Legislature(1997 - 1998)
05/01/1998 01:20 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 487 - ELECTRIC COOP RATES: EXPANSION ACTIVITIES Number 0069 CHAIRMAN GREEN announced the first item on the agenda was HB 487, "An Act relating to including the costs of expansion activities and political activities in rates of electric cooperatives." He said the meeting was being teleconferenced. He asked Jeff Logan to come before the committee to present HB 487. Number 0142 JEFF LOGAN, Legislative Assistant to Representative Joe Green, Alaska State Legislature, stated the House Judiciary Committee sponsored HB 487 which is a simple bill with a straightforward goal; to make sure that consumers have a voice with a choice. He said in other states deregulation and restructuring in the electric utility industry is being driven by both politics and economics. No one has a clear picture yet of what will happen in Alaska, but in anticipation of change, it is his belief that ratepayers should be part of the process. The bill addresses both political activities and expansion activities and says that before a cooperative (co-op) can use money collected from rates for these activities, the cooperative must first advise the ratepayer what portion of the rate will be used for such activities. Then, the co-op must identify how much of the rate would be used for that purpose. Then the co-op must make sure the ratepayer knows that they can't be retaliated against for failing to consent and then must get that consent. Further, the bill defines expansion activities as trying to attract customers of another utility and defines political activities as advocating for or contributing to a political position or candidate or advocating for a policy issue not directly related to the core services of the utility. MR. LOGAN explained there are restrictions currently in place against using rate monies for some political purposes. This issue has been considered before by the legislature. When AS 42.05.381, which this legislation would amend, was originally enacted, it required only that rates be just and reasonable, as determined by the Alaska Public Utilities Commission (APUC). In 1976, it was amended to require the commission to specifically omit certain expenditures related to advertising and public relations. The Alaska Public Utilities Commission has also considered the use of rate monies for political activities. He noted that Chairman, Sam Cotton, was on-line from Anchorage to answer questions related to the commission's actions. MR. LOGAN noted the Alaska Supreme Court has considered this issue in Homer Electric Association v. APUC. He stated this legislation is simply asking the legislature to establish a simple policy. Number 0397 REPRESENTATIVE CON BUNDE noted that Mr. Logan had mentioned in the sponsor statement elections held by utility companies. He recalled the Chugach Electric Association of which he is a member, has notoriously low turnouts and provides entertainment and give away prizes to get people to show up at the annual meeting. And now this legislation adds a requirement they get people to participate at yet another level before they could be involved in these activities. He asked if this could end up being a de facto; keeping them from participating in activities because there will be such a low level of participation. CHAIRMAN GREEN remarked that some time back, the Chugach Electric Company passed a bylaw which allows members to vote by mail which has been the prime mover for reducing the number of people attending the annual meeting. Even before that action, they quit having entertainment as an inducement for attendance. He ventured a guess that 95 - 97 percent of the members vote by mail; very few members attend the annual meeting for voting and the idea behind this was that a co-op by its very nature was instituted to provide an ability to electrify homes that were not part of a municipality. It seems somewhat incongruous that a co-op by its very nature then would be involved in advertising politically or being in a competitive arena like privately owned co-ops are in the Lower 48. It is his belief that we have lost sight of the purpose of a co- operative electric company by the activities that are happening in some areas. He said this is a method of actually getting back to the original co-ops in the early 30s. Number 0565 REPRESENTATIVE BUNDE said, "I understand the thrust behind the bill, but I still go back to my original question - what level of participation do they have now and what level of participation do you expect would be required to -- if only 30 percent fill out these cards, that's the 30 percent of people's money they can use and as they're managers, managing as they see fit including their political activity. CHAIRMAN GREEN noted this does not require approval of the members; it says it requires notification so the members of the co-op know how the money is being spent and do they accept the fact that money is going to be spent not on generating or supplying electricity, but rather something political or securing outside (indisc.). REPRESENTATIVE BUNDE pointed out that item 4 of the sponsor statement says "receives the consent of the member". Number 0636 MR. LOGAN stated, "As originally envisioned or discussed, we had thought that on the bill itself - everybody gets the