Legislature(2005 - 2006)BELTZ 211


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved SCS CSHB 108(CRA) Out of Committee
Heard & Held
Bills Previously Heard/Scheduled
Moved CSSB 86(CRA) Out of Committee
   CSHB 108(FIN)am-WATER & SEWER UTILITIES OF POLIT. SUBDIV.                                                                
CHAIR  GARY  STEVENS  announced  CSHB 108(FIN)am  to  be  up  for                                                               
1:33:56 PM                                                                                                                  
JOSH APPLEBY,  Staff to  Representative Tom  Anderson, introduced                                                               
the bill as  an issue of local control. Adding  lines 6-9 on page                                                               
2  changes  existing law  and  exempts  the Anchorage  Water  and                                                               
Wastewater  Utility  (AWWU)  from regulation  by  the  Regulatory                                                               
Commission of Alaska  (RCA). The language states that  a water or                                                               
sewer  utility   owned  by  a  political   subdivision,  but  not                                                               
competing directly with another water  or sewer utility is exempt                                                               
from RCA regulation.                                                                                                            
He said there isn't any  evidence that consumers in Anchorage are                                                               
any better  off with state  oversight than with  local oversight.                                                               
The sponsor has  been working with AWWU, the  mayor's office, the                                                               
assembly,  and Anchorage  legislators to  develop a  plan for  an                                                               
oversight  authority for  the utility  to maintain  the level  of                                                               
consumer protection while encouraging  and fostering better local                                                               
governance of the locally controlled and owned water utilities.                                                                 
He noted  that Mr.  Prima was  available for  technical questions                                                               
and  to   answer  specific  questions  on   the  proposed  Senate                                                               
committee substitute (CS).                                                                                                      
The  House  Finance  Committee   added  Section  2,  which  would                                                               
continue any  pending measures before  the RCA so they  would not                                                               
be  affected with  this  legislation. Section  3  was also  added                                                               
allowing this language to take  effect only if the governing body                                                               
established  a  separate  body  to continue  the  fair  and  open                                                               
process of  setting rates based  on standard  industry practices.                                                               
Section 4 establishes the effective date.                                                                                       
The bill  was amended on the  House floor to include  language on                                                               
page 2, lines 29-30 requiring  that the new separate body include                                                               
a role for consumer advocates to represent taxpayers.                                                                           
1:37:08 PM                                                                                                                    
MARK  PRIMA,  General  Manager, Anchorage  Water  and  Wastewater                                                               
Utility  (AWWU), spoke  in  support  of HB  108.  The bill  would                                                               
exempt AWWU  from RCA economic  regulation, but not  service area                                                               
regulation. This would  give AWWU the same status  as every other                                                               
municipally owned  water and wastewater utility  in Alaska except                                                               
Pelican. Anchorage would like this  exemption because the current                                                               
RCA regulation process and procedures  are slow and expensive and                                                               
because  the regulations  and  procedures  are non-responsive  to                                                               
local needs.                                                                                                                    
From 1993-2003 AWWU filed only  minor procedural matters with the                                                               
RCA and never  requested a rate increase, but  during this period                                                               
AWWU  ratepayers  have  paid about  $2.8  million  in  regulatory                                                               
assessments to  the RCA as  part of  every monthly bill.  In 2005                                                               
AWWU estimates the assessment will be about $500,000.                                                                           
He maintained that the RCA  process wasn't designed for municipal                                                               
utilities  and  that  it  wouldn't  ever  be  as  responsive  and                                                               
accountable  to   ratepayers  as  the  municipality,   which  has                                                               
provided its  customers with excellent service,  stable rates and                                                               
sound finances for many years.  Ratepayers have benefited as AWWU                                                               
has  reduced  expenses  by leveraging  technology  and  improving                                                               
business processes while increasing spending on system repairs.                                                                 
The Municipality  of Anchorage  administration supports  a strong                                                               
oversight  authority to  regulate AWWU  in lieu  of the  RCA. The                                                               
Water and  Wastewater Advisory Commission  and Mayor  Begich have                                                               
reached  consensus on  a draft  authority  structure with  strong                                                               
consumer  protection  provisions and  will  present  that to  the                                                               
assembly this  week. Ultimately the  administration's goal  is to                                                               
have  an ordinance  establishing AWWU  authority approved  by the                                                               
