Legislature(1995 - 1996)
03/21/1995 01:43 PM Senate L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SL&C
SB 54 ELECTRIC UTIL & SOLID WASTE REMOVAL
SENATOR KELLY announced SB 54 to be up for consideration.
DAVID HUTCHENS, Alaska Rural Energy Cooperative Association
(ARECA), said this legislation deals specifically with an
amendment to Section 221, inserting a new subsection that makes a
clear statement that the Public Utilities Commission is to provide
separate service areas for each electric utility. Currently
Section 221 has the effect of instructing the commission on
separating service areas, but it doesn't have the clear statement
that they should be kept separate.
When Section 221 was originally enacted, he explained, the electric
utility service areas were intermixed. Wherever they were adjacent
to each other, there were fights going on, different houses on both
sides of the same street served by different utilities, etc. This
was a very wasteful system of investment and it was determined at
that time that electric utilities are by their very nature
monopolies, because of the technical way they have to be built.
MR. HUTCHENS explained that there has been a lot of talk around the
country about going back to some kind of competitive system among
the electric utilities called "retail wheeling." This means that
a large customer can buy power from whoever they wanted to at some
point and force their local utility to "wheel," meaning deliver, it
into them.
He explained that Alaska doesn't have interconnected systems in
much of the state, but little isolated systems, so that if a
company comes in and picks off all the little companies, it leaves
the electric utility no choice but to recover all of its costs from
the other customers. This is called the "stranded investment
problem." He said the little systems in Alaska are always
struggling to gain economies of scale, not only in terms of
kilowatt hours, but the matter of balancing their loads so there is
some diversity within the system, mixing industrial and commercial
with residential, so they have a better load factor.
MR. HUTCHENS said it was important to point out that this bill
doesn't interfere with competition at the wholesale level which is
governed under federal law nor does it prevent anyone from
generating their own power.
He said the intent section was requested by GCI to make it clear
that this applies only to electric utilities. Section 2 is the
main policy statement. Section 3 is a conforming amendment
removing conflicting language regarding section 2.
MR. HUTCHENS said the amendments in their packets would clarify
language in both sections 2 and 3.
DON SCHORER, Chairman, Alaska Public Utilities Commission (APUC),
opposed SB 54 and refuted some of Mr. Hutchens' comments about the
wastefulness of using two different utilities which is covered in
AS 42.05.221 (d). He asked if this bill passes, would it prevent
any other utility from coming into a service area. He understood
that presently, exclusive service areas do not prevent another
entity from applying for services in that area and then it would be
up to the APUC to determine if it should be allowed. He feared
that would be prevented under this bill.
BOB LOHR, Executive Director, APUC, opposed SB 54, because the
exclusive certificate for electric utilities proposed to be added
to Section 221 changes existing law. Most utility certificates
granted by the commission are exclusive as a matter of fact,
because one provider can serve the customers more efficiently in
the case where a natural monopoly exists. However, there are
several Supreme Court cases that would be overridden by the
adoption of 221 (g) of the bill - Chugach Electric Association vs.
the City of Anchorage 1967 and Homer Electric Association vs. City
of Kenai 1967.
MR. LOHR said there are two exceptions to the general rule in
Alaska, because of the extraordinary remoteness of some
communities. The first authorizes a municipality to (Indistinct
taping)... under Title 29, even if the area is certificated to
another electric utility. The second was the 10 customer
threshold. He said that possibly two bush home owners might be
prevented from sharing a generator under this legislation.
The one customer limit with no threshold would override the Supreme
Court cases he mentioned earlier. There are also questions about
the general direction of the public utility regulatory policy back
to 1978 and the Energy Policy Act of 1992. He said it was
difficult to say if a conflict existed.
SENATOR DUNCAN asked if he said the intent of the law now is that
there are exclusive service areas. MR. LOHR replied that the
current law does not grant exclusive rights to a certificate holder
(under a Supreme Court ruling). As a matter of fact, the
commission doesn't certificate two electric utilities for the same
service area. There is a de facto exclusivity, but it's not
provided by law.