bill - on the bill itself there could be a checkoff or a box that shows that in order to generate and transmit the electricity to your house it costs $10.00 and it costs $3.00 for political activities and $1.00 for expansion activities and do you concur with this and if you did, you could check off or punch a hole in like a ballot or put your initial - something like that. And if you did, then you pay the full rate; if you don't, you pay the lesser rate. Or you could, with your bill at the beginning of the year, they could say we anticipate a budget throughout the year of "x" amount of dollars, we have "x" number of members, we anticipate we would have to charge each member $10.00 a month for political or expansion activities, do you agree? And you could check off yes or no. Number 0706 REPRESENTATIVE BUNDE restated his concern about what level of activity could be reasonably expected when there's less than 40 percent of the population voting in general elections. Number 0723 REPRESENTATIVE JEANNETTE JAMES said she shared some of the same concerns as Representative Bunde, in addition to some of her own. She said an analogy would be the issue of a person having to agree to their address being given out by the Division of Motor Vehicles for mailing lists. She always says "no" when asked if she wants to do that. Likewise, if someone asks her if she wants to pay extra for this, her response is going to be "no." So, she thinks the de facto that Representative Bunde is talking about is very real. She said, "My other concern that I have - and I'll ask you if you've thought this out thoroughly - is whether or not in today's age we have the same need for the co-op that we had when we first got them because that's monopoly time and in order to get electricity or whatever, that was the good method to be able to put together the funds and get support and it was a requirement by the money that we used to be a cooperative - is it coming into an age where competition with cooperatives might be an oxymoron and that we ought not to have cooperatives in competition, but we should have a different kind of structure." Number 0820 MR. LOGAN remarked he would answer the questions in reverse order. As to the second question, he said that was far beyond the scope of the bill and he really didn't have a response to it. With regard to the first question, if a member voted no just because they didn't want to pay the extra money, that's exactly what the bill is designed to do. Number 0850 REPRESENTATIVE ERIC CROFT remarked that currently an electric cooperative might be able to use this money for political activity and as a ratepayer, what would he do if he objected to the use of his money to advocate positions that he didn't favor. MR. LOGAN said there are two principal avenues available to address that concern: First would be to address the board of his particular co-op, find out the position of candidates running for the board and hold them accountable with his vote; second, would be to file some type of action with the public utilities commission. Number 0906 CHAIRMAN GREEN asked if there were other questions of Mr. Logan? Hearing none, he asked Gene Bjornstad, General Manager of Chugach Electric to present his comments via teleconference. Number 0950 GENE BJORNSTAD, General Manager, Chugach Electric Association, testifying via teleconference from Anchorage, said Chugach Electric has approximately 55,000 consumer members. Recently Chugach Electric conducted a survey of the Anchorage legislative districts and asked its members, "Do you want the ability to choose your electric power supplier?" He said the results were overwhelmingly in favor by percentages ranging up to 95 percent. The people of Anchorage want choice of and competition between the electric utilities in Anchorage. He stated Chugach Electric recognizes that other factions and organizations do not want competition to occur. It is Chugach Electric Association's opinion that HB 487 obviously is designed to prohibit competition. He said, "If that is what you, as a legislator intends, there's much simpler ways to attempt that - just propose a bill to prohibit competition and vote it up or down. But if you believe that competition does result in better service, introduction of new technology and innovative ideas, then you should defeat House Bill 487 and allow all the residents of Anchorage to realize the benefits." He further stated this bill clearly would prohibit the marketing and publication of new products and services and (indisc.) for political positions in public issues dealing with competition. If the legislature passes this bill, it must consider the real possibility of outside organizations and corporations having a distinct advantage to market and advocate their own service product positions in Alaska. This legislation will severely disable all electric cooperatives, not just Chugach Electric, to compete. He stated, "Chugach has the right, and I believe the obligation, to be able to tell our story. That story is our members should have the ability to choose their supplier." MR. BJORNSTAD further stated Chugach Electric Association has stated a number of times to the legislature, to the Alaska Public Utilities Commission and in a number of other forums that the APUC has the authority to stop competition if it decides it's not in the public