Legislature(2005 - 2006)CAPITOL 17

02/16/2005 03:15 PM LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Moved Out of Committee
Bills Previously Heard/Scheduled
HB 108-WATER & SEWER UTILITIES OF POLIT. SUBDIV.                                                                              
CHAIR ANDERSON announced  that the first order  of business would                                                               
be  HOUSE BILL  NO. 108  "An Act  relating to  the regulation  of                                                               
water and sewer utilities of  political subdivisions that are not                                                               
in competition with other water and sewer utilities."                                                                           
CHAIR ANDERSON  said a  similar bill, House  Bill 515,  died last                                                               
session  due  to time.    The  bill  is  designed to  exempt  the                                                               
Anchorage   Water  and   Wastewater  Utility   (AWWU)  from   the                                                               
regulatory purview of the Regulatory  Commission of Alaska (RCA).                                                               
He said local  control is the issue, and in  his opinion there is                                                               
no  evidence  showing that  state  oversight  is better  for  the                                                               
consumer.    He added  that  he  has  worked  with the  Mayor  of                                                               
Anchorage,  the AWWU,  and the  Anchorage Assembly  to develop  a                                                               
plan for a local oversight  authority for the utility, which will                                                               
maintain  the  level  of consumer  protection  while  encouraging                                                               
stronger local government and local ownership.                                                                                  
MARK  PREMO,  General  Manager, Anchorage  Water  and  Wastewater                                                               
Utility,  said he  supports HB  108,  which specifically  exempts                                                               
AWWU from  economic regulation by the  RCA, and places it  in the                                                               
same  status  as  every  other  municipally-owned  water  utility                                                               
except Pelican.   He said  AWWU is two separate  utilities: water                                                               
utility and  sewer utility.   The AWWU  was formed in  1975 after                                                               
the unification of  the Municipality of Anchorage.   In 1991, the                                                               
municipality  petitioned for  an exemption  from regulation,  and                                                               
the commission split  on a two to  two vote.  The  opinion of the                                                               
opposing commissioners was that  AWWU should be regulated because                                                               
of competition.                                                                                                                 
3:29:36 PM                                                                                                                    
MR. PREMO  said that during the  last session House Bill  515 was                                                               
passed by  the House,  but time  ran out for  the Senate  to act.                                                               
Current  RCA regulation  procedures  are slow  and expensive,  he                                                               
said, and  he estimates that the  AWWU will pay over  $500,000 in                                                               
regulatory costs in  2005.  He said the greater  cost to AWWU and                                                               
its customers is  in preparing filings and  the regulatory delay.                                                               
The RCA scheduled public hearings  15 months after AWWU filed for                                                               
rate increases,  which substantially  increases the  jeopardy for                                                               
customers  in the  event that  a portion  of the  requested rates                                                               
have to be  refunded, he said.  He stated  that local regulations                                                               
are   faster,  less   structured,  more   economical,  and   more                                                               
responsive  to local  needs.   The RCA  process was  designed for                                                               
private  utilities,  and  it  is  not  accountable  to  Anchorage                                                               
residents.   The municipality  is accountable  because ratepayers                                                               
are voters.  He  asked for support of HB 108  and said that self-                                                               
regulation  has  worked effectively  across  the  nation and  the                                                               
state.   Anchorage has  a proven track  record of  managing other                                                               
utilities.   Ratepayers have  benefited from  AWWU's efficiencies                                                               
and upgrades,  which have been  done without assistance  from the                                                               
RCA, he noted.                                                                                                                  
3:33:02 PM                                                                                                                    
MR. PREMO  said Anchorage's  mayor and  assembly have  made sound                                                               
decisions in  the oversight  of AWWU.   The water  and wastewater                                                               
advisory commission is currently  meeting to develop an authority                                                               
structure  that will  include strong  consumer protections  and a                                                               
ratemaking process  similar to standard industry  practices.  Mr.                                                               
Premo concluded  that municipal regulation  of AWWU  will balance                                                               
consumer protection with financial soundness.                                                                                   
CHAIR ANDERSON  asked him if  AWWU is the only  municipally owned                                                               
water utility that is regulated by the RCA.                                                                                     
MR. PREMO said, "Short of Pelican."                                                                                             
CHAIR ANDERSON  asked how  many wastewater  utilities are  in the                                                               
MR. PREMO  replied that all  cities have municipally  owned water                                                               
and  wastewater utilities  except Fairbanks,  which is  privately                                                               
owned and under the RCA structure.                                                                                              
CHAIR  ANDERSON  asked what  will  be  the  process when  HB  108                                                               
MR.  PREMO replied  that  the process  would be  the  same as  in                                                               
Juneau, Sitka, Ketchikan, Kenai, Homer,  and the vast majority of                                                               
