many more years than have                                                                    
     state regulators.  The Municipality  of Anchorage has a                                                                    
     proven  track record  of  [effectively] regulating  the                                                                    
     Port  of  Anchorage,  Merrill Field,  and  Solid  Waste                                                                    
     Services.     All   are   financially  strong,   highly                                                                    
     reputable enterprises  that provide  excellent customer                                                                    
     services.   Rate  changes have  been infrequent.   AWWU                                                                    
     has provided its customers  with excellent service, low                                                                    
     stable rates, and  sound finances.  In  2004 AWWU filed                                                                    
     for its first rate increase  since 1992.  For more than                                                                    
     a  decade, AWWU  ratepayers  have benefited.   We  have                                                                    
     reduced positions and  expense by leveraging technology                                                                    
     and  improving business  processes while,  at the  same                                                                    
     time,  increasing   spending  on  system   repairs  and                                                                    
     rehabilitation.   This  has all  been done  without the                                                                    
     direction and  or assistance  for value-added  from the                                                                    
     RCA.   Over the years  the mayor and the  assembly have                                                                    
     made  sound decisions  in their  oversight of  AWWU and                                                                    
     other  municipally owned  utilities.   The Municipality                                                                    
     of Anchorage  supports the  establishment of  a strong,                                                                    
     independent authority  to oversee and regulate  AWWU in                                                                    
     lieu of the  RCA.  The ratemaking process  will be very                                                                    
     similar to  standard industry practices.   In fact, the                                                                    
     development  of   revenue  requirements  and   cost  of                                                                    
     services to meet the  additional cost causer/cost payer                                                                    
     regulatory approach.                                                                                                       
8:31:03 AM                                                                                                                    
     In conclusion,  with the passage  of HB  108, municipal                                                                    
     regulation  of AWWU  will  balance consumer  protection                                                                    
     with financial  soundness.  And  AWWU will  continue to                                                                    
     operate  on a  sound business  basis.   This bill  only                                                                    
     makes  a minor  adjustment to  the existing  statute to                                                                    
     facilitate the  proper self-regulation  of AWWU  and is                                                                    
     identical to the House Bill  515 which passed the House                                                                    
     last  session.    The  RCA   would  still  continue  to                                                                    
     regulate AWWU  water and wastewater  services.   And in                                                                    
     closing, in  answer to  one of  the questions  that was                                                                    
     asked  by  a  Representative  earlier,  AWWU  does  not                                                                    
     receive any  operational funds  from any  department of                                                                    
     the state.   The only  funds that AWWU receives  are an                                                                    
     occasional  direct appropriation  or  a 50:50  matching                                                                    
     grant  program  for  capital expenditures  through  the                                                                  
     ADEC program.                                                                                                              
8:32:22 AM                                                                                                                    
KATE  GIARD, Chairman,  Regulatory  Commission  of Alaska  (RCA),                                                               
informed the  committee that  until last year  she was  the Chief                                                               
Fiscal Officer (CFO) for MOA.   She recalled that during her time                                                               
as the  CFO for MOA, she,  too, raised the issues  [brought forth                                                               
by Mr. Premo].   As the chair  of the RCA, she said  that she has                                                               
reviewed what Mr. Premo taught  her regarding value added because                                                               
Mr. Premo  and the Assembly of  MOA have improved AWWU  without a                                                               
great deal of RCA intervention.   Ms. Giard related that when she                                                               
originally   reviewed  this   matter,  coming   fresh  from   the                                                               
municipality, she suggested letting  AWWU function out from under                                                               
the RCA.  However, she suggested  that the RCA functions for AWWU                                                               
in a similar  fashion as the state's ownership  of Alaska Housing                                                               
Finance  Corporation  (AHFC).   Regulations  stand  between  [the                                                               
state and  AHFC] to ensure [AHFC]  is a healthy entity.   The RCA                                                               
is in the  same position between the ratepayers of  AWWU and MOA.                                                               
Ms. Giard  agreed that the RCA  is slow, but stressed  that "you"                                                               
wouldn't want  it to be  a speedy  process.  She  emphasized that                                                               
she is  pleased that  the RCA  is slow  and that  it has  been 15                                                               
months since a rate case increasing  the rate by $108 a year came                                                               
before  it.   She characterized  the $108  rate increase  as huge                                                               
because it's  a $6  million increase in  property taxes  that the                                                               
city passed  through to  AWWU.   The ratepayers  want the  RCA to                                                               
take 15 months  to review such a case.   She highlighted that now                                                               
the  attorney  general is  going  to  review  the rate  case  and                                                               