interest. The critical point, however, is that it has to be occurring before it can be stopped. Passage of this legislation will prevent it from occurring. The title of HB 487 suggests that all 55,000 Chugach Electric consumers have to consent to the cost expansion activities, political activities and the rates of electric cooperatives. He said Chugach Electric believes this is counter productive in the deregulation of the electric utility industry. Number 1139 CHAIRMAN GREEN asked if the Chugach Electric Association was currently operating efficiently? MR. BJORNSTAD replied in his opinion Chugach Electric is operating efficiently, but that's not to say there isn't room for improvements. CHAIRMAN GREEN inquired if it wasn't the charge to operate it as efficiently as possible for the member owners. MR. BJORNSTAD agreed that was the charge. CHAIRMAN GREEN asked, "Would it be reasonable to think then that you could actually then, if there was competition, that you could somehow reduce the rates and still maintain your activities, wouldn't you then go in a deficit spending mode?" MR. BJORNSTAD didn't believe so. Number 1177 CHAIRMAN GREEN stated, "Somehow I don't find those two statements compatible. If you reduce your income, you're operating as efficiently as you can, how can you reduce the income and not go in the red?" He didn't want to engage in debate, but he's concerned about the statement that the only way we're going to have reduced rates is through competition and he thought the charge of the board of directors and the administration of the cooperative was to operate in the most efficient manner possible. He added, "And if on the other hand, you were going to seek outside entities to come into the fold through some sort of a discounted rate - in other words, giving them electricity as a lesser rate than the average - then the people that would have to make up that difference seems to me would be ratepayers - the individual households - that does not seem in the best interest of the majority of the consumers." MR. BJORNSTAD responded that Chugach wasn't planning to market its products at below cost, but he thought they intend to market new services which this bill would prohibit new services. He noted Chugach Electric has implemented a number of services for consumers in the last six months and advertising was required to do so. CHAIRMAN GREEN said Chugach Electric had a rate schedule for industrial consumers and a higher rate schedule for home owners, so if Chugach goes out and gets more industrial consumers, the balance will have to be made up by individual households. MR. BJORNSTAD said he didn't understand Chairman Green's statement. CHAIRMAN GREEN reiterated, "If it cost "x" amount of money to generate "y" amount of electricity and you're going to try and get more low cost commercial users - high volume, low cost commercial users - the difference in the average cost to generate and the price that you're going to give them is going to have to be made up by somebody and isn't that somebody the individual households that don't get this volume discount?" MR. BJORNSTAD replied, "No, I don't believe that's a correct way to state it. A larger load spread over the same number of consumers or more income spread over the same number of consumers are going to be able to be applied to our fixed costs." Number 1385 REPRESENTATIVE NORMAN ROKEBERG referred to page 2, line 7, relating to political activities and asked if Mr. Bjornstad objected to this portion of the bill and would that have any impact on the ability to get people interested in coming to the annual meetings. MR. BJORNSTAD said he believed Chugach Electric would object to that. He added, "I think there's things that Chugach would like to advocate to the legislature that probably (indisc.) the definition of political activity." Number 1414 REPRESENTATIVE ROKEBERG asked, "Given the statutes you work under relative as an electrical cooperative, under state law and federal law, is there an ability of an investor-owned company that would have the ability to take you over by offering your membership consideration or dollars for their membership equity?" MR. BJORNSTAD said he believed it was possible for that to happen. Number 1433 REPRESENTATIVE CROFT inquired if Chugach Electric currently conducts political activity, as defined in HB 487, with ratepayer money. MR. BJORNSTAD responded, "I guess I'm not certain what's in the bill as far as advocating for a public policy issue not directly to core services - I guess we're all vague as what people mean by core services of the utility." REPRESENTATIVE CROFT said it seemed to him it's the generation and transmission of electrical power. MR. BJORNSTAD inquired about the retail services. REPRESENTATIVE CROFT asked if Chugach Electric provides retail services? MR. BJORNSTAD replied, "Yeah, we have building arrangements; we do energy audits for our customers; things of that nature - I guess, is that core service or not?" REPRESENTATIVE CROFT said that sounds like a core service to him, but he wondered if Chugach Electric was doing some of the others under (2)(A) or (B) - advocating using ratepayer money for political positions or for a particular candidate. MR. BJORNSTAD asked if Representative Croft was referring to a position that a candidate would have. REPRESENTATIVE CROFT responded