municipal assembly.                                                                                                             
MR.  PRIMA  noted   the  letter  of  intent   from  Mayor  Begich                                                               
establishing  his commitment  to establishing  an AWWU  authority                                                               
with strong consumer  protection provided by a  board of experts.                                                               
The board  would be responsible  for operation and  management of                                                               
AWWU under  the oversight  of the  municipal assembly.  The board                                                               
and assembly would both hold public hearings on rate increases.                                                                 
1:42:33 PM                                                                                                                    
CHAIR GARY STEVENS asked for a motion to adopt the Senate CS.                                                                   
1:42:48 PM                                                                                                                    
SENATOR  THOMAS  WAGONER  motioned  to  adopt  SCS  CSHB  108  \I                                                               
SENATOR ELLIS objected for discussion and explanation purposes.                                                                 
MR. PRIMA said page 2, end of  line 19 through line 22 were added                                                               
to address  concerns regarding pending  rate cases.  The language                                                               
ensures there  is a process of  rate review by a  public body and                                                               
establishes  the  test  year  for  looking  back  at  operational                                                               
expenses as not earlier than 2004.                                                                                              
1:44:48 PM                                                                                                                    
SENATOR  JOHNNY ELLIS  asked  for the  specific  meaning of  rate                                                               
review  in the  context  of the  bill and  what  powers would  be                                                               
MR.  PRIMA replied  it's the  mechanism by  which rates  would be                                                               
SENATOR BERT STEDMAN asked why  the Municipality of Anchorage was                                                               
placed under RCA review.                                                                                                        
MR. PRIMA  explained that at  the time of unification  there were                                                               
multiple publicly  owned and highly competitive  utilities within                                                               
the  municipality.  To  avoid  cross   subsidy,  which  is  using                                                               
ratemaking powers  of one  utility to  siphon funds  to subsidize                                                               
rates and  put competing utilities  at a disadvantage,  state law                                                               
required regulation  of all utilities contained  by the political                                                               
With regard to  whether the same conditions exist  today, he said                                                               
the  issue of  utility self-regulation  has been  before the  RCA                                                               
previously and  they took  no action.  However, the  issue wasn't                                                               
with  respect to  the water  and  sewer utility  and they  didn't                                                               
reference monopolistic concerns at that time.                                                                                   
1:47:55 PM                                                                                                                    
SENATOR STEDMAN asked  if there was a  consolidation of utilities                                                               
with unification.                                                                                                               
MR. PRIMA  said there was  and the  cross subsidy issue  was with                                                               
regard  to  the  municipal  light   and  power  utility  and  the                                                               
Anchorage  telephone utility.  The Municipality  of Anchorage  no                                                               
longer owns  the Anchorage telephone  utility; it  was privatized                                                               
in the early 1990s.                                                                                                             
CHAIR GARY STEVENS asked if there  wouldn't be a cost attached to                                                               
the AWWU rate studies.                                                                                                          
MR. PRIMA  replied the  estimated $500,000  is a  regulatory cost                                                               
surcharge,  which  is paid  by  every  RCA regulated  utility  in                                                               
Alaska  for   RCA  operations.   Ratepayers  wouldn't   pay  that                                                               
surcharge  under municipal  authority because  there would  be no                                                               
RCA  to  support. However,  the  real  cost savings  would  occur                                                               
because a self regulated municipal  authority wouldn't operate in                                                               
the quasi-judicial style of the RCA.                                                                                            
CHAIR  GARY STEVENS  summarized  the RCA  charges  $500,000 as  a                                                               
member fee and rate hearings bring additional charges.                                                                          
MR. PRIMA  clarified it's  the costs that  the utility  incurs in                                                               
preparing  for a  rate filing.  This  includes expert  witnesses,                                                               
testimony,  and  studies.  The  calculations  and  justifications                                                               
would be the  same as per industry standards,  but there wouldn't                                                               
be the cost associated with a formal judicial process.                                                                          
CHAIR GARY  STEVENS asked if  the rate  changes would have  to be                                                               
approved by the Anchorage Borough Assembly.                                                                                     
MR.  PRIMA  said  yes.  The  proposal is  to  create  a  separate                                                               
