Legislature(2005 - 2006)HOUSE FINANCE 519

03/16/2005 01:30 PM FINANCE

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* first hearing in first committee of referral
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= bill was previously heard/scheduled
Bill Postponed To 3/17/05
Heard & Held
Heard & Held
Moved Out of Committee
Bills Previously Heard/Scheduled
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."                                                                         
REPRESENTATIVE  TOM  ANDERSON explained  that  HB 108  changes                                                                  
existing  law by  adding  lines  5-8 on  page  2, which  would                                                                  
exempt  Anchorage  Water &  Waste  Water Utility  (AWWU)  from                                                                  
regulation  by  the Regulatory  Commission  of  Alaska  (RCA).                                                                  
The  language   states  that  a  water  utility   owned  by  a                                                                  
political  subdivision  that does  not directly  compete  with                                                                  
another  water utility  is  exempt from  RCA  regulation.   He                                                                  
noted  that  the  city  of Pelican  is  the  only  city  still                                                                  
regulated  by the  RCA.   Last  year's  legislation  regarding                                                                  
this  issue  was HB  515,  but  time  ran out  before  it  was                                                                  
Representative  Anderson  related that  local  control is  the                                                                  
issue, and  there is no  evidence that  shows that RCA  is any                                                                  
better for  the consumer in Anchorage.   He noted that  he has                                                                  
worked   with  AWWU,   the  Mayor's   office,  the   Anchorage                                                                  
Assembly, and Anchorage  legislators to develop  a plan for an                                                                  
oversight  authority over  the utility  to maintain the  level                                                                  
of  consumer  protection   while  encouraging   and  fostering                                                                  
stronger  local  governments  of locally  owned  and  operated                                                                  
water  utilities.    He  opined  that  the  new  CS  addresses                                                                  
concerns about the assembly's overseeing rates.                                                                                 
Vice-Chair  Stoltze asked  what the overall  goal of the  bill                                                                  
is.   Representative Anderson  explained that  the goal  is to                                                                  
discontinue  payment to RCA,  and allow  for a public  protest                                                                  
process,  better access  to utilities,  and parity with  other                                                                  
MARK PREMO,  GENERAL MANAGER,  ANCHORAGE  WATER & WASTE  WATER                                                                  
UTILITY (AWWU),  stated that the  main reasons for HB  108 are                                                                  
to  attain   parity  and  local   control,  and  because   RCA                                                                  
regulation  processes are  very  slow and  expensive, and  not                                                                  
responsive to  local needs.   All other communities  in Alaska                                                                  
publicly own utilities.                                                                                                         
Mr. Premo  testified in  support of HB  108.  He related  that                                                                  
the bill  would exempt AWWU from  economic regulation  by RCA.                                                                  
During  the  last   session,  the  House  of   Representatives                                                                  
approved  HB 515, which  would have  served the same  purpose,                                                                  
but time ran out and the Senate did not act on the bill.                                                                        
Mr.  Premo shared  the  two reasons  why the  Municipality  of                                                                  
Anchorage   (MOA)  desires  exemption   from  RCA:     current                                                                  
regulation  procedures  are slow  and expensive  and are  non-                                                                  
responsive  to  local needs.    He shared  that  from 1993  to                                                                  
2003,  AWWU  filed  only  minor  housekeeping  and  procedural                                                                  
matters  with the  RCA and  never requested  a rate  increase,                                                                  
yet ratepayers  paid approximately $2.8 million  in regulatory                                                                  
assessments during  this period.  In 2004, AWWU  paid $445,000                                                                  
to cover  the cost of regulation  and estimates are  that more                                                                  
than $500,000  will be paid in  2005.  He emphasized  that the                                                                  
greater  cost is  in  the form  of  preparing  filings and  in                                                                  
regulatory lag.   History and  present events show  that local                                                                  
regulation is faster, less structured and more economical.                                                                      
Mr.  Premo  shared  that the  RCA  process  was  designed  for                                                                  
private  utilities   and  is  not  entirely  appropriate   for                                                                  
municipal utilities.   The RCA process is very  structured and                                                                  
intimidating  to a ratepayer.   The RCA is not accountable  to                                                                  