yes, or a public policy issue not related to the generation and transmission of electrical services. MR. BJORNSTAD said he wasn't certain some of the things Chugach Electric was currently doing would fall into this definition. REPRESENTATIVE CROFT said he didn't know either, but it seemed to him that if it was being done with ratepayer money, it shouldn't be and if not, then this bill doesn't really affect them. His concern is that ratepayers don't have any effective way of saying they don't want their money used for advocating a particular position or used for a particular form of speech. Number 1541 REPRESENTATIVE BUNDE asked if Chugach Electric advocates, comments on or advertises for or against political candidates or just candidates for the board of Chugach Electric? MR. BJORNSTAD replied that Chugach Electric doesn't advocate for or against a candidate for an office; Chugach Electric does advertise the candidates that are for the director positions at Chugach Electric. Number 1590 MR. LOGAN said on a technical point in response to something Mr. Bjornstad suggested; that being that under this legislation all 55,000 members would have to agree in order to spend any money for political expense and activities, he had a discussion about that topic with the drafter of the legislation and it is her intent and opinion that that is not the case. He added, "The intent was that if there are 55,000 members in the association and the board determined they wanted a budget for political activities and offered on some statement that over the next year every member would be charged $1.00 for that and 25,000 members checked no on the box, that would leave 30,000 members saying yes at a dollar a piece, that would mean the board would have $30,000 to use for their budget for political activities. It doesn't mean that they can't conduct any political activities; only that they can conduct those activities with the money approved by the membership who agrees to do it." MR. BJORNSTAD countered that if the legislation doesn't speak to that particular method, would marketing new services or new activities work the same way. MR. LOGAN said only if those activities fell under the definitions established in the legislation. MR. BJORNSTAD asked, "So expansion activities then would be the same way - you have to have a checkoff from the consumer to market anything else?" MR. LOGAN replied if it fell under the definition of attracting customers of another electric cooperative. Number 1685 MR. BJORNSTAD asked if that would also mean advertising or combating competitions from a (indisc.) marketer who is not an electric utility? MR. LOGAN said he didn't have the answer, but suggested Mr. Cotton may be able to addressed that particular question. Number 1712 REPRESENTATIVE JAMES said, "My question is in paragraph (h) under Section 1, when it is telling about the expansion activity - and there was a question a little earlier too about your responsibility to your members - it would seem to me like - and we're talking about expansion activity - it seems to me like if you had the calculation of expanding your membership to large users of power that there might be some benefit from volume and therefore, you wouldn't be spending money, you'd be reducing -- you might spend money to reduce their rates. Could you respond to that?" MR. BJORNSTAD said that Chugach Electric has not targeted just large, industrial customers. It is their position to serve anyone who wants to get served, but if they were to get new load, that load with the revenues would reduce the cost for other people. REPRESENTATIVE JAMES remarked that by getting in more customers, Chugach believes that the rate per customer would be less and would still make sufficient profit to keep the cooperative operating. MR. BJORNSTAD said that was correct. Number 1780 CHAIRMAN GREEN asked if increasing the number of kilowatts generated would require more fuel. MR. BJORNSTAD replied yes, it would. CHAIRMAN GREEN asked if all of Chugach Electric fuel contracts were at the same price? MR. BJORNSTAD said no. CHAIRMAN GREEN asked, "If you used more fuel, would that fuel -- the more fuel you used, would that be more expensive than the other fuel that you were using?" MR. BJORNSTAD said the rate is blended for the fuel contracts and he's not certain that fuel coming from one contract could be identified from that coming from another contract. It's still a blended rate, so he didn't think they could increase their fuel cost just by having another customer. Number 1818 CHAIRMAN GREEN rephrased his question, "If you were going to increase your rate 10 percent, your consumption -- would 10 percent come from each of your existing contracts evenly or would there perhaps be, as one would surmise, your later contracts would supply more of the additional fuel? What I'm getting at is I'm wondering if it necessarily follows that because you make more power, you can necessarily reduce the cost to everyone?" MR. BJORNSTAD replied, "One of our fuel contractor's fuel price is the highest of our blend - our contract and that's one of our original fuel suppliers. The latest fuel supplier we have their rates are lower than that one." CHAIRMAN GREEN asked how the mix is now. He added it doesn't seem prudent that Chugach Electric would blend in high cost gas now if you don't need high cost