independent authority and a two-step  procedure for rate setting.                                                               
The  seven-member authority  would hold  a public  process before                                                               
making recommendations  to the Anchorage Assembly.  The assembly,                                                               
through  ordinance and  public process,  would approve  modify or                                                               
deny the suggestion.                                                                                                            
SENATOR  STEDMAN noted  RCA is  looking at  a $345,000  change in                                                               
revenue and questioned the difference between that and $500,000.                                                                
MR.  PRIMA replied  one  fiscal note  reflects  the $345,000  RCA                                                               
oversight  cost  reduction  and the  $500,000  is  the  municipal                                                               
percentage calculation based  on RCA costs to  date against gross                                                               
CHAIR  GARY   STEVENS  noted   Ms.  Lesh   was  passing   out  an                                                               
indeterminate fiscal note from the Department of Law.                                                                           
SENATOR STEDMAN asked  if there might be less  upward pressure on                                                               
rate increases and perhaps even a rate decrease.                                                                                
MR. PRIMA replied  there is no question that there  would be less                                                               
pressure  on rates,  but he  couldn't say  rates would  decrease.                                                               
However,  the  $500,000  surcharge  wouldn't  be  there  and  the                                                               
expense  of  filing  and  dealing with  the  RCA  formal  process                                                               
wouldn't be there either.                                                                                                       
SENATOR  THOMAS WAGONER  remarked the  indeterminate fiscal  note                                                               
has a different  connotation than the other  three, which reflect                                                               
a savings associated with deregulating the Anchorage utility.                                                                   
SENATOR  ELLIS removed  his objection  to adopting  the committee                                                               
CHAIR  GARY STEVENS  announced SCS  CSHB 108,  \I version,  to be                                                               
before the committee.                                                                                                           
1:57:00 PM                                                                                                                    
KATE GIARD, Chair, Regulatory Commission  of Alaska, said she was                                                               
available for  questions, but she  wasn't prepared to  comment on                                                               
the Senate CS.                                                                                                                  
She  clarified  that  RCCs  are   collected  from  all  regulated                                                               
utilities  and  the funds  go  into  a  pool  and that  the  AWWU                                                               
ratepayers have been paying into  the general pool to support the                                                               
regulatory effort  of the RCA.  As far as regulatory  costs going                                                               
down,  she  agreed  that Anchorage  ratepayers  would  pay  about                                                               
$500,000 less  in RCCs according  to the AWWU  calculations. That                                                               
money is comprised of  the amount that is paid to  the RCA and to                                                               
the attorney general for public advocacy.                                                                                       
Certainly those fees  would be reduced in exchange  for the local                                                               
control, but she wasn't sure all  the costs would go away because                                                               
the new structure might be similar.                                                                                             
She said  the RCA has  provided the utility some  protection from                                                               
transfer  of  costs from  local  government  over to  the  public                                                               
utility. She mentioned  that because it has been an  issue in the                                                               
instance of Fairbanks.                                                                                                          
2:03:41 PM                                                                                                                    
VIRGINIA  RUSH  testified that  she  is  an attorney  working  on                                                               
behalf of  the AARP. She  advised she  has worked in  the utility                                                               
regulation field for many years  and although she represented the                                                               
RCA  previously,  she  no  longer   has  any  connection  to  the                                                               
AARP  opposes HB  108 including  the  language of  the Senate  CS                                                               
because it is  not consistent with AARP  principles on utilities.                                                               
Those principles include:                                                                                                       
          · Regulatory Authority - Independent fully funded and                                                                 
        staffed regulators that are focused on residential                                                                      
        ratepayers and empowered to initiate investigates and                                                                   
        enforce laws and regulations                                                                                            
          · Public Participation - Broadly publicized hearings                                                                  
        on proposed changes in public utility rates that are                                                                    
        conducted locally with consumer participation                                                                           
          · Consumer Representation - Independent fully funded                                                                  
        and adequately  staffed  consumer advocacy  organizations                                                               