Anchorage residents.   The municipality is more  responsive to                                                                  
local  needs and  is directly  accountable  to the  ratepayers                                                                  
and municipal voters through public hearings.                                                                                   
Mr.   Premo  maintained   that  self-regulation   has   worked                                                                  
effectively  in Anchorage.  He  cited the proven track  record                                                                  
of  the Port  of Anchorage,  Merrill  Field,  and Solid  Waste                                                                  
Services.   AWWU  has provided  its customers  with  excellent                                                                  
service,  low stable  rates and  sound  finances, without  the                                                                  
assistance from  the RCA.  MOA  supports the establishment  of                                                                  
a strong, independent  authority to oversee and  regulate AWWU                                                                  
in lieu of the RCA.                                                                                                             
Mr. Premo  emphasized that the  MOA supports amendments  to HB
108.  During the  hearing before the House Commerce  and Labor                                                                  
Committee,  some members  proposed strengthening  the bill  to                                                                  
include  language that  the bill  not  become effective  until                                                                  
the  municipality created  an  authority designed  to  protect                                                                  
the  consumer.   There  was also  interest  in addressing  the                                                                  
transition of the  current rate case AWWU has  before the RCA.                                                                  
Mr. Premo  referred to  a letter (copy  on file) which  states                                                                  
Mayor Begich's  support for establishing an authority  made up                                                                  
of a board of experts  appointed by the mayor  and approved by                                                                  
the assembly, which  would serve 5-year staggered  terms.  The                                                                  
board would  be responsible for  the operation and  management                                                                  
of AWWU under the  oversight of the municipal  assembly.  Both                                                                  
the  board  and  the  assembly  would   have  to  hold  public                                                                  
hearings on all rate increases.                                                                                                 
Mr. Premo  indicated that the  MOA would support an  amendment                                                                  
requiring  that HB  108  not become  effective  until the  MOA                                                                  
creates an authority.   It would also support  an amendment to                                                                  
address  the transition  of  the current  rate  case if  self-                                                                  
regulation  occurs.   The  passage  of  HB 108  would  balance                                                                  
consumer protection  with financial  soundness and  AWWU would                                                                  
continue to operate on a sound business basis.                                                                                  
2:07:29 PM                                                                                                                    
Representative  Foster MOVED to ADOPT work draft  24-LS0455\G,                                                                  
Craver,  3/15/05.    Representative   Weyhrauch  objected  for                                                                  
discussion purposes.                                                                                                            
Representative  Holm  asked why  Pelican  is not  involved  in                                                                  
this process.   Mr. Premo replied  that he does not  know.  He                                                                  
recalled  testimony  during HB  515 last  session  that it  is                                                                  
related to  when Pelican took over  the water system  from the                                                                  
cold  storage   fisheries  processor.    Representative   Holm                                                                  
inquired  if the  Regulatory  Commission  of Alaska  would  be                                                                  
testifying.  Co-Chair Meyer replied yes.                                                                                        
Representative  Weyhrauch  asked if  Section 1  in the new  CS                                                                  
was  added  by   the  House  Labor  and  Commerce   Committee.                                                                  
Representative  Anderson said  yes.  He  asked why the  intent                                                                  
of  the committee  is  not directly  stated  in  a letter,  as                                                                  
opposed  to  including   it  in  the  bill.     Representative                                                                  
Anderson deferred to Mr. Premo.                                                                                                 
2:10:44 PM                                                                                                                    
Mr. Premo  speculated that Section  1 is the wording  provided                                                                  
by  legislative  legal  council.    Representative   Weyhrauch                                                                  
discussed  the  merits  of having  a  letter  of intent.    He                                                                  
rationalized  that  the  goals   of  the  city  are  met,  the                                                                  
public's  interest  is  met, and  the  legislature's  duty  of                                                                  
