Legislature(2003 - 2004)
05/12/2003 03:18 PM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE BILL NO. 111 An Act extending the termination date of the Regulatory Commission of Alaska; and providing for an effective date. Co-Chair Williams MOVED to bring up the original version of the bill before the Committee rather than the House Labor and Commerce version. There being NO OBJECTION, the original version was before the Committee. DAVE HARBOUR, (TESTIFIED VIA TELECONFERENCE), CHAIR, REGULATORY COMMISSION OF ALASKA (RCA), ANCHORAGE, supported approval of the Governor's version of the bill. He noted that at this time "nothing is broken" and nothing needs fixing. Extending the RCA for another four years, members should know that: · Their predecessors and members in 1990, provided action to change the way that business was done for the RCA but changing the Alaska Public Utilities Commission (APUC) into the RCA with new rules. That action was successful. He noted that when action was taken in 1999, the APUC was overwhelmed by the 500 cases before them. Now, the normal number of cases per year is between 160-200. The number of cases processed should equal the number of cases that come in. · The Legislative Budget and Audit Committee (LBA) has noted the improvement of the Commission. LEONARD STEINBERG, (TESTIFIED VIA TELECONFERENCE), VICE PRESIDENT OF GENERAL COUNSEL, ALASKA COMMUNICATION SYSTEMS (ACS), ANCHORAGE, testified that ACS would support the House Labor and Commerce version of the legislation. ACS would not support authorizing RCA without further policy guidance. It is important to note that many things are being powered with shortsighted regulatory policies. Policies today are broken and are in need of repair and that the State Legislature should remedy these concerns. Alaska is being harmed because the one sided policies keep new investment discouraged in the telecommunication infrastructure. ACS cannot make any money under the current rules. Competitors have no incentive to invest. Today, State regulatory policy obligates ACS to lease its facilities at rates below sale costs, providing a subsidy to the competitors. Mr. Steinberg stressed that Alaskans prefer regulations that are fair, providing a level playing field. He reiterated that ACS supports the House Labor and Commerce version of the legislation and offered to answer questions of the Committee. JOE GRIFFITH, (TESTIFIED VIA TELECONFERENCE), CEO, CHUGACH ELECTRIC, ANCHORAGE, echoed comments made by the previous speaker, Mr. Steinberg. He disagreed that "nothing was broken". The Commission results are broken and have placed many major entities in the Rail belt in financial difficulties. Inappropriate work from RCA has cost Chugiak Electric a lot of money and continues to impact them. No group should have the authority to place another entity into financial difficulty from mistakes that they make. The issue results from the fact that RCA is not capable of doing the work that the State expects of them, representing the current market place. The new rules have not worked and the quality of the product is exceptionally bad. The proper criterion is how well is the Commission serving the market place and doing the work expected of them. The costs encountered from the Rail belt will be with them for years, creating consternation among rating agencies. The most recent case cost over $5 million dollars. RCA does not have the right to make mistakes and to continue producing the product it has. JIM ROWE, (TESTIFIED VIA TELECONFERENCE), DIRECTOR, ALASKA TELEPHONE ASSOCIATION (ATA), ANCHORAGE, echoed comments made by the previous speaker, Mr. Griffith. He reiterated that the rural companies are very concerned that things are "wrong" and have been wrong with the current system. He spoke against the new Chair of the Commission. There had been full discussion given to those considerations in the House Labor and Commerce Committee. Amendments are needed and they have been submitted by many entities before the State Legislature. He pointed out that telecommunication concerns have been before the Legislature for many years. He predicted that within four years, there will be devastation within the industry. STEVE HAMLEN, (TESTIFIED VIA TELECONFERENCE), UNITED UTILITIES, ANCHORAGE, spoke in support of comments made by Mr. Rowe. He noted that United Utilities was a member of the Alaska Telephone Association (ATA). TAPE HFC 03 - 89, Side A Mr. Hamlen warned that decisions made by RCA in the past couple years have created great concerns for other business statewide. He warned that small local business and coops would be regulated out of existence. He urged that HB 111 be passed as amended in the House Labor and Commerce Committee. ERIC YOULD, (TESTIFIED VIA TELECONFERENCE), EXECUTIVE DIRECTOR, ALASKA RURAL ELECTRIC COOPERATIVE ASSOCIATION (ARECA), ANCHORAGE, noted that his utilities generate approximately 90% of the State's electricity. Last year, the Legislature indicated that they would put together a task force to press changes to the RCA. ARECA took that recommendation seriously and had a number of meetings, providing amendments that would streamline the agency. Mr. Yould echoed agreement with Mr. Griffith that RCA needs reform. The amendments were provided to both the House Labor and Commerce Committee and the House Finance Committee members. ARECA strongly believes that there are changes which need to be made to RCA. The amendments have been on the table for months and the Legislature has not chosen to address them. Mr. Yould emphasized that they do not support the version of the legislation before the Committee and do not support a four-year extension to RCA. The industry only supports a one-year extension of the Commission without incorporating the proposed amendments. He pointed out that the LBA Committee recommended that RCA be