Legislature(2003 - 2004)
04/20/2004 01:49 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 515
An Act relating to the regulation of municipal water
and sewer utilities not in competition with other water
and sewer utilities.
JOSH APPLEBEE, STAFF, REPRESENTATIVE TOM ANDERSON, stated
that HB 515 would exempt Anchorage Waste Water Utility
(AWWU) 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.
The Municipality of Anchorage believes that the current RCA
regulation process is cumbersome, slow, 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 never had a rate
increase from the RCA or the Alaska Public Utility
Commission (APUC), yet ratepayers are projected to pay about
$500 thousand dollars to the RCA to cover the costs of
regulation. The greatest costs appear in the form of
regulatory delays in obtaining approval for requested
changes.
Mr. Applebee continued, the Municipality of Anchorage (MOA)
is directly accountable to ratepayers served by the
utilities. They are the voters. The Municipality has
experienced successfully regulating enterprise activities:
The Port of Anchorage, Solid Waster Services and Merrill
Field are all financially sound and provide first class
customer service and the public is involved in the hearing
process. HB 515 would change existing law by adding
language to Page 2, Lines 5-8, clarifying that water or
sewer utility owned by a political subdivision is not
directly competing with another water or sewer utility and
exempt from the RCA regulations.
MARK PREMO, (TESTIFIED VIA TELECONFERANCE), GENERAL MANAGER,
ANCHORAGE WASTE WATER UTILITY (AWWU), ANCHORAGE, testified
in support of HR 515, a bill which would exempt AWWU from
economic regulation by the Regulatory Commission of Alaska
(RCA), and place it in the same status as every other
municipally owned water/wastewater utility in Alaska, except
Pelican.
Mr. Premo provided background history on the issue. He
noted that AWWU is two separate utilities, both subject to
economic and service area regulations by the RCA. The Water
Utility, a former City of Anchorage utility, has been under
RCA regulation since inception of the Alaska Public
Utilities Commission (APUC) 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, the AWWU, was
formed in 1975, following unification of the Municipality of
Anchorage (MOA). In 1991, the Municipa1ity of Anchorage
petitioned the then APUC to exempt AWWU and its electric
utility from regulation. The Commission was evenly split by
a 2-2 vote, whether to exempt the electric utility and AWWU.
Mr. Premo pointed out that the commissioner's opinion who
opposed self-regulation, cited competition by the
Municipality's electric, telephone and other utilities as
their primary reason. No commissioner suggested that
competition between the water and wastewater was present.
There is no competition amongst them at this time.
He commented why the Municipality of Anchorage wants
exemption from RCA:
· Current RCA regulation processes and procedures are
slow and expensive.
From 1993 to 2003, AWWU never requested a rate increase, yet
AWWU ratepayers have paid approximately $2.8 million in
regulatory assessments to the RCA during that period and are
projected to pay $485 thousand dollars in 2004 to cover the
cost of regulation. The figures differ from the RCA because
they are actual projected payments in 2004 versus the
billings for the State fiscal year as estimated. History
shows that local regulation is faster, less structured and
more economical.
· Current RCA regulations and procedures are non-
responsive to local needs.
The RCA process was designed for private utilities and is
not appropriate for municipal utilities. The RCA process
is very structured and the Municipality is more responsive
to local needs and is directly accountable to the
ratepayers.
Mr. Premo urged the Committee's support for HB 515.
MARK JOHNSON, (TESTIFIED VIA TELECONFERANCE), CHAIR,
REGULATORY COMMISSION OF ALASKA (RCA), ANCHORAGE, commented
that HB 515 would be a fundamental policy call on the part
of the Legislature to decide if there is a role for the RCA
to play in continued regulation for the AWWU. He voiced his
appreciation for the work of the AWWU, which is a well-run
utility. The question is regarding the ultimate benefits to
the consumers. In 1991, there was a decision by the APUC,
which determined not to relinquish jurisdiction over the
AWWU. He advised that the benefits consumers have received
having RCA in the lead role are significant. There have
been few rate increases that the ratepayers have benefited
from.
Mr. Johnson reiterated the benefits to the consumers,
pointing out that HB 552 would alter that framework and
would remove RCA's jurisdiction. The benefits of such a
change are not clear. Most significantly, rate changes
could be accomplished with the adoption of a Municipal
Ordinance. There is no requirement to create a new
independent commission to supervise the work in the bill.
The situation would not remain the same with the Anchorage
Municipal Assembly and they would be able to determine what
rates ought to be.
Mr. Johnson thought that changes could be accomplished
swiftly. He stated that the RCA is best equipped to provide
the needed oversight for the water and sewer utilities and
the AWWU. The Municipality is not well suited to deal with
some of the inherent problems associated with the
legislation. That pertains to the reasonableness for tax
payment. Inherently, the municipal government would have a
conflict of interest, allocating expenses to the utility
while having an interest in receiving revenue distributions
from that same utility.