passing law  is met.  Representative  Anderson said he  has no                                                                  
problem  with attaching  a letter of  intent.   Representative                                                                  
Weyhrauch suggested that the committee consider this idea.                                                                      
Co-Chair  Meyer agreed  to  allow Representative  Weyhrauch  a                                                                  
day to research and possibly draft such a letter.                                                                               
Vice-Chair Stoltze  asked if the legislative intent  should be                                                                  
codified  with "shall".   Mr.  Premo explained  that  eighteen                                                                  
months  ago   there  were  two   very  separate  issues,   the                                                                  
termination   of  self-regulation   and  the  desire   for  an                                                                  
authority to  run the utility  in a more businesslike  manner.                                                                  
Now the  two issues  are joined  together in  this bill.   The                                                                  
MOA  will move  forward to  form an  authority  to govern  the                                                                  
utilities.   However  the legislature  decides  to handle  it,                                                                  
the MOA will be supportive.                                                                                                     
2:14:23 PM                                                                                                                    
Vice-Chair  Stoltze wondered  if rate collections  by  the new                                                                  
authority  could possibly  run into the  same problems  as the                                                                  
RCA  had.   Mr. Premo  explained  that the  regulatory  charge                                                                  
would no longer be charged to consumers under the new plan.                                                                     
2:15:57 PM                                                                                                                    
Vice-Chair Stoltze  asked if MOA would replicate  a surcharge.                                                                  
Mr. Premo said  no.  Vice-Chair Stoltze asked  where the money                                                                  
would come from.   Mr. Premo replied rate structures  that the                                                                  
board  would set.   Vice-Chair  Stoltze  inquired whether  the                                                                  
board or  the assembly  has final authority.   Mr. Premo  said                                                                  
the board.  Vice-Chair  Stoltze asked if the assembly  has any                                                                  
role in  setting rates.   Mr.  Premo said  the assembly  would                                                                  
approve the  rates as stated in  the charter through  a public                                                                  
hearing process.                                                                                                                
2:18:34 PM                                                                                                                    
Co-Chair Meyer  voiced similar  concerns.  He maintained  that                                                                  
the authority concept  is a good idea, with the  understanding                                                                  
that the authority  serves with the assembly's  approval.  Mr.                                                                  
Premo  explained there  would be  seven board  seats based  on                                                                  
specific expertise  with staggered 5-year terms,  appointed by                                                                  
the mayor and confirmed  by the assembly, and  only removed by                                                                  
cause.   Co-Chair  Meyer asked  if  AWWU and  Pelican are  the                                                                  
only two areas still under RCA.                                                                                                 
Representative  Anderson  said  that is  correct.   He  stated                                                                  
that the questions  and concerns are fair because  there could                                                                  
be a  monopoly by the  assembly and the  mayor.  He  suggested                                                                  
that 3-year  terms might be more  appropriate.  He  maintained                                                                  
that  it is  not  the intent  of  the bill  to  save money  by                                                                  
reducing rates, but to bring in local control.                                                                                  
2:23:05 PM                                                                                                                    
Co-Chair Meyer agreed with the idea of 3-year terms.                                                                            
Representative  Weyhrauch WITHDREW his OBJECTION  to adopt the                                                                  
CS  as a  work draft.  There  being NO  OBJECTION,  it was  so                                                                  
In response  to a question  by Vice-Chair  Stoltze, Mr.  Premo                                                                  
defined a competing  entity as an entity that  has overlapping                                                                  
service  areas   and  provides   the  same  service.     Small                                                                  
utilities have  their own service areas.  He pointed  out that                                                                  
the bill is for  regulation, not for service area  regulation.                                                                  
Co-Chair Meyer opened up public testimony.                                                                                      
2:25:46 PM                                                                                                                    
KATE GIARD,  CHAIR, REGULATORY  COMMISSION OF  ALASKA, related                                                                  