gas. MR. BJORNSTAD said the contract specifies they get 60 percent of their fuel from one supplier and 40 percent the other three suppliers. Number 1881 REPRESENTATIVE ETHAN BERKOWITZ asked how much Chugach Electric invests in expansion activity and political activity as it's defined in HB 487. MR. BJORNSTAD said he couldn't answer off the top of his head. However, he suspected their marketing activities in the last year were probably $100,000 and political activities were probably $50,000 which includes trips to Juneau to advocate their position on competition. REPRESENTATIVE BERKOWITZ observed that would be roughly $3 per member, assuming the activities fall under the definition in HB 487. He inquired if it would create a hardship to have a checkoff on the billing statement. MR. BJORNSTAD didn't think that would create much of a problem. Number 1955 CHAIRMAN GREEN asked if there were further questions for Mr. Bjornstad. There being none, he asked Gary Brooks to present his comments at this time. Number 1960 GARY BROOKS, Business Manager, International Brotherhood of Electrical Workers, testified via teleconference from Anchorage on behalf of the over 1,000 members and families that make their living in the utility industry in Alaska and on behalf of the approximately 5,000 members who are consumers of electricity, the IBEW views this legislation as positive for the consumers and members who work in the industry. He added, "Throughout this industry in the Lower 48 states, we the IBEW work force, have been hit hard by rapid, radical restructuring of the electric power provider industry, only to later see these impacts reversed. In California, for example, years before any actual restructuring policy, thousands of employees were laid off in the name of competition, downsizing and preparedness for the eventuality of restructuring. When powerful storms hit the West Coast knocking out power systems statewide, the utility industry found itself completely unprepared to respond. In parts of the state, consumers went without power for more than a month." He said Alaska cannot afford to take that risk. California has the luxury of a much milder climate as well as the (indisc.) component of an inter- connected power bridge. Adding to the personal pain of the workers who were downsized out of jobs, lifetime careers were eliminated, workers were forced to relocate to other parts of the country, college educations were postponed and families were disrupted only to be reversed by the state's utility commission who reacted to the public complaints and ordered the utilities to re-man themselves. In the meantime, (indisc.) were shutdown, workers moved away and even today, three years later, an open call to power lineman remains hanging on his bulletin board offering to pay moving expenses and signing bonuses for any lineman willing to relocate in California. MR. BROOKS said, "We hope to learn from this lesson and the lesson of the Northeast who recently went through much the same thing after disastrous ice and snowstorms this past winter." He said the IBEW is not opposed to restructuring of the electric utility market, but they ask that any restructuring answer basic fundamental questions about universal access, job safety, large load cherry picking, recovery of stranded cost, cost to consumers, system reliability and market dominance, to name just a few. The IBEW is hopeful the final policy will adequately address these issues, but in the meantime they urge the legislature to consider enacting this legislation so that good public policy can be enacted without the hysteria that may otherwise be seen and has already been witnessed in other parts of the country. Number 2133 REPRESENTATIVE CROFT asked when the IBEW conducts political activities such as described in HB 487, can that be done with dues or does it require a similar type of checkoff. MR. BROOKS said their political action is governed by the Alaska Public Offices Commission and requires voluntary contributions. REPRESENTATIVE CROFT said there had been some concern expressed that a check off would result in low participation and wondered if any of the 1,000 plus members of the IBEW make that election. MR. BROOKS replied yes, the IBEW has a very active membership. Number 2175 REPRESENTATIVE BUNDE surmised that IBEW members need to check off before any money is collected. Their members also need to hire out of the union hall, which allows the opportunity to speak with them personally before they check off; however, in this case a bill would be sent out that may or may not be looked at with no personal involvement in the checkoff. He asked if that was the difference between what transpires with IBEW members and what would transpire with this legislation. MR. BROOK said that could be one argument, but the fact exists there was a large number of employees employed long before the Alaska Public Offices Commission was created and regulated political activity and the IBEW was still able to communicate with the existing employees, offering their services and got voluntary compliance. He did not dispute that construction personnel when receiving a job call, are offered the opportunity to participate in the package. Number 2232 REPRESENTATIVE JAMES said, "I don't know whether this is a question for the gentleman from IBEW or if it's a question for the sponsor, but