determine whether it's  appropriate for the city  to pass through                                                               
its costs to the utility.   Ms. Giard informed the committee that                                                               
approximately  40  percent  of  AWWU's  costs  are  from  general                                                               
government in  the form of property  taxes or costs for  which it                                                               
has already received approval to shift.                                                                                         
MS. GIARD said  she understood why AWWU wants control.   In fact,                                                               
she said  that AWWU  should have control.   She  highlighted that                                                               
comments  [from AWWU]  on this  matter last  year indicated  that                                                               
[AWWU]  would  create  a  system  similar to  that  of  the  RCA.                                                               
However, she  questioned what system or  ordinance the [Anchorage                                                               
Assembly] has  created.  She  also questioned what has  been done                                                               
to show  the state that [the  proposed system] would result  in a                                                               
cheaper and  better method  of regulation than  that of  the RCA.                                                               
Ms. Giard  asked, "Why, when they  put forward a 20  percent rate                                                               
increase, did they tell  you last year:  'If you  let us come out                                                               
of  RCA jurisdiction,  our rates  will go  down.'"   Although Ms.                                                               
Giard said  that she didn't  believe it's  wrong for the  city to                                                               
want to manage  its own utility, she  did believe it to  be a bit                                                               
premature this year.   Therefore, she suggested  letting the rate                                                               
case go  forward and if  AWWU continues to  operate as it  has in                                                               
the  past,  there  won't  be  another rate  case  for  15  years.                                                               
Therefore, the city won't have  to implement processes similar to                                                               
the RCA.   Ms. Giard emphasized the  need for there to  be a plan                                                               
that specifies the  benefit to the ratepayers,  which hasn't been                                                               
8:40:40 AM                                                                                                                    
REPRESENTATIVE  LEDOUX  inquired as  to  how  other utilities  in                                                               
other cities have been functioning without the RCA.                                                                             
MS. GIARD  agreed that it's  unfair that AWWU is  being regulated                                                               
and  others aren't.   However,  she reiterated  the need  for the                                                               
city to  put in place a  plan because there are  costs that don't                                                               
go to  AWWU because  of the RCA.   The  aforementioned protection                                                               
would be removed with this legislation.                                                                                         
8:41:56 AM                                                                                                                    
REPRESENTATIVE LEDOUX  asked if there  have been any  problems in                                                               
the utilities that aren't regulated by the RCA.                                                                                 
MS.  GIARD  said  that  AWWU  is unlike  other  utilities.    She                                                               
emphasized  that  with  or  without  RCA  regulation,  AWWU  will                                                               
continue to provide good services.   However, the temptation will                                                               
be that the  cost of government may inappropriately  shift to the                                                               
ratepayers, which are not homogenous  with the taxpayers.  Before                                                               
removing the  protection [the RCA  provides], she  suggested that                                                               
[the legislature should] require a  plan.  She questioned whether                                                               
there has been a public hearing on this matter.                                                                                 
8:43:48 AM                                                                                                                    
REPRESENTATIVE NEUMAN  asked if Mr.  Premo had a response  to how                                                               
the  rates  will  change  [if  AWWU  comes  out  from  under  RCA                                                               
8:44:20 AM                                                                                                                    
MR. PREMO  thanked Ms. Giard for  indicating that AWWU is  a good                                                               
utility  because that  its the  primary purpose.   Regarding  the                                                               
cost  of  regulations and  how  to  protect ratepayers  from  the                                                               
potential  raid of  utility funds  or the  potential increase  of                                                               
utility rates  in order to  meet the needs of  general government                                                               
is a  concern everyone  shares.   With a  self-regulated utility,                                                               
the intent  for ratemaking purposes  would be to continue  to use                                                               
the  same ratemaking  principles  as AWWU  uses  before the  RCA;                                                               
these are industry standard principles.   Simply stated, the cost                                                               
causer is  the cost payer.   He suggested that having  a group of                                                               
people appointed  by the governor, confirmed  by the legislature,                                                               
and  an  arm's  length  from  locally  elected  officials  making                                                               
decisions regarding how local money  is spent, isn't as strong as                                                               
an  administration and  a locally  elected commission  to oversee                                                               
the  utility.     The  closer  to  local   government,  the  more                                                               
responsive the  entity is to  the needs  of the local  people and                                                               
the  more  accountable  the  entity.    Mr.  Premo  informed  the                                                               
committee that  [MOA] has an  advisory commission  recommended by                                                               
the  mayor  and  appointed  by   the  assembly.    That  advisory                                                               
commission reviews the operations of AWWU.   In fact, there was a                                                               