cities  in  Alaska, and  it  is  direct  oversight by  the  local                                                               
elected officials.                                                                                                              
3:36:29 PM                                                                                                                    
MR.  PREMO  said that  once  the  authority is  established,  the                                                               
overview  of the  utility,  less  items that  are  vested in  the                                                               
charter of Anchorage  to the assembly, would be passed  on to the                                                               
CHAIR ANDERSON  asked if the advisory  commission would establish                                                               
the authority  and then  there would  be a  new group  that would                                                               
serve as commissioners on that authority.                                                                                       
MR.  PREMO answered  that Chair  Anderson  is generally  correct.                                                               
Right now  AWWU is in  discussions with the  advisory commission,                                                               
municipal  administration, and  the  assembly  to implement  that                                                               
authority, he said.  He  added that the advisory commission would                                                               
be empowered  to a higher  level of responsibility  for oversight                                                               
of the daily  operations of the utility.  "It  is envisioned that                                                               
that authority would have involvement  of both the administration                                                               
and the assembly in the appointment of the members," he said.                                                                   
CHAIR ANDERSON asked about the  assembly increasing utility rates                                                               
without control from outside.                                                                                                   
MR.  PREMO  said AWWU  concurs  with  concern about  the  control                                                               
mechanism.  Currently, the rates  are determined by a long series                                                               
of comparisons  and equity  questions.  The  assembly will  use a                                                               
similar   ratemaking  methodology,   with  principles   that  are                                                               
standard in the industry.   Comparing the ability of the assembly                                                               
to  make rates  with RCA's  ability, he  said: "I  believe eleven                                                               
elected local  officials are  much more  accountable to  the rate                                                               
payers who  are also voters in  Anchorage, than a series  of five                                                               
state-appointed officials from Juneau."                                                                                         
REPRESENTATIVE CRAWFORD  said he got lost  during the explanation                                                               
of the ratemaking process.                                                                                                      
MR.  PREMO said  that the  process used  today will  be the  same                                                               
after HB 108.                                                                                                                   
REPRESENTATIVE CRAWFORD  asked if  the assembly  is the  one that                                                               
makes the rate decision.                                                                                                        
MR.  PREMO said  the utility  staff does  the rate  analysis, the                                                               
board approves it, and then the assembly has ultimate approval.                                                                 
CHAIR  ANDERSON  opined  that  it's  more  complicated  and  more                                                               
intimidating to go  through the RCA hearing process  than a local                                                               
3:42:56 PM                                                                                                                    
MR. PREMO  said he agrees, and,  as an example, the  current rate                                                               
case has  over 530 questions of  discovery, and it is  very time-                                                               
consuming and formal--almost like a trial with lawyers.                                                                         
REPRESENTATIVE  LYNN  asked  about   financial  savings  for  the                                                               
MR. PREMO  said he  thinks it will  vary from year  to year.   He                                                               
said  that  the  $500,000  that  is  to  go  to  the  RCA  "would                                                               
immediately go  away."  Mr.  Premo said  he believes the  cost of                                                               
self-regulation is one quarter the cost of RCA regulation.                                                                      
REPRESENTATIVE  LYNN  asked  if  that means  a  decrease  in  his                                                               
constituents' water bills.                                                                                                      
MR. PREMO said barring inflation, that is correct.                                                                              
REPRESENTATIVE CRAWFORD  said he  is concerned that  the assembly                                                               
is faced with a tax cap  and budget shortfalls, and it might "try                                                               
to backfill with revenues from AWWU."                                                                                           
MR.  PREMO replied  that local  accountability  is the  strongest                                                               
there  is.   The assembly  would  be accountable  to its  voters.                                                               
Additionally,  the  authority  structure will  prevent  that,  he                                                               
3:47:11 PM                                                                                                                    
CHAIR ANDERSON  said that  Mayor Begich claimed  that this  was a                                                               
partisan effort, but  this is evolving every year  even as mayors                                                               
and the assembly changes.                                                                                                       
MR. PREMO  said he agrees that  this is more about  local control                                                               
than  partisanship,  and  Anchorage is  sophisticated  enough  to                                                               
oversee its own utilities.                                                                                                      
REPRESENTATIVE GUTTENBERG pointed out  that taking a utility from                                                               
under  the RCA  removes the  consumer protection  aspect, or  the                                                               
public  advocacy section,  not in  relation to  ratepaying.   How                                                               
would the assembly address those issues, he asked.                                                                              