on this political activity, my concern is - and I know what the rule is with APOC as to who can contribute to a candidate - and I need to know why this is in here because it's only individuals that can and political action committees (PAC) can and in order for money to go into a political action committee such as we heard from the gentleman from IBEW, they have to agree - the members have to agree to that amount going in. Now my question is, does this bill then include the idea that what can't be happening now - there can be no contribution to a candidate or a political issue from the cooperative unless it was a membership PAC from the employees or something. I don't believe there's any ability for them to create a PAC with contributions from the membership unless they do have permission from them to do that. Is that what this bill is allowing to happen - that if people agree, then a part of their rates that they pay can be put into a PAC to be given to a candidate? If that's the case, I'm not interested in opening that door." MR. BROOKS replied that he wasn't the best person to answer that question. Number 2297 REPRESENTATIVE CROFT said on that point, this is shutting the door tighter, so it would be that these activities couldn't take place without the approval of the membership. Right now the worry would be that a PAC could be set up with ratepayer money. REPRESENTATIVE JAMES said it's not allowed under the APOC rules. CHAIRMAN GREEN said the committee would next hear testimony from Bruce Scott. Number 2340 BRUCE SCOTT, Director, Member-Public Relations, Matanuska Electric Association (MEA), testified via teleconference from the Mat-Su Legislative Information Office. He said the Matanuska Electric Association has 29,000 members in Southcentral Alaska. He said this bill seems to expand the definition of political activity to such an extent that it would jeopardize MEA's ability to communicate with their members. For example, if MEA could not advocate for a public policy issue not directly related to the core services of the utility, does this mean that a co-op could not purchase political advertising to defend the co-op from a hostile takeover by another (indisc.)? He asked if it would prohibit economic development activities since (indisc.) creating new business is not their core business? If MEA had a proposed bylaw on their ballot, wouldn't this legislation prevent MEA from trying to convince members to pass the bylaw for what the board felt was the good of the association? He said MEA lobbied their members in 1994 and 1995 to pass bylaw measures that would strengthen the co- op and made it harder for the co-op to be taken over. It received overwhelming consent of their members. He said MEA recently ran a series of articles in their member newsletter about the costs incurred due to the activities of the IBEW which they believed was waging a (indisc.) campaign at MEA (indisc.-tape garbled). He said the IBEW apparently orchestrated a campaign to silence the newsletter by lodging some two dozen complaints with the APUC. It is his understanding this legislation would accomplish that (indisc.) because sharing that kind of information with their members at a cost of about $250,000 a year to defend themselves for this kind of activity might be prohibited under this law. In conclusion, he said more than 1,200 people attended MEA's annual meeting last month and more than $7,600 was received. Matanuska Electric Association is a member-owned co-op and they want to keep it that way. CHAIRMAN GREEN asked if Matanuska Electric Association members have the option of mailing their ballots in or do they have to attend the meeting? MR. SCOTT said members can either mail their ballots or go to the meeting. REPRESENTATIVE BERKOWITZ asked roughly how much does the MEA expend on expansion activity and separately on political activity based on the definitions under this bill. TAPE 98-79, SIDE B Number 0001 MR. SCOTT replied he wasn't sure what expansion activities it would entail. For example, would the recent meetings with a group of people who had approached him trying to get power, be considered expansion activities? He noted that MEA doesn't presently serve this group of individuals, but is obligated to provide them a service. REPRESENTATIVE BERKOWITZ asked about MEA's political activity. MR. SCOTT said that political activity is also hard to define. For example, he assumed the annual meeting could in part be considered political activity because some people wanted to vote, which is a political activity. The MEA certainly encourages their members to turn out and vote and spends up to $100,000 in a year on that kind of activity trying to get people geared up to contribute, to get involved in the cooperative and to vote. Number 0048 REPRESENTATIVE BERKOWITZ asked if the Matanuska Electric Association had a marketing budget? MR. SCOTT replied not a marketing budget per se. They do some marketing, but it's blended in with everything else like safety advertising, et cetera. REPRESENTATIVE BERKOWITZ inquired if they had an advertising department. MR. SCOTT replied there's a member-public relations department, which is him, which includes everything from buying the ads to get people (indisc.) to handling complaints. REPRESENTATIVE BERKOWITZ inquired if including a checkoff with the billing would pose