extended for only two years. STEVE CONN, (TESTIFIED VIA TELECONFERENCE), ATTORNEY, FORMER EXECUTIVE DIRECTOR, ALASKA PUBLIC INTEREST RESEARCH GROUP (AKPIRG), ANCHORAGE, explained that the one "hope" that consumers, both rural and urban, have in Alaska, is both a strong and vital regulatory commission. The work they do should keep virtual monopolization and exploitation from occurring to the consumers. He noted that the utilities continue to be exempt from laws governing monopoly. That exemption should be dropped. Mr. Conn agreed with the Governor that the Commission should be extended for another four years. The focus should be that the consumers voice is heard within the RCA and stressed that would be difficult and detailed work. He noted that he did support the original bill. PAT LUBY, ALASKA ASSOCIATION OF RETIRED PERSONS (AARP), JUNEAU, stated that AARP is in support the reauthorization of the RCA. The RCA is the only place that a consumer can go with a utility problem. Mr. Luby recommended that the bill pass as proposed by the Governor, a clean bill with no amendments. KRISTY CAITLIN, DIRECTOR, GOVERNMENTAL AFFAIRS, AT&T ALASCOM, ALASKA, testified that Alascom has a long history of providing telecommunications services to the State of Alaska. It has the longest history of any inter-exchange carrier in the State. Ms. Caitlin stated that both telecom service providers and policy-makers have a twofold obligation to the constituents of the State. · To ensure that basic telecom services remain affordable to everyone in the State; and · To provide a regulatory environment that fosters continued investment in the telecom infrastructure, ensuring that advanced services reach all parts of the State. In the early days, Alascom was the only long distance carrier in Alaska, and as such, the regulated monopoly. In 1991, when intrastate long distance competition was initiated, additional regulations were developed to ensure that Alascom did not misuse its monopoly power to subvert competition. The new regulations, granted new long-distance competitors broad and significant freedoms. Competition grew and flourished. In 1995, AT&T bought Alascom. Many of the regulations that restrict AT&T Alascom today are vestiges of the old monopolistic environment. However, in this highly competitive marketplace, they do not serve as an incentive for investment and only serve to add cost and provide a disincentive for investment. It was deregulation of the industry and the management of competition that spurred investment. In 1995, when AT&T fell below 60% market share in the lower 48, the Federal Communications Commission (FCC) ceased regulating AT&T as the "dominant carrier" and deemed the market for long distance as competitive. Ms. Caitlin noted that AT&T Alascom currently has 42% of the long distance business and that their largest competitor, General Communications Incorporated (GCI) has 46-48% of the long distance business. Regulations add substantially to cost structures for tracking, journalizing and reporting. It also adds regulatory process that the competitors do not have. The situation really is one of "dominance" and with increased costs and inability to compete because of outdated regulations; ability to attract capital and invest in the network is hamstrung. She pointed out that Alascom's proposed amendment language would establish a definition of "dominance." The amendment was intended to level the playing field so that all carriers could play by the same rules. The amendment is specifically intended to benefit Alaska consumers by: · Ensuring a healthy competitive environment through equalizing regulatory requirements for all players; · Reducing regulatory cost; and · Increasing competitive flexibility. Eliminating the additional costs and filing requirements, the amendment would directly increase AT&T Alascom's ability to more effectively compete and that the consumers would ultimately benefit from the increased competition. Over the next 12 to 18 months, Alaska must wrestle with some difficult issues regarding telecom regulation. At stake is the survival of an infrastructure, which is struggling to keep up with the rest of the country. In a true free market, there is less regulation, not more; and competition, not regulation, becomes the force to shape the market. DANA TINDALL, SENIOR VICE PRESIDENT OF LEGAL AFFAIRS, GCI, spoke in support of the RCA, requesting that it be extended for an additional four years. She pointed out that the "stated" purposes of the amendments proposed were supposedly to accelerate the development of competition and promote investment and the improvement of existing facilities used to provide telecommunications services. However, in reality, the effect of the amendments would eliminate competition and allow ACS and other telephone companies to implement rate increases to consumers, while eliminating regulatory requirements to upgrade existing facilities. · The amendments would allow all local telephone companies to implement rate increases to Alaska's consumers. Depreciation expense is one large components of the costs that regulated utilities are allowed to collect from ratepayers. Regulated depreciation rates are based on the actual, useful service life of the equipment used to provide service. However, ACS is dissatisfied with the service lives set by the RCA after a recent proceeding in which it was seeking to raise rates. Section 4 of the previous version would reverse RCA's decision and authorize all telephone utilities to base depreciation on the service lives permitted by the Internal Revenue Service (IRS) for income tax purposes. Use of that would allow ACS and all other telephone companies, to implement rate increases to all ratepayers. Ms. Tindall noted that Section 2 of the House Labor and Commerce version would allow local telephone companies