Legislature(1999 - 2000)
04/21/1999 08:07 AM House URS
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 185 - SMALL WATER UTILITIES EXEMPT FROM APUC CHAIRMAN HUDSON announced that the next order of business was House Bill No. 185, "An Act exempting certain small water utilities from regulation by the Alaska Public Utilities Commission." Number 1765 REPRESENTATIVE OGAN stated that HB 185 adds "small water utilities" to the existing exemptions that apply to "small electric" and "small telephone" utilities that don't gross over $50,000 annually. He pointed out that there is a subdivision in his district where in the first phase the homeowners association assumed ownership of the utility and then a subsequent different developer decided to come in and develop the second phase, which was never developed but simply platted and the developer wanted to tag on to the water system owned by the homeowners association. The Homeowners Association wanted the developer to develop his own water system, so the developer appealed to the APUC to get them to declare it a public utility. He indicated that he has been waiting for the APUC to rule on it, but they have not, so he introduced HB 185. He referred to a letter from Birch, Horton, Bittner and Cherot addressed to Representative Hudson, on the second page, where it reads, "Water is essential to a person's survival while electricity and telephone service are not." He stated that electricity is kind of essential to Alaskan's survival, because their water systems don't run without electricity and their heat doesn't run without electricity. He referred to the next paragraph of the letter, where it reads, "Historically, the APUC has not sought out small water utilities such as homeowners associations for regulations. The APUC only becomes involved in the 'regulation' of these water utilities when asked to do so by a consumer or a lending institution." He referred to footnote 2, where it states, "See, e.g. Re Country Lane Estate Subdivision Property Owners Association" and under that it reads, "ORDER declaring a small residential subdivision's sewer operations to be a public utility, but exempting the utility from regulation by the commission." He said, therefore, by their own footnotes they are declared a public utility, but they are not regulated. Number 1553 REPRESENTATIVE BERKOWITZ explained that the synthesis in the beginning is nothing more than an editorial comment about the content of the order. He believes that the APUC was making a general determination that small residential sewer operations are public utilities subject to regulations. REPRESENTATIVE OGAN pointed out that he thought it was kind of curious that in the example they used they exempted them. He stated that they would like to do the same and exempt them. CHAIRMAN HUDSON asked how the $50,000 applies. REPRESENTATIVE OGAN responded that he picked it because it is already set in statute for electric and telephone utilities and there is a precedent for it. CHAIRMAN HUDSON indicated that it is the same figure that is used for electric. REPRESENTATIVE OGAN replied yes. Number 1473 REPRESENTATIVE DAVIES stated that HB 185 seems to be an example of a continuing class of legislation that deals with individual circumstances; legislation by anecdote. He expressed concern with legislating a solution to a series of individual programs. He stated that he is assuming that the opt out provision applies to the homeowners association as well. He believes that when a subdivision is developed and water is provided to anyone that moves in then there needs to be some public protection. The appropriate place to resolve issues that arise on the subject of public service is the APUC; that's why they were formed. REPRESENTATIVE PORTER said that he doesn't disagree that an individual situation was the impetus for this legislation, because quite often individual situations bring things to light. He asked why there is a statute that says that there is a $50,000 gross income exemption for electrical and telephone that does not include water. REPRESENTATIVE COWDERY indicated that the small water utilities have always been protected in the health and required samples. For example in the Anchorage area in the early times when alot of subdivisions had there own water systems they were tightly regulated by the health issues. Also, in the Wasilla area during the 1980s there were many areas where water was almost prohibitive on certain lots and only a half a mile away there was an adequate water supply. He stated that he shares the same concerns as Representative Davies with regards to public involvement, but he feels the main thing is the sanitation and health issues. He stated that HB 185 is an appropriate piece of legislation and that the APUC should not burden the public with the small water systems and increased regulations, but the health issue needs to be addressed. REPRESENTATIVE OGAN explained that the Department of Environmental Conservation (DEC) does not cover the health issues. For example, if someone moves into a subdivision and buys a house they become a member of the homeowners association, which means suddenly they become a public utility. REPRESENTATIVE BERKOWITZ pointed out that the conversation highlights why water was not included initially. He said that he would be curious about the legislative history on the subsection and he would also like to know the impacts beyond this one situation in Palmer. REPRESENTATIVE ROKEBERG wondered how many lots are in phase one and how many are in phase two. Number 1167 NELSON ELLIOT, Director, Crimsonview Owners Association, testified via teleconference from Palmer. He stated, "We would like to thank Mr. [Representative] Ogan for introducing this legislation and the committee for hearing us today. ... This homeowners association and I believe most of the others, at least in this area and probably throughout the state, were originally set up following housing urban