any difficulty. MR. SCOTT replied he thought it would. He believes the initial reaction of a lot of people when asked if they'd like to spend money is going to be no. Number 0125 REPRESENTATIVE BUNDE asked if Mr. Scott had an idea of what percentage of members, on an average, vote in one of MEA elections. MR. SCOTT replied their turnout generally runs 28 percent to 30 percent. CHAIRMAN GREEN asked if there were additional questions for Mr. Scott. There being none, he requested Sam Cotton to present his comments at this time. Number 0162 SAM COTTON, Chairman, Alaska Public Utilities Commission, testified via teleconference from Anchorage that APUC has not formally met on HB 487. However, he had met with the staff as well as the Assistant Attorney General assigned to the APUC and a couple problem areas were identified. He referred to Section 1 and said the procedure by which a customer gives consent is not clear and he's not exactly sure what process is being proposed. He thinks he understands the intent, but doesn't believe the language adequately describes it. He added, "As far as the existing statutes - as you well know, the existing statute says you can't include an allowance for political contributions or for public relations and then there's some exceptions and in our regulations, we also define political advertising, et cetera, so we have some restrictions right now. It gets a little confusing because it has to do with where the money comes from and this bill has the same terminology here and it uses the word 'rate' and by the way, I will offer up an (indisc.) work with the commission here with your committee staff if you want to do some further work on this - further define that." He said with respect to the complaint process, people complain to the commission - the commission then directs that complaint to the utility and requires them to give an answer to the person making the complaint. If the complainant is still not satisfied, it can be elevated to a formal complaint that will come to the commission. Number 0337 REPRESENTATIVE CROFT observed, "If one of these utilities did make a political contribution, your remedy to that would be to exclude it from the rate base. You don't have the power to say they can't do it - you just have the power to say that you have to pay it out of profits in effect." MR. COTTON affirmed that. REPRESENTATIVE CROFT continued that the sole remedy for an individual ratepayer who indicates they don't want to be a part of that political statement, activity or contribution, is to get it changed in an accounting sense from a rate base contribution to a profit, but they can't disassociate themselves any other way from that. MR. COTTON responded this may be an avenue for (indisc.) to do that and it may be that the statute dealing with cooperative corporations needs to be looked at regarding prohibiting the activity; this just prohibits putting it in the rates. REPRESENTATIVE CROFT asked Mr. Cotton if he had any suggestions to improve the procedures set out in Section 1, which Mr. Cotton had indicated were cumbersome. MR. COTTON said he thought the way it was vague in the way it was being described. CHAIRMAN GREEN thanked Mr. Cotton for his testimony and asked Mr. Yould to come before the committee to present his comments. Number 0429 ERIC YOULD, Executive Director, Alaska Rural Electric Cooperative Association (ARECA), prefaced his testimony on HB 487 with the following statement: "Before I testify on this bill, I would like to make one correction that is out on the table right now - it's a misperception. Cooperatives do not make political contributions to ARECA and then we in turn make them back to political candidates. In fact, that's not to say that we don't have a political action fund, but that fund is not directly infused by the cooperatives. They do not give money to that fund; instead individual members of the cooperatives, on a voluntary basis if they desire, can make contributions to that fund and it's out of that fund that we can engage in certain political activities. In addition, however, the cooperatives do support me and my staff for the day-to-day businesses on their behalf and frankly, I am down here at their request representing their interests, but we are not, through that particular activity, supporting any kind of direct contributions." MR. YOULD testified that HB 487, in ARECA's opinion, has a lot to do with the whole issue of deregulation which is an issue that's come to the state of Alaska somewhat late and very possibly there are reasons for that. One of the major reasons is that the state of Alaska is very much different than the Lower 48 in terms of the industry itself and the makeup of the industry. He noted there had been a question about cooperatives and where they should be in the electric utility industry, and as a matter of fact, 70 percent of the electricity generated in the state of Alaska comes from electric cooperatives. Another 20 percent comes from municipal entities which means that 91 percent of the electricity that comes to the citizens of Alaska comes from consumer-owned entities. Part of the reason for that is because it was never economically feasible for the investor-owned utilities to come to the state of Alaska. He remarked there are some in the state that are very good utilities. For example, Alaska Electric