        empowered to  initiate investigations  and authorized  to                                                               
        represent residential ratepayers before state and federal                                                               
        regulators and in the courts.                                                                                           
AARP intends  to work  with the  city to  develop a  process that                                                               
meets  principles, but  they don't  know if  the new  rate making                                                               
body  will be  independent  of the  municipality's own  financial                                                               
interests.  That's  important  so   that  the  body  isn't  under                                                               
pressure  to shift  taxpayer costs  to  utility ratepayers.  It's                                                               
also unclear  whether the consumer advocate  would be independent                                                               
and  fully funded  and have  necessary access  to information  to                                                               
examine the utility rate cases.                                                                                                 
Of major concern is the effect  the bill will have on the current                                                               
rate case before the RCA. AWWU should  not be able to ask for new                                                               
rates the day after the RCA  decision if it doesn't like them and                                                               
HB 108  and the proposed  committee substitute would  allow that.                                                               
Relating the rate case before  the RCA to help members understand                                                               
the concern, she said:                                                                                                          
     AWWU is  seeking a total  increase of over  $10 million                                                                    
     per year  from its  ratepayers and 18  percent increase                                                                    
     in rates. ... $6 million of  that $10 million is due to                                                                    
     a change that's already  been approved by the Anchorage                                                                    
     Assembly   that   increases   the   municipal   utility                                                                    
     surcharge assessment,  which is the payment  in lieu of                                                                    
     taxes  that's charged  to  these  utilities. What  that                                                                    
     means is  that this large rate  increase reflects rates                                                                    
     through which  ratepayers pay more  than $6  million in                                                                    
     additional  taxes  to  the municipality  through  their                                                                    
     utility rates.                                                                                                             
     The consumer  advocate -  which is the  AG or  RAPPA as                                                                    
     Mr. Prima  called it  - the AGs  position is  that this                                                                    
     increase  shouldn't be  allowed  and  with other  costs                                                                    
     that  the AG  says should  be disallowed,  the consumer                                                                    
     advocates position before the  RCA is that this utility                                                                    
     doesn't need a rate increase at all.                                                                                       
The  RCA process  does  follow the  AARP  principles promoting  a                                                               
public  process, public  participation, consumer  representation,                                                               
and  an independent  decision  maker. Any  rates  the RCA  adopts                                                               
should have a  reasonable life before AWWU is able  to file a new                                                               
rate case.  There aren't  any cost  savings if  AWWU files  a new                                                               
rate case  the day after  the RCA  issues its decision.  The only                                                               
reason for doing  that would be the desire to  have a second bite                                                               
at the apple because it doesn't like the decision.                                                                              
AARP specifically  objects to the  provision that would  make the                                                               
affect of  the RCA decision end  immediately if AWWU files  a new                                                               
rate case.  She thought the  CS says AWWU  could file a  new rate                                                               
case based on the 2004 test  year so they could start preparing a                                                               
rate case  immediately and present  it immediately after  the RCA                                                               
decision if they don't like it.                                                                                                 
AARP suggested  a version  that would  allow AWWU  to file  a new                                                               
rate case only  after a full test year after  HB 108 passes. That                                                               
would mean the earliest filing would be about 2007.                                                                             
She noted that the ratemaking  system that Anchorage is proposing                                                               
is similar to that used  when Fairbanks received APUC approval to                                                               
sell  its utilities  to a  private  entity. The  problem in  that                                                               
instance was  that the city  could not  or would not  raise rates                                                               
high enough to cover the tax  payments the city drew off and also                                                               
provide  needed repairs  and investments  for the  utility. Armed                                                               
with that  knowledge, she couldn't  understand why  Anchorage was                                                               
so eager to enter into a similar situation.                                                                                     
2:14:19 PM                                                                                                                    
SENATOR WAGONER  took issue with  the underlying  assumption that                                                               