MR.  PREMO  said   AWWU  has  discussed  it   with  the  advisory                                                               
commission at  length.  He suggested  Representative Guttenberg's                                                               
question is: "What  is his accountability to the  customers?"  He                                                               
said  now it  would  be  more difficult  for  a  customer to  get                                                               
resolution on  complaints than if [AWWU]  is directly accountable                                                               
at the local level.                                                                                                             
3:49:37 PM                                                                                                                    
MR. PREMO added  that under HB 108, he will  not have the ability                                                               
to say to  a customer, "Go see the regulatory  commission and see                                                               
if we're following our rules."                                                                                                  
3:50:46 PM                                                                                                                    
REPRESENTATIVE GUTTENBERG asked  how many non-rate-based consumer                                                               
complaints there have been in the RCA for the AWWU.                                                                             
KATE GIARD,  Chair, Regulatory Commission  of Alaska,  said there                                                               
were 29  complaints between  2001 and 2004,  and 7  complaints so                                                               
far  in  2005.   As  the  former  chief  fiscal officer  for  the                                                               
Municipality  of Anchorage,  she assured  the committee  that the                                                               
water and wastewater  utility is a finely run  organization.  She                                                               
said she has the utmost respect  for Mr. Premo and his leadership                                                               
in bringing  the utility  to the  good position  it is  in today.                                                               
However, the  RCA is constructed  in a formalized manner,  and it                                                               
offers the  public the opportunity  to come in and  complain, she                                                               
noted.  The RCA becomes a judge  at that point and listens to the                                                               
case  created by  the complaint.   Alaska's  attorney general  is                                                               
looking at  the current AWWU-proposed  rate increase of  about 20                                                               
percent, because the state is  concerned about the hike and wants                                                               
to  investigate.    It  is  a  court-like  event  on  a  15-month                                                               
timeline, which  is long, she  said.  She  noted that the  RCA is                                                               
going  to fix  its reputation  for poor  timeliness, but  in this                                                               
particular  case Mr.  Premo's comments  trouble  her because  the                                                               
parties  established the  schedule.    She said  it  is of  great                                                               
concern  to  the  attorney   general  that  customers  throughout                                                               
Anchorage will have a 20 percent increase in rates.                                                                             
3:55:29 PM                                                                                                                    
MS. GIARD  said she thinks local  control is a fine  idea as long                                                               
as there are processes is in  place, the RCA can be mimicked, but                                                               
she questioned "why you want to  go through the cost of mimicking                                                               
it."  She said, "They're not really  ready yet.  They have a rate                                                               
case  going  on;   they  haven't  really  provided   you  with  a                                                               
sufficient degree  of comfort in  what the form of  the oversight                                                               
agency is  going to be;  what powers does it  hold?  How  are you                                                               
going  to  assure  your  ratepayers,   voters,  that  they  won't                                                               
increase their rates again, year to year to year to year?"                                                                      
MS. GIARD said that when she  worked for Anchorage, she looked to                                                               
the  AWWU for  money, but  she could  not access  it.   The local                                                               
government  still cannot  access that  money, but  it raised  the                                                               
property taxes on  AWWU three times in two years  by 300 percent.                                                               
"That's the  basis of this  particular rate case," she  said; the                                                               
utility's  tax bill  went up  by $6.4  million, and  that is  the                                                               
essence  of a  lot of  the struggle.   Looking  at the  value RCA                                                               
provides, she  acknowledged that  the municipality can  mimic it,                                                               
but she warned the committee to ask for it to be:                                                                               
     a  little bit  more  defined  so you  can  say to  your                                                                    
     ratepayers,  yes,  you're  going  to  have  a  specific                                                                    
     amount of  increase in  2005 in your  bills, but  I can                                                                    
     assure you -- because I  know what's going to happen in                                                                    
     the  structure and  the  set up  --  it's defined,  the                                                                    
     assembly has passed  it.  They have given  us some kind                                                                    
     of assurance that this is  the structure.  We've looked                                                                    
     at it.  We're comfortable with  it.  We feel that we've                                                                    
     done  our fiduciary  responsibility to  you in  letting                                                                    
     regulation go.                                                                                                             
MS. GIARD added that "they can  do it," but she doesn't feel that                                                               
they are ready to.                                                                                                              
CHAIR ANDERSON said he has  seen an onslaught of entities wanting                                                               
to get outside  of the RCA, and sometimes there  may be merit and                                                               
sometimes not.   He  said there  is a  need for  the RCA,  and he                                                               