development model for community water systems. If these systems require an article of incorporation and a non-profit corporation it's going to have covenants and bylaws, and those determine how the systems are owned and operated. The systems are self-regulating and approval of them by HUD (Housing and Urban Development) is required to obtain mortgages under federal programs, ... and these are the documents under which all of us here purchased our properties and our homes. Current APUC policy, at least informally from what we have discovered since this complaint was filed, is that in discussing it with APUC staff members, five of them have indicated to us that they do not ... regulate homeowners associations. One informed the director (indisc. - ripping paper) APUC will not issue, because of necessity and convenience to homeowners associations. A staff member at APUC indicated to one of our directors, when they called to get procedural information, they would not even believe that commission decided to hear this complaint until the director had given them the complaint, the file number for the case and they called it up on the computer and found it. APUC at this point has nothing in place to regulate homeowner associations and have no guidelines. ... They have made one filing. Their advocacy staff, in this particular case, has made one filing, and their recommendation is that the commission needs to convene a (indisc.) to establish guidelines for these homeowner associations. As it stands right now the APUC policy prevents owner-operated systems, such as this, from complying with the statutes or (indisc.) from regulation, and there are no guidelines for regulations to follow that would provide us with reasonable assurance of protection from even frivolous complaints. If APUC hold that they have the right to regulate these homeowner associations, do they not have a statutory responsibility to do so? What statutory authority do they have to nullify our (indisc.) covenants and bylaws under which we purchased our property. If they regulate us then the provisions in those documents would be basically out the window; we'd have to rewrite them." Number 0950 MR. ELLIOT further stated, "Currently, APUC indicates that there are approximately 700 class A water systems in the state of Alaska. It would be curious to know how many of those does APUC regulate and do they have the staff and budget resources to regulate all of them. Again, if the systems fall under their regulatory authority, do they not have the responsibility to establish clear room for regulation and or attention. Our only means of revenue are through our annual and special assessment. If APUC regulates us, this association has no way of raising funds to meet the emergency situation if reserve funds are insufficient to cover the cost. We would have to file for relief through a (indisc.) and rate process prior to being able to collect any money; financial flexibility would be lost. ... Utilities grossing less than $50,000 annually had to limit their subscriber base. The cost of regulation by APUC would dramatically increase consumer costs. In our case, we would no longer be able to manage the water systems. We would have to contract with a management firm at a (indisc.). This coupled with the APUC fees for regulation could easily double the cost of our operation. This homeowners association is only two years old and we've had very little time to continually preserve. Most of those have currently been eroded in legal costs associated with this complaint. The idea of regulation by complaint is a very expensive and slow process. The issues, as far as CVOA [Crimsonview Owners Association] and the developer, that are in this suit really are not relevant. We feel that this legislation would present unnecessary costs associated with regulation, leave all of the articles, covenants and bylaws of the homeowners associations throughout the state intact and still provide protection to the subscribers and exempt utilities that opt for APUC regulation by vote of members in the same hands that the Copper Valley Electric Association opted out." Number 0778 CHAIRMAN HUDSON pointed out that the whole discussion brings up the interrelationship between the Alaska Department of Environmental Conservation (ADEC) and APUC and water and sewer. He said that it makes him wonder if they should have one or the other, but not necessarily both. He asked Mr. Elliot if they deal with ADEC as well. MR. ELLIOT stated that ADEC does regulate the water systems and they are required to do monthly testing for E. Coli bacteria, as well as, other periodic tests. Also, any engineering on the systems requires approval by ADEC. He indicated that there is considerable regulation that they have to comply with and do comply with as far as ADEC is concerned. REPRESENTATIVE DAVIES requested clarification on what the dispute is here. MR. ELLIOT clarified that the original subdivision was set up with 46 lots. The original engineering that went to the ADEC for the approval of the water system was very specific. It requested engineering approval for 50 or less units. That is the construction approval that they got from the ADEC and that is what this system is currently approved for. With regards to the water rights associated with the well, the only thing ever applied for was the 46 units that are currently subdivided. The property that the current developer would like to develop as phase two of this property was never subdivided and is roughly an 11.5 acre piece of land. The developer now wants to subdivide it and use the water system for it. The original concept for the subdivision was that fact would be part of the subdivision. The original engineering, by the original developers, engineers and approved by the APUC, very specifically delineates what would be done to the system to operate it to meet the needs of that property if developed. The homeowners association, in discussions with