that Anchorage has a very well  run utility and the MOA should                                                                  
take pride  in it.   She  voiced a  concern that the  consumer                                                                  
should  be offered  the  same level  of  protection from  rate                                                                  
increases  that they have  now.   RCA has  not gone  through a                                                                  
rate case  with the utility  for several  years.  The  city is                                                                  
putting  forward  a  step  in  the  right  direction  so  that                                                                  
consumers can  be certain  of stability in  the utility.   She                                                                  
cited  maintenance problems  in Fairbanks  when their  utility                                                                  
became unregulated.   She related  strengths of  the Anchorage                                                                  
utility.  She  expressed appreciation for the  opportunity for                                                                  
consumers to have a fully-bedded rate structure.                                                                                
2:30:25 PM                                                                                                                    
Representative  Weyhrauch asked if  the bill affects  Pelican.                                                                  
Ms. Giard replied  that it does not.  She explained  that when                                                                  
Pelican Seafood  transferred the water utility  to the city it                                                                  
was concerned  about  rate increases  and the  city agreed  to                                                                  
come under economic regulation.                                                                                                 
Co-Chair Chenault  asked about the fiscal note,  the three new                                                                  
positions,  and their  effect  on RCA.   Ms.  Giard  explained                                                                  
that  RCA collects  revenues based  on a  percentage of  total                                                                  
growth revenues  of all regulated utilities, and  AWWU has $60                                                                  
million  in  revenue   in  its  pool,  which   will  begin  to                                                                  
decrease.  Decreased  revenues will lead to a  smaller budget,                                                                  
and  decisions  will be  made  based  on a  smaller  operating                                                                  
budget.   She  opined that  it is  not good  public policy  to                                                                  
require  an  entity  to  continue  to  be  regulated  just  to                                                                  
provide regulatory cost charges to the agency.                                                                                  
Vice-Chair  Stoltze  referenced  Mr. Premo's  testimony  about                                                                  
smaller  utilities not  affecting  service areas.   Ms.  Giard                                                                  
agreed  with  Mr. Premo's  conclusions.    Vice-Chair  Stoltze                                                                  
asked if  a balloting process  would be  needed when a  LID is                                                                  
proposed, if this bill passes.                                                                                                  
2:35:41 PM                                                                                                                    
JAMES  KEENE,  ENGINEER,  REGULATORY   COMMISSION  OF  ALASKA,                                                                  
explained  that RCA  would retain  control of  a service  area                                                                  
but would not have  jurisdiction over specific  LIDs and WIDs.                                                                  
Vice-Chair  Stoltze  asked  what  would  be left  for  RCA  to                                                                  
manage.   Mr. Keene replied  that if  the entire AWWU  service                                                                  
area  were to be  altered,  RCA would  review the  alteration.                                                                  
Vice-Chair  Stoltze  asked  if alter  means  to create  a  new                                                                  
service  area, as well,  and if  approval would  be needed  by                                                                  
RCA.  Mr. Keene replied yes and explained the procedure.                                                                        
2:38:00 PM                                                                                                                    
VIRGINIA  RUSCH, AARP,  ANCHORAGE, related  her background  in                                                                  
utility  regulation.  She shared  that  AARP has  over  30,000                                                                  
members in  Anchorage and more  in the surrounding area.   She                                                                  
voiced a  concern about the way  AWWU is regulated,  and noted                                                                  
that  AARP supports  having  utility  rates determined  by  an                                                                  
independent   agency  with  adequate   expertise  and   staff,                                                                  
allowing  public   participation  and  having   a  well-funded                                                                  
consumer  advocate.   She emphasized  that passage  of HB  108                                                                  
would  derail the rate  case that  is in  progress right  now.                                                                  
RCA  should  be  able  to  consider  the   Attorney  General's                                                                  
filings.  She shared  a negative experience in  Fairbanks when                                                                  
the city  sold all of its municipal  utilities to  a regulated                                                                  
investor-owned  utility.  She  concluded that AARP  recommends                                                                  