complimented Ms. Giard  for her diligent and hard work.   He said                                                               
this  case is  a good  one to  be withdrawn  from RCA  regulation                                                               
because no  other similar utility is  under the RCA.   He said if                                                               
the  legislature  passes this  regulation,  it  will expedite  an                                                               
authority being created.                                                                                                        
MS.  GIARD said  anytime the  legislature feels  comfortable that                                                               
the Municipality  of Anchorage will  protect the  ratepayers from                                                               
paying for more  than just a water bill, there  is no reason that                                                               
the RCA  can't stand  down.  She  said the RCA  does not  need to                                                               
regulate AWWU  when there  are competent  means at  the municipal                                                               
level,  and there  are  a lot  of  reasons  to let  it  go.   She                                                               
cautioned that  Fairbanks used  its utility  as a  funding source                                                               
for the city and the utility value went down.                                                                                   
4:03:51 PM                                                                                                                    
MS. GIARD told the committee the AWWU  is in the middle of a rate                                                               
case.   She  recommended  the legislature  allow  that to  finish                                                               
before moving  forward, and she  suggested bill language  to that                                                               
effect.   She opined that  in the end HB  108 will probably  be a                                                               
good thing for the water utility and the city.                                                                                  
REPRESENTATIVE  GUTTENBERG  asked for  a  timeline  for the  rate                                                               
MS. GIARD  said there is  a hearing date  for June 14,  2005, and                                                               
the RCA issue order date is July 30, 2005.                                                                                      
REPRESENTATIVE GUTTENBERG said if  this legislation passed before                                                               
then, it could void the rate case.                                                                                              
MS. GIARD said the rate case would just fall away.                                                                              
REPRESENTATIVE GUTTENBERG  asked if she recommends  language that                                                               
the bill take effect after the rate case decision.                                                                              
MS.  GIARD said  she  thinks  allowing the  RCA  to continue  the                                                               
process is a good way of passing the baton of control.                                                                          
MR. PREMO  said he  has not requested  a legal  opinion regarding                                                               
such language, and he  might look at that.  He  said he would not                                                               
have  filed the  rate  case in  June  if it  hadn't  met all  the                                                               
structural integrity issues  required for expenses.   He said the                                                               
big  issue is  when  the legislature  would  be comfortable  with                                                               
self-regulation by  the city  of Anchorage,  and he  believes the                                                               
House spoke  loudly last year  that it  is comfortable.   He said                                                               
the  board  is  forming  now  and expects  it  to  be  formalized                                                               
conceptually in the  next 30 to 45 days.   But even without that,                                                               
he said, the  Municipality of Anchorage has proven  that it knows                                                               
how  to run  an  enterprise fund.   Tying  the  legislation to  a                                                               
defined date  based on the  rate case  could get lengthy,  and he                                                               
said that would be his biggest concern.                                                                                         
4:08:44 PM                                                                                                                    
CHAIR ANDERSON recalled that last  year's legislation wasn't tied                                                               
to the rate case.  "Is that correct," he asked.                                                                                 
MR. PREMO said, exactly; it is an ongoing issue.                                                                                
REPRESENTATIVE  ROKEBERG expressed  concern about  the effect  of                                                               
the bill  on the current  rate case, which  he opined would  be a                                                               
waste of money.   He asked Mr. Premo if he  is satisfied with the                                                               
interim rate increase that has been granted.                                                                                    
MR. PREMO replied  no, because the rate case filed  in early 2004                                                               
requested a two-stage rate increase.   One stage would be for the                                                               
2004 interim  refundables, and the  second stage would  happen in                                                               
January 2005, he  said.  "At the time we  filed our 2004 request,                                                               
we were  under the opinion  that we  could move through  2004 and                                                               
get  to a  permanent rate  hearing  and review  the interim  rate                                                               
requests for  2004 and make  permanent the  rates for 2005."   He                                                               
said the rate case hearing has  been moved back, and the AWWU has                                                               
not been  granted the  request for  interim refundable  rates for                                                               
the portion associated with the 2005 cost increases.                                                                            
REPRESENTATIVE  ROKEBERG asked  if  Mr. Premo  was not  satisfied                                                               
with the  interim rates and if  the AWWU would like  refunds back                                                               
to the consumers.                                                                                                               
MR. PREMO said it is the other way  around.  He said the AWWU has                                                               
not received  the rate  increases associated  with 2005.   "We're                                                               
operating without that," he clarified.                                                                                          
CHAIR ANDERSON said  there isn't going to be  rebate, and related                                                               