the developer, had asked for nothing engineered that was not in that original engineering by the ADEC. The developer simply does not want to comply with the original engineering. Number 0480 REPRESENTATIVE BERKOWITZ asked if the committee is going to hear from the developer as well. Number 0449 REBECCA PAULI, Attorney, Birch, Horton, Bittner and Cherot, testified via teleconference from Anchorage. She stated that their firm represents Robert Mellish in his Complaint against The Crimsonview Owners Association. She indicated that Countrylane Estates demonstrates how well the current system works. In that case a lender requested a declaratory judgement as to whether the homeowners association would be a public utility under state statute. The commission said that they would be and they need a statutory definition of a public utility, which is service to ten or more people for compensation. Then the APUC recognized that the association has many of the hallmarks of a cooperative and it would not benefit the public to have the association economically regulated. Under the statute AS 42.05.711(D) provided the association with a public interest exemption, while repeating jurisdiction to hear disputes that may arise. She said that is one of their primary concerns with HB 185, is that in exempting water utilities the only form left to resolve a dispute is the court system, which is much more expensive and time consuming than the APUC. Secondly, she feels it is important that the committee understand that the situation that gave rise to this is that Mr. Mellish will be a member of the association as will the individuals that purchase the 22 homes. She wanted to relay Mr. Mellish's experience in attempting to obtain water service. Even though HB 185 appears fairly benign, it raises the question of why not throw in all the other public utility services as well. She thinks that the reason for that is there are health and safety concerns that certain types of utilities have very broad reaching social impacts. MS. PAULI further stated: Over the past two years Mr. Mellish has attempted to work with the Association regarding his development of phase two of the Crimsonview Subdivision. The association has been both unreasonable and unfair in its demands of Mr. Mellish. If HB 185 passes, Mr. Mellish's frustrating and time-consuming experiences will become routine for other developers. As discussed below, we believe HB 185 is both anti-consumer and anti-development. First, I am going to provide a brief background that will provide you with an overview of Mr. Mellish's experience and then I'm going to address why we believe this is unnecessary reactive legislation. Then finally, I'm going to suggest a couple of solutions. Following is a summary of the undisputed facts as admitted by the Association in their Answer to Robert Mellish's Complaint. The Crimsonview Subdivision was designed and platted to be developed in two phases. Phase one consists of 47 lots and phase two consists of 22 lots. There is a community well and an integrated loop distribution water system that was designed to serve both phase one and phase two. So, presently on these 22 lots you have a distribution system that is connected to the well at phase one. The note on the official platt provides that lot 11, block one of phase one of this platt is the site of the community well system, and will be exclusively used as such until such time a connection of the subdivision's designed water system to a possible city water system. At which time the community well will be abandoned. As required by the platt note, in 1984 phase one was developed with 46 lots for single family residents and one lot for the community well. In 1985 the water system was completed and this is when the integrated loop distribution network was installed. TAPE 99-18, SIDE A MS. PAULI continued: ... charge Mr. Mellish and they continue to control the water. When Mr. Mellish was ready to develop phase two, he was very conscientious and wanted to do it right, so he hired the original engineering firm, that designed the water system, to determine whether the existing system under state standards would be adequate, and the original engineering firm said they were. It's undisputed by all the engineers that the aquifer is more than sufficient to supply water to all 68 lots. The only thing that is not sufficient is the pressure, which is equally resolved by just adding that 2 horse power pump. However, Mr. Mellish being very cautious hired a second engineering firm to review the original engineering firms conclusion that the distribution system was adequate. Upon confirmation, Mr. Mellish informed the association of plans to develop the 22 lots and this development would necessitate the operation of a water distribution system. ... Throughout 1997 Mr. Mellish performed extensive work to bring phase two into compliance with the Matanuska-Susitna Borough subdivision requirements and he hired Alaska Rim to design any necessary upgrade to the system and address any association concerns. Specifically the association was concerned about whether they would have adequate water to water their lawns. Alaska Rim prepared a proposal to satisfy APUC requirements and propose that the associations concerns be addressed for the scheduling of lawn watering. Now, to address the association's concerns about the pressure on the well, Mr. Mellish proposed to furnish and install a 2 horse power booster pump and he also offered to provide and install the multi-function automatic dialer, which would monitor the systems operation, and immediately report any deviation from the norm. ... Finally, he was willing to establish and fund and escrow account to cover the capital costs of a 10 horse power pump that would be more than adequate to provide peak capacity to replace the existing pump and booster that should fail in the future. Warrant to ultimately increase the systems capacity. Once again it's undisputed that