a "no" vote on HB 108.                                                                                                          
2:50:22 PM                                                                                                                    
DAVID  KRANICH,   POTTER  CREEK   WATER  COMPANY,   ANCHORAGE,                                                                  
related  his experience  with unregulated  utilities and  RCA.                                                                  
He maintained that  RCA is a great resource because  they help                                                                  
regulate according  to accepted utility management  practices.                                                                  
He voiced  concern  that a board  appointed  by the mayor  may                                                                  
not  have needed  expertise.  By  utilizing  RCA,  maintenance                                                                  
problems may be avoided.  He spoke against HB 108.                                                                              
2:54:16 PM                                                                                                                    
Co-Chair Meyer closed public testimony.                                                                                         
Vice-Chair  Stoltze  MOVED to  ADOPT  Amendment  1.   Co-Chair                                                                  
Meyer OBJECTED for discussion purposes.                                                                                         
SUZANNE  CUNNINGHAM,  STAFF, CO-CHAIR  MEYER,  explained  that                                                                  
Amendment  1 amends the  title of the  bill to provide  for an                                                                  
effective  date and for  a contingent  effective date.   There                                                                  
was some  concern about AWWU, which  was owned by  a political                                                                  
subdivision,  coming  out from  underneath  the regulation  of                                                                  
the  RCA,  and a  lack  of consumer  protection  and  lack  of                                                                  
authority  over the  utility.   Ms. Cunningham  referred  to a                                                                  
written  promise  from Mayor  Begich  letter (copy  on  file),                                                                  
which establishes  an authority  commission composed  of seven                                                                  
members with staggered  five-year terms to deal  with consumer                                                                  
protection issues.                                                                                                              
Co-Chair   Meyer  asked   Representative   Weyhrauch  if   his                                                                  
concerns are assuaged.                                                                                                          
Representative  Weyhrauch   replied  that  he  has  written  a                                                                  
conceptual amendment that deals with his concerns.                                                                              
Co-Chair Meyer WITHDREW his OBJECTION to adopt Amendment 1.                                                                     
Representative  Holm OBJECTED.  He referred to  line 13 in the                                                                  
amendment  and  related  that  he  comes  from  Fairbanks  and                                                                  
remembers problems  with an appointed  board.  He  pointed out                                                                  
that there  is no structure in  Amendment 1 that protects  the                                                                  
consumer.    He opined  that  it  works  better right  now  in                                                                  
Fairbanks   with  RCA  oversight.     He  questioned   whether                                                                  
appointing  an  authority   is  the  best  way  to  allow  for                                                                  
consumer protection,  but he acknowledged the  need to get rid                                                                  
of excessive regulatory rates.                                                                                                  
2:59:47 PM                                                                                                                    
Co-Chair  Meyer  agreed  with Representative  Holm  about  the                                                                  
inconsistency of  the effectiveness of authority  commissions.                                                                  
He explained  the advantages  of having  a body separate  from                                                                  
the Anchorage  Assembly  to be  used as a  checks and  balance                                                                  
when determining rates.                                                                                                         
Vice-Chair Stoltze  pointed out a concern about  the Anchorage                                                                  
Parking  Facility.   He  termed  it a  "political  entity  run                                                                  
Ms. Cunningham  addressed Representative Holm's  concern about                                                                  
the requirements  of the commission.  She explained  that when                                                                  
drafting   the  contingency  language,   legal  services   was                                                                  
hesitant  about  inserting  specific  stipulations  about  the                                                                  
board.   She concluded,  "This was the  closest that  we could                                                                  
get  to  require   that  there  be  some  kind   of  authority                                                                  
commission in  place that was  approved by the governing  body                                                                  
of the political subdivision."                                                                                                  
Representative   Holm  repeated   that  it   is  a   difficult                                                                  
situation.   He again related how  much better it is  today in                                                                  