to implement rate increases without any oversight from RCA. · The amendments would allow local and long distance carriers to discriminate between customers and areas within the State. Ms. Tindall pointed out that Section 5 of the previous version would declare the entire State "competitive" for long distance service and completely exempts all long distance carriers from rate regulation by the RCA. The exemptions would be available to long distance companies immediately and to any local phone company as soon as any competitor was able to provide service, but before actual development of competition. · The amendments would allow ACS to eliminate competition and that the amendments are contrary to federal law and would create tremendous market uncertainty. Ms. Tindall continued, Section 8 of the House Labor and Commerce version allows ACS, without any negotiation to unilaterally increase the rates it charges to GCI pursuant to the existing Interconnection Agreement that was arbitrated under federal law and approved by the RCA. The pricing standard set in Sections 4 and 8 are contrary to the pricing requirements set by federal law and upheld by the United States Supreme Court. · In direct contradiction of the stated purpose, the amendments eliminate requirements to upgrade existing networks. Ms. Tindall pointed out that Section 1 of the amended version stipulates that the amendments are intended to improve the existing facilities used to provide local phone service; however, Section 3, prohibits the RCA from requiring phone companies to improve existing facilities. The amendment was targeted at a regulation adopted by the RCA in 1997 requiring all phone companies to support a data transmission rate of 28.8 kilobits per second by 2003. Furthermore, Section 5 exempts local phone companies from the statutory requirement (AS 42.05.291) to maintain "safe services and facilities" that allows RCA to require correction of unsafe facilities. · In direct contradiction to the stated purpose, the amendments discourage investment in telecommunication facilities in Alaska. Ms. Tindall indicated that Section 1 states that existing policies favoring local competition actually discourage investment in Alaska's telecommunication facilities. She noted that the argument is false and has been rejected by the United States Supreme Court. · The amendments would require GCI to protect ACS from the effects of competition. Ms. Tindall reiterated that the GCI leases portions of ACS' facilities to provide local phone service, and GCI pays RCA- approved rates for those facilities. The important aspect of the federal Telecommunications Act enables incumbents like ACS to continue to receive revenue even for customers served by a new competitor. Nonetheless, ACS has complained bitterly about the requirement that it allows GCI to use its facilities, and because of poor service and high rates of ACS, GCI is developing its own local exchange facilities. Representative Stoltze MOVED to place HB 111 into a subcommittee to address the many different concerns and view points expressed. Co-Chair Williams OBJECTED. DANIEL PATRICK O'TIERNY, (TESTIFIED VIA TELECONFERENCE), ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW, ANCHORAGE, interrupted the discussion. He encouraged the Committee to retain the Governor's original "clean bill", which seeks the extension of the termination date for the RCA. He stated that the amendments would open up issues from past "phone wars". Several of the amendments implicate federal law and the Federal Communications Commission (FCC) directives. RCA's decisions are currently subject to judicial review. Several of the amendments involve technical features of ratemaking that do not lend themselves to making policy. Finally, he noted that several of the amendments relate to ongoing RCA proceedings. Given the significant issues currently before this Legislature and the limited time before session ends, to other than simply extend the RCA will guarantee another chapter in Alaska's "phone war". Co-Chair Harris asked for assurance from the Administration regarding this issue. He observed that the issue had been raised for the last five years. There has been reference to the restructuring of the RCA during past legislatures. A number of companies have "taken exception" to decisions and/or operations made by RCA. He asked if the Administration was willing to work with those companies during the interim to craft legislation addressing the concerns. Mr. O'Tierney affirmed that the Administration would endeavor to create such legislation. Representative Berkowitz questioned the impact on existing RCA rulings if the Commission were to sunset. Mr. O'Tierney was uncertain regarding those impacts. Co-Chair Williams expressed his faith that the current Administration would resolve the RCA concerns. Representative Berkowitz disagreed. Representative Foster MOVED to report HB 111 out of Committee with the accompanying fiscal note. Representative Berkowitz OBJECTED. Representative Berkowitz maintained that public testimony was not yet complete, and suggested that more information was needed. Co-Chair Williams responded that members had plenty of information provided by the lobbyists as well as discussion provided in the House Labor and Commerce Committee. He reiterated his trust in the Governor's office. Representative Berkowitz indicated that he had further questions. Co-Chair Williams interjected that there would be future opportunities to discuss this bill during the Legislative process. A roll call vote was taken on the motion. IN FAVOR: Whitaker, Chenault, Foster, Hawker, Meyer, Moses, Stoltze, Harris, Williams OPPOSED: Berkowitz, Kerttula The MOTION PASSED (9-2). HB 111 was reported out of Committee with a "no recommendation" and with fiscal note #1 by the Department of Community & Economic Development.