Legislature(2005 - 2006)BELTZ 211
04/04/2005 01:30 PM COMMUNITY & REGIONAL AFFAIRS
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* first hearing in first committee of referral
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CSHB 108(FIN)am-WATER & SEWER UTILITIES OF POLIT. SUBDIV. CHAIR GARY STEVENS announced CSHB 108(FIN)am to be up for consideration. 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 version. 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 granted. MR. PRIMA replied it's the mechanism by which rates would be established. 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 subdivision. 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 billings. 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 substitute. 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 commission. 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 positions. 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.