Fairbanks with RCA providing services.                                                                                          
3:04:33 PM                                                                                                                    
Representative  Hawker  suggested that  Representative  Holm's                                                                  
objections  might   be  about  the  whole  bill   rather  than                                                                  
Amendment  1.  The words  "fair and open  process" are  in the                                                                  
amendment  in  order  to  provide   sound  language  based  on                                                                  
standard  industry practices.   He opined  that the  amendment                                                                  
provides adequate  control and oversight by the  RCA, prior to                                                                  
the RCA ceding  its control.  He asked if he is  on track with                                                                  
his ideas.                                                                                                                      
Ms.  Cunningham  replied yes.    The board  must  be in  place                                                                  
before the  utility can  come out from  under RCA  regulation.                                                                  
Representative  Hawker  added that  a standard  for the  board                                                                  
has  been  established,  and   the  chair  of  RCA  makes  the                                                                  
determination   that  the   standard  has   been  met.     Ms.                                                                  
Cunningham agreed.                                                                                                              
3:07:01 PM                                                                                                                    
Vice-Chair  Stoltze  concurred  with  Representative  Hawker's                                                                  
analysis of the assurances in the amendment.                                                                                    
Representative Holm WITHDREW his OBJECTION.                                                                                     
Co-Chair Meyer  spoke in support of Amendment  1.  There being                                                                  
NO OBJECTION, it was so ordered.                                                                                                
3:08:26 PM                                                                                                                    
Representative  Weyhrauch MOVED to ADOPT Conceptual  Amendment                                                                  
2, which  would remove  the intent  language  in the bill  and                                                                  
make  it  a  part  of  the  statute.    Representative  Hawker                                                                  
OBJECTED for discussion purposes.                                                                                               
Representative  Weyhrauch  explained  that page  1, lines  6-9                                                                  
would read,  "Section 1.  A water or  sewer utility owned  and                                                                  
operated  by a political  subdivision that  is exempt  from AS                                                                  
42.05 as provided  by AS 42.05.711(b)(2)(B) and  (C), added by                                                                  
sec.  2 of  this Act,  shall establish  fair  and open  public                                                                  
processes for rate  setting."  The words, "The  uncodified law                                                                  
of the State of  Alaska is amended by adding a  new section to                                                                  
read:" would be deleted.                                                                                                        
Representative  Croft  requested information  about  municipal                                                                  
charter restrictions  and how much leeway the  legislature has                                                                  
to mandate procedures.                                                                                                          
Representative  Hawker looked at  the construct of  Conceptual                                                                  
Amendment  2.  He questioned  which  entity is being  directed                                                                  
by   the  word   "shall",  the   utility   or  the   political                                                                  
subdivision.     Representative Weyhrauch  amended  Conceptual                                                                  
Amendment 2, to  remove Section 1 because Amendment  1 already                                                                  
discusses the "fair and open process".                                                                                          
Representative   Hawker  removed   his   OBJECTION  to   adopt                                                                  
Conceptual Amendment 2, as amended.                                                                                             
Representative  Weyhrauch emphasized that by striking  Section                                                                  
1 it  is not the intent  of the committee  to strike  the idea                                                                  
of a fair and open public process.                                                                                              
3:13:47 PM                                                                                                                    
Mr. Premo,  in  response to  an earlier  question about  water                                                                  
utility  rates and  the Anchorage  tax cap,  pointed out  that                                                                  
they are independent and separate.                                                                                              
HB  108   was  heard  and  HELD   in  Committee  for   further                                                                  
3:14:47 PM                                                                                                                    

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