Legislature(1997 - 1998)

05/01/1998 01:20 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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              
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                 
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                        
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              
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                 
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                  
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                    
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            
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             
MR. BROOKS replied that he wasn't the best person to answer that               
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              
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                  
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                   
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                
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              
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.                                             

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