Light & Power in Juneau and the Alaska Power and Telephone which serves some of the small villages. But as a general rule, Alaska is a consumer-owned state and he thinks ARECA has done an excellent job and when looking at what might happen in a deregulated industry, power isn't going to be shifted back and forth through microwave, but there are going to be some positive changes to the industry. There's going to be micro-generation, fuel cells, as well as a number of changes, but there won't be the quantum leaps forward and the consequential drops in the cost of electricity that have been seen in the telecommunications industry. He added, "So I really want to caution everybody not to expect - even if we got totally deregulated tomorrow - to see a tremendous drop in rates." Number 0590 MR. YOULD said with regard to HB 487, "Mr. Chairman, in many respects, I think that we're trying to get into details here that are a bit premature. There's some four other bills that are in the legislature at the present time. In addition to HB 487, you have SB 355, HB 235, HB 287 and HCR 34. House Concurrent Resolution 34 is one which my membership - and I represent virtually all of the electric cooperatives or electric utilities in the state of Alaska at least from the standpoint of how much power is produced and that's all the way from Chugach down to the smaller utilities such as AVAC (ph) in Levelock - my board of directors voted 18 to 1 to request the legislature to set up a special committee to address deregulation. We did that this last summer and we brought our request to the leadership and the leadership responded by having adopted, at least on the House side so far, HCR 34. Mr. Chairman, we think this particular bill raises some very appropriate public policy issues; I think they do need to be discussed; I think the level of questions coming out of you all and amount of - I'll call it ambiguity that there may be associated with what does this bill mean and what doesn't it - are appropriate to be discussed, but I would strongly encourage that they be discussed in more detail in the legislative committee that we hope this legislature will adopt under HCR 34." REPRESENTATIVE CROFT asked if any of the other bills, including HCR 34, have to do with political activity by co-ops or utilities or are they primarily competition, expansion and so forth. MR. YOULD said the other bills primarily have to do with direct competition; they don't specifically address some of the things in this bill. Number 0699 REPRESENTATIVE JAMES said, "Just a couple of things and on the political activity - and I was happy to have the person from ARECA come and tell us that is that according to the campaign finance law that we have currently on the books, unless they were to get permission from the individuals to put money into a PAC or political activities, it would not be available - I don't think it's currently available - this bill makes it available, so it doesn't close it down, it opens it up is what I see here. The other question that I have is that - I think it was about 1944, I made a speech on the benefits and advantages of a cooperative so I have a little background history on this issue, my question to you on this issue is, do you believe that cooperatives -- the reason that you have a cooperative -- if you think they can compete or should they compete with businesses that are not cooperatives." MR. YOULD said that was a valid question and many of the states are actually trying to come up with deregulation bills at the present time. He said ten states have passed deregulation bills; nine have turned it over to their APUCs; 23 have established subcommittees to study it and 10 are doing nothing. Many of the states that have actually passed laws for deregulation give cooperatives specifically the authority to opt out of deregulation; in other words, not even participate. He remarked that it's really depends on what this legislature would like in that regard and he admitted he didn't fully understanding why when there are entities in the railbelt, about the only place that deregulation would work in Alaska, where all of the rates are already at somewhat parity - why we want to have one utility trying to take customers from another at the expense of some other consumers who may see their bills go up as a result. He commented that he isn't the final say on that and thinks it should be addressed by the subcommittee coming up. In terms of cooperatives, he thinks they're an excellent mechanism in which to keep the cost of power down. He said we all own them and frankly, we're not paying dividends to someone in the Lower 48 or paying higher interest rates associated with debt service and in some respects we're getting tax breaks from the federal government. He stated there's not a general manager or staff in the cooperatives throughout the state of Alaska whose cost of management is near what the cost of management is in AMRON (ph) or any of the big industrial utilities. He doesn't think the technology is there to justify the savings that everyone seems to think is going to come as a result possibly of either deregulation or (indisc.) own utilities. Number 0820 CHAIRMAN GREEN said this issue should be reviewed by the proposed group. He thanked everyone for their testimony and noted that HB 487 would be held in committee.