recent public meeting with the  advisory commission for which the                                                               
agenda included  self-regulation in  the formation  an authority.                                                               
Mr. Premo  agreed with Ms.  Giard that  there needs to  be checks                                                               
and balances, which will be in the form of an authority.                                                                        
8:47:46 AM                                                                                                                    
REPRESENTATIVE  NEUMAN inquired  as  to the  status  of the  plan                                                               
promised last year.                                                                                                             
MR.  PREMO surmised  that Representative  Neuman is  referring to                                                               
the  authority,  which  would  be  the  governing  model  of  the                                                               
utility.   He  stressed that  there is  a plan  and the  advisory                                                               
commission is  working on it.   In fact, MOA intends  to have the                                                               
authority  operational prior  to year-end.   The  details of  the                                                               
authority do need to address all of the concerns of the RCA.                                                                    
8:49:11 AM                                                                                                                    
REPRESENTATIVE NEUMAN surmised then that  [the MOA] plans to have                                                               
something in  place by  the time  this legislation  moves through                                                               
the process.                                                                                                                    
MR. PREMO confirmed  that [MOA] does plan to go  through a public                                                               
process and establish [an authority]  by ordinance prior to year-                                                               
end, in time  for the fiscal year '06 budget  cycle.  However, he                                                               
didn't  believe   the  plan  could   come  together   before  the                                                               
legislation passes through the House or Senate.                                                                                 
8:50:14 AM                                                                                                                    
KATHIE   WASSERMAN,  Alaska   Municipal   League,  informed   the                                                               
committee that  up until  six months  ago she  was the  mayor and                                                               
administrator  of the  City  of  Pelican.   The  City of  Pelican                                                               
became regulated  because of circumstances  that seemed  to leave                                                               
no  other  choice.   The  paperwork  [under RCA  regulation]  was                                                               
"unbelievable"  and slow.   She  opined that  most municipalities                                                               
have checks and  balances in place through  ordinances and public                                                               
hearings, which  allow the municipality to  establish fair rates.                                                               
Ms.  Wasserman further  opined  that AML  holds  firm that  local                                                               
government   is  the   best  and   most  responsive   government.                                                               
Therefore, she spoke  in favor of MOA having  "its own regulatory                                                               
form."   She  also  questioned how  many  other utility  entities                                                               
within  Alaska have  been required  to put  forth a  plan, as  is                                                               
being recommended by the RCA.                                                                                                   
8:52:27 AM                                                                                                                    
CO-CHAIR THOMAS, upon determining no  one else wished to testify,                                                               
closed public testimony.                                                                                                        
8:52:37 AM                                                                                                                    
REPRESENTATIVE  CISSNA related  that those  in MOA  don't quietly                                                               
watch when the municipal government  does things it doesn't like.                                                               
Representative Cissna opined  that the voters in  MOA deserve the                                                               
right to be the gatekeepers [of AWWU].                                                                                          
8:53:34 AM                                                                                                                    
REPRESENTATIVE  SALMON asked  if Pelican  wants to  be under  RCA                                                               
CO-CHAIR  THOMAS recalled  that  Kake Tribal  purchased the  cold                                                               
storage that held  the water in Pelican, which was  when the City                                                               
of Pelican shifted to RCA regulation.                                                                                           
REPRESENTATIVE SALMON restated his question.                                                                                    
CO-CHAIR THOMAS surmised from Ms.  Wasserman's body language that                                                               
the City of Pelican doesn't like being under RCA regulation.                                                                    
8:54:40 AM                                                                                                                    
REPRESENTATIVE SALMON asked if the  legislation should be amended                                                               
such that  the City of  Pelican wouldn't be under  RCA regulation                                                               
CO-CHAIR  THOMAS opined  that if  the City  of Pelican  wanted to                                                               
leave RCA regulation, it would come forward.                                                                                    
8:55:10 AM                                                                                                                    
MS. WASSERMAN clarified  that she isn't speaking for  the City of                                                               
Pelican,  but  related that  in  order  to  take over  the  water                                                               
[holding facilities] the  city had no choice but to  be under RCA                                                               
8:55:50 AM                                                                                                                    
REPRESENTATIVE NEUMAN  moved to  report HB  108 out  of committee                                                               
[with  individual  recommendations  and the  accompanying  fiscal                                                               
notes].  There being no objection, HB 108 was reported from the                                                                 
House Community and Regional Affairs Standing Committee.                                                                        

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