Legislature(2003 - 2004)

05/12/2003 03:18 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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.                                                                                               

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