the existing distribution system is adequately sized to serve all 68 lots. CHAIRMAN HUDSON asked Ms. Pauli if she could focus on the intent of the bill. MS. PAULI continued: What this is important for, is to show you that this is before the APUC ever got involved. Mr. Mellish made three different proposals to the association. Every time the association came back and kept adding more things and ultimately they wanted paved roads. It is important to let you know that this is what is going to happen if HB 185 passes. It was only after the association demanded that Mr. Mellish install, pay for and maintain a 30,000 gallon water facility above ground, ... he filed a formal complaint at the APUC. Now, we filed a complaint in September of 1998. The commission set it for hearing in April. The association requested the hearing be postponed, because the (indisc.) is working to their favor for this development and this is what you will see should this bill pass. HB 185 is unnecessary reactive legislation intended to decide the complaint before the APUC and force Mr. Mellish to refile in the court system. ... As you know, historically the APUC has not sought out small water utilities such as homeowners associations for regulation. The APUC only becomes involved in regulation when asked to do so by a consumer or a lending institution. ... The APUC retains jurisdiction to resolve disputes in these situations, but grants the association the public interest exemption that I discussed earlier. ... Finding for the public interest exemption, the state, through its legislative body, and the APUC, widely recognize that consumers must have an easily acceptable and friendly forum for dispute. The most important function that the APUC provides is to provide a forum where a (indisc.) or potential consumer may be heard. If HB 185 becomes law, the only recourse that a (indisc.) or potential consumer will have will be the court system. ... I'd like the court system the APUC has as a stated purpose to assist the consumer in obtaining (indisc.) utility. In this case, the APUC staff acted as an informal mediator in an attempt to achieve a solution ... Number 0498 REPRESENTATIVE COWDERY wondered if there is an adequate water supply to address this now. He asked if it has been certified and if there is fire protection. He also wondered about the existing well. MS. PAULI stated that Mr. Mellish agreed to provide more compensation than what the other homeowners were paying. As far as the water supply, it has been certified through their engineers and the ADEC has approved the system. The existing system is seven gallons per minute shy of being instantaneous providing peak demand, but a booster pump will easily resolve that. REPRESENTATIVE COWDERY interjected. He wondered about the supply and the recovery rate, without considering the pump, has it been certified. MS. PAULI replied yes. The engineers have certified that it is adequate. Number 0641 REPRESENTATIVE PORTER stated that he would like to address two issues. One, there seems to be some dispute about whether the developer is or isn't meeting the original design that the original engineer, although it be the same engineer, had designed for the increase in the additional 27 lots. He wondered if the engineer changed his mind. Two, what is it that the developer in phase two is proposing. He wondered if the phase one residents would be required to schedule their lawn watering, because of the implementation of phase two. If that is the case he doesn't blame them for resisting. CHAIRMAN HUDSON indicated that the policy call of the committee is pretty simple, that being, whether or not to add water to the $50,000 annual exemption. It is not in all the detail that specifically relates to The Crimsonview Subdivision, because the legislature does not pass legislation to try to settle a single issue. REPRESENTATIVE DAVIES stated that one of the questions they should be asking is whether they want The Crimsonview Subdivision to be an example of the type of disputes that do arise, and if those disputes should be handled in the court system or at the APUC. Assuming that the APUC would operate in a timely manner, would that be a good venue. In other instances they have looked at alternative dispute resolution mechanisms; they have tried to put into place situations where disputes can be resolved without going to court. He argued that HB 185 should not be passed. CHAIRMAN HUDSON said that is true, but he referred to Section 1 that is being proposed, it clearly states that they are exempt from regulation unless the subscribers petition the commission for regulation. It is trying to go to something that is relatively small and provide the developers and the parties to be able to bypass the regulatory process of the APUC or use it at their discretion. Number 0894 REPRESENTATIVE PORTER pointed out that the committee is familiar with the processes and delays involved in APUC. There are a myriad of alternative dispute resolutions that are available rather than APUC. Number 0964 REPRESENTATIVE DAVIES referred to Representative Hudson's comment that unless the subscribers petition the commission. The problem with that is there would have to be a majority of the existing property owners petitioning to come under regulation, so that the dispute could not be resolved under the APUC and it would have to go to court. He wanted to draw their attention to other provisions in statute, such as Title 29, where it talks about the general desirability of not forming a new service area if a service can be provided by adding onto an existing one. He indicated that taking action that would not at least facilitate that kind of discussion and dispute resolution, shy of going to the courts, is contrary to the general intent of the statutes and the constitution. Number 1050 CHAIRMAN HUDSON announced that he was going to hold HB 185 over until the next meeting.
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