municipalities should  all have regulated utilities  because some                                                               
do indeed  do a good job  of running their own  water and utility                                                               
systems. He said the Kenai  and Soldotna systems are very healthy                                                               
and he questioned why she would  think that the City of Anchorage                                                               
isn't capable of having a similarly healthy system.                                                                             
MS. RUSH clarified  she was not addressing  any regulatory system                                                               
not covered  by this bill.  AARP is only concerned  about whether                                                               
the City of Anchorage would regulate  its utilities in a way that                                                               
is in line with the AARP principles.                                                                                            
2:16:28 PM                                                                                                                    
KATHY WASSERMAN,  Policy and  Program Director,  Alaska Municipal                                                               
League (AML), said  AML always advocates for  local decisions and                                                               
control  to be  made  locally. The  RCA is  an  extra layer  that                                                               
imposes extra cost and work. As  the former mayor of Pelican, the                                                               
only other  Alaska community  that is regulated  by RCA,  she has                                                               
first hand knowledge  of the extra work and money  that the extra                                                               
layer entails.                                                                                                                  
When Pelican  received the utility  from a private  interest, the                                                               
maintenance was deplorable  and the rates weren't  enough to keep                                                               
the utility  alive. At that  time and  in that instance,  the RCA                                                               
certainly  didn't do  what Ms.  Giard  says they  will do.  Local                                                               
elected  officials are  more responsive,  make wiser  choices and                                                               
usually can make more efficient, effective and timely decisions.                                                                
As  the  state  looks  for  ways   to  pass  costs  on  to  local                                                               
governments, this  would be a  positive and beneficial way  to do                                                               
just that, she concluded.                                                                                                       
2:18:57 PM                                                                                                                    
SENATOR WAGONER  referenced a fiscal  note analysis and  told Ms.                                                               
Giard he questions charging other  regulated bodies more money if                                                               
the RCA were to lose the money paid in by the AWWU.                                                                             
MS. GIARD asked if that statement  was from the Department of Law                                                               
(DOL) because  the fiscal note  analysis filed by the  RCA stated                                                               
that  the loss  in revenue  would  be equivalent  to about  three                                                               
SENATOR WAGONER said it was from the Department of Law.                                                                         
MS. GIARD clarified  that the RCA didn't say that  and they don't                                                               
support the  DOL statement. RCA  believes it is  inappropriate to                                                               
try  to maintain  regulatory  control over  an  entity to  simply                                                               
receive revenue and not provide regulatory service.                                                                             
SENATOR WAGONER thanked her for the clarification.                                                                              
MS. GIARD  said RCA revenues  aren't as much as  were anticipated                                                               
and they have  already released eight staff members  in an effort                                                               
to  stay   within  budget.   Certainly  they   wouldn't  advocate                                                               
increasing revenues or holding onto a utility to get revenue.                                                                   
CHAIR  GARY STEVENS  asked Mr.  Prima to  respond to  the concern                                                               
about  the   potential  for  cost   shifting  to   the  Anchorage                                                               
ratepayers and what would happen if the bill were to pass.                                                                      
MR. PRIMA said the decision in  the current RCA rate case will go                                                               
into  effect regardless  of the  effective date  of the  bill and                                                               
that the utility will abide by the RCA rate case decisions.                                                                     
Cost shifting is  always a concern for  municipal departments and                                                               
the  best  prevention   is  to  have  local   control  and  local                                                               
assemblies. Local officials tend to be very responsive he said.                                                                 
He  referenced the  letter from  Mayor Begich  regarding how  the                                                               
authority would  be set up  and suggested  that it does  speak to                                                               
the principles of the AARP.                                                                                                     
There were no further questions or comments.                                                                                    
2:26:21 PM                                                                                                                    
CHAIR GARY STEVENS asked for a motion.                                                                                          
SENATOR WAGONER motioned  to report SCS CSHB  108(CRA) \I version                                                               
and  attached  4  fiscal notes  from  committee  with  individual                                                               
recommendations. There being no objection, it was so ordered.                                                                   

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