his  understanding that  Mr. Premo's  point has  been that  there                                                               
will  be increased  efficiency, local  control, and  a simplified                                                               
process.   He said that Mr.  Premo has never said  on record that                                                               
there  is an  easy  way to  reduce  rates, but  that  is what  he                                                               
prefers to do if possible.                                                                                                      
MR. PREMO said  the issue is of local control,  and the rate case                                                               
should not be brought into the discussion.                                                                                      
4:14:09 PM                                                                                                                    
REPRESENTATIVE  ROKEBERG indicated  [that  he  is interested]  in                                                               
determining whether the effective date  of the bill should be now                                                               
or after  the rate case is  over.  He  noted the lag time  of the                                                               
rate  increase and  speculated  that if  the  utility were  under                                                               
local control  there could  be incremental,  periodic adjustments                                                               
in rates.   He said he  thinks it is  bad policy to have  a large                                                               
jump in rates.                                                                                                                  
MR.  PREMO said  between  1992  and 2004  there  was  not a  rate                                                               
increase  because it  wasn't needed,  but the  Anchorage assembly                                                               
recently increased  the utility's taxes  by 40 percent,  which is                                                               
the driving factor in the rate increase.                                                                                        
REPRESENTATIVE ROKEBERG  said that the legislature  did not cause                                                               
the tariff increase, the municipality did.                                                                                      
MR. PREMO said  the mill rate has  stayed the same but  it is now                                                               
applied to the entire AWWU plant, unlike before.                                                                                
4:17:50 PM                                                                                                                    
REPRESENTATIVE  CRAWFORD asked  for  a definition  of an  interim                                                               
refundable rate.                                                                                                                
MR. PREMO  said it  is a  temporary rate increase.   The  RCA can                                                               
approve  a rate  before it  fully analyzes  the increase,  and it                                                               
will  give the  approval  for an  interim  refundable rate  which                                                               
allows  for  a  refund  to  the consumer  if  that  rate  is  not                                                               
ultimately approved.                                                                                                            
REPRESENTATIVE  GUTTENBERG  asked  how   the  assembly  or  other                                                               
authority  would have  the expertise  to assess  a proposed  rate                                                               
increase,  and  if  there  would  be an  increased  cost  to  the                                                               
MR. PREMO said  all rate filings go to the  assembly for approval                                                               
4:20:34 PM                                                                                                                    
REPRESENTATIVE ROKEBERG  asked at  what stage the  development of                                                               
the new authority is, and how quickly it will be in place.                                                                      
MR.   PREMO   replied   that   Anchorage's   mayor   and   senior                                                               
administrators agree  that the  authority is  the proper  form of                                                               
governance  for the  utility.    He added  there  is an  advisory                                                               
commission  that the  AWWU is  working  with, and  in late  March                                                               
there  will  be a  recommendation  regarding  the makeup  of  the                                                               
authority  and the  controlling principles  that are  embodied in                                                               
its bylaws.                                                                                                                     
4:22:39 PM                                                                                                                    
CHAIR ANDERSON said he thinks there  can be a compromise and then                                                               
closed public testimony.                                                                                                        
REPRESENTATIVE GUTTENBERG  said the committee has  not heard from                                                               
the public, and he wonders what kind of public process there is.                                                                
CHAIR ANDERSON  said there is  a toll-free number,  email access,                                                               
and Gavel to Gavel,  which allows the public to call  in now.  He                                                               
asked for a motion to move the  bill and said that Mr. Premo will                                                               
get documentation  regarding how  the bill  will affect  the rate                                                               
REPRESENTATIVE ROKEBERG said there must  be some reference to the                                                               
rate case.                                                                                                                      
CHAIR ANDERSON said  Mr. Premo will get  documentation before the                                                               
first hearing in House Finance.                                                                                                 
4:26:28 PM                                                                                                                    
REPRESENTATIVE ROKEBERG  said he  would like  a message  from the                                                               
Anchorage Assembly, because it will be  picking up the baton.  He                                                               
said he  thinks that  it's ludicrous  that Anchorage  and Pelican                                                               
are the  only water utilities under  the RCA, and it  needs to be                                                               
REPRESENTATIVE ROKEBERG moved  to report HB 108  out of committee                                                               
with  individual  recommendations  and  the  accompanying  fiscal                                                               
notes.  Hearing no objection, it was so moved.                                                                                  
The committee took an at-ease from 4:27 p.m. to 4:28 p.m.                                                                       

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