Mr. Johnson concluded that the RCA regulation of the AWWU
has been generally beneficial, adding, it would be a policy
call for the Legislature to decide about the RCA's
involvement. He offered to answer the Committee's
questions.
Vice Chair Meyer commented that the RCA must have been doing
a good job, as they have successfully upset many different
businesses, which is a good thing for a regulatory agency.
He inquired why the AWWU was still under the RCA's
jurisdiction. Mr. Johnson responded that in the Fairbanks
municipality, they use to own their water and sewer
utilities. The experience in municipal management of those
two utilities was not successful. In Fairbanks, it was
determined that the best course of action would be to
operate by private ownership, now regulated by the RCA. He
noted that the RCA has a good tract record in providing
useful guidelines for the utilities, insuring that things
are appropriately run. In response to comments by Vice
Chair Meyer, Mr. Johnson indicated that he did not consider
himself to be an adversary for any specific group but
instead looks to protect the consumer's interest.
Vice Chair Meyer asked if there could be a conflict of
interest with the Municipality of Anchorage passing off some
of their city expenses onto the price of water.
Mr. Johnson said the response to that could become a "heated
discussion pretty quickly". To remove the RCA jurisdiction,
water and sewer rates would rest with the Anchorage
Assembly. He noted that the Assembly over the years has
shown an appetite for trying to obtain additional
distribution of accumulated surpluses from the municipal
utilities. The Assembly is the entity in the middle of the
considerations and with whoever is the presiding mayor in
office at that time. They are involved in balancing that
area's budget. The temptation to increase rates, under the
guise of taxes or other fees, would be strong. He
reiterated that the temptation is there and with the
proposed legislation, there would be no mechanism to control
it.
Representative Hawker asked how Mr. Premo would respond to
accusations that the bill would allow local government the
ability to raise taxes on property owner's utility rates.
Mr. Premo noted that outside of Pelican, the same powers
exist in all other publicly owned jurisdictions. The
current process has many steps involved in rate increases.
The first is the economic justification for the financial
soundness of the utility. It would be then either approved
or disapproved by the administration and then would go to
the Assembly for approval. Subsequent to that, it moves to
the RCA. The mechanism currently used through the RCA would
continue to be the one used in the future, industry
standards based upon revenue requirements and cost service
studies. The financial model would continue to be the same
as currently used. The difference would be that the same
individuals that are ratepayers are also the voters in the
Municipality of Anchorage. If people were concerned with
what a local utility was doing, their voice would be more
strongly heard in front of the Municipality Assembly. He
thought there would be more control at a local level.
In response to Representative Hawker's query, Mr. Johnson
observed that if in fact the authority for rate approval
rests with the Anchorage Assembly and that there would be an
inherent conflict in providing for the overall fiscal needs
of the municipality. By doing that, it removes a
significant check by the RCA. He acknowledged that no group
of individuals have bad intent; the policy decision for the
Legislature will be whether the public interest would be
adequately served with the RCA out of the picture.
Representative Hawker asked if there was an inherent
conflict with State government regulating without federal
oversight. Mr. Johnson appreciated the comparison.
Vice Chair Meyer inquired if the AWWU not being under the
RCA umbrella could save ratepayers money. Mr. Premo
observed that it was projected in 2004 and that the amount
saved by the ratepayers would be around $485 thousand
dollars.
Vice Chair Meyer asked if he could tell his constituents
that by voting for this piece of legislation, they would be
guaranteed to see a decrease in their water rates. Mr.
Premo said yes and that in a revenue required projection,
the amount of revenue required to operate the facility could
be more than the $485 thousand dollars. Additionally, the
monthly surcharge would be eliminated. There would
absolutely be a decrease in water rates as long as they are
self-regulated.
Vice Chair Meyer echoed Representative Hawker's concern that
once they fall out from under the RCA control, there would
be no other watchdog outside of the voters. Vice Chair
Meyer noted that he was not comfortable with that idea. Mr.
Premo interjected that the question that needs to be asked
is what the municipality's intent is to regulate. He
pointed out that intent is to form a strong board of
governance that would look out for financial soundness,
active management and consumer advocacy of the utility.
Representative Stoltze spoke about the role of the RCA in
the regulatory process, asking what would be substituted for
consumer oversight. Mr. Johnson did not know.
Representative Stoltze noted that he was worried about
hypothetical situations that could occur. Mr. Johnson could
not respond, as the question was too broad. He offered to
research the issue.
HB 515 was HELD in Committee for further consideration.
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