SENATOR DUNCAN asked if there are any cases in Alaska where two
utilities are certificated for the same service area. MR. LOHR
there was at least one case in Klawock with overlapping boundaries.
SENATOR DUNCAN asked if he thought it was good policy in rural
Alaska to have overlapping service areas and why. MR. SCHORER he
didn't think it was in the best interests of the people. He said
one of the problems with the bill is that it is applicable state
wide and not just for bush only.
SENATOR DUNCAN asked why it is the policy of the commission to
allow overlapping service areas in rural Alaska, Klawock, for
example. MR. SCHORER said that situation is trying to be remedied
at the present time. He said the commission did not know the
situation existed until recently. He said they did not reaffirm
having overlapping services, but they divided the city to not have
overlapping service areas.
SENATOR DUNCAN commented, then, that what they did was divide the
consumer base which causes difficulties for rural consumers. He
said the reason he brought this case up is because it does not
serve the consumers, nor the public will to have overlapping
service areas in small communities, because the outcome of that to
require higher rates for the utilities to maintain themselves. He
said he was trying to figure out why APUC opposes the bill, because
it doesn't make sense to have overlapping service areas.
MR. LOHR said he thought they were being consistent, because the
commission was made aware of the Klawock situation and remedied it
by dividing the service area which did not need the exclusivity
provided by 221 (g).
SENATOR DUNCAN reiterated he didn't see how the commission felt it
benefited the consumer by splitting the consumer base. He asked
how the court cases mentioned earlier ran counter to the proposed
legislation.
MR. LOHR replied that those two cases found that the commission
certificate granted did not confer an exclusive or monopoly right
to those electric utilities.
VIRGINIA RUSH, Assistant Attorney General, explained that the
Klawock and Homer situations were cases in which a municipal
utility and an REA cooperative had a dispute over territory within
those cities' limits. The Supreme Court found that certificates
issued by the commission did not give the REA coops exclusive
rights to serve, overriding the Title 29 authority of the municipal
utilities to provide utility services to customers within the city
limits and adjoining areas. So the holding of the those two cases
was that the certificate issued by the PUC was not an exclusive
right to serve an area.
SENATOR KELLY commented that in the case of this bill restates that
in the case of electrical utilities it is an exclusive right. MS.
RUSH said she agreed. SENATOR KELLY remarked that APUC is opposed
to this.
MR. HUTCHENS said regarding Mr. Lohr's point about whether or not
a homesteader would be able to serve adjoining cabins that the
existing definition of general public, in Section 3, is not being
changed. It says (a) a group of 10 or more customers that purchase
the service or commodity furnished by a public utility, so less
than 10 is not a public utility and, therefore, is exempt from all
regulation perviewed by the PUC. The one customer, in subsection
(b), refers only to electric utilities within an area certificated
to an electric utility.
If the legislation is adopted, it would be one or more customers
that purchase electrical service for use within an area that is
certificated to an electric utility if the total annual
compensation paid by customers located within that certificated
area to entities other than the certificated utility exceeds
$50,000. So there would be a little bit of "play" within a
certificated area, but not very much, which is the intent.
MR. HUTCHENS said he has been asked why this legislation was
needed, because the certificates have been historically treated as
exclusive. The answer is it's because of a change in attitude of
the commission and the staff over the last year and the need became
apparent last spring.
The perspective of the electric cooperatives is that the only real
benefit they have from being regulated by the PUC is having
exclusive area, and that's taken away, he didn't see any need for
the PUC to apply to the coops.
SENATOR KELLY remarked that it would save the state $3.5 million a
year.
Number 400
SENATOR KELLY remarked that a member of the APUC felt the whole
thrust of the nation was moving against deregulation. He,
personally, was not sure that was the thrust. He didn't think it
was in the best public interest to talk about total deregulation in
many of these areas.
Number 412
JIMMY JACKSON, GCI, said he did not want to testify on this
particular issue.
JIM ARNESON, Commercial Refuse, said he wanted to testify regarding
the refuse utility.
NICK CARNEY, President and General Manager, Wasilla Refuse, Inc.,
said he was not concerned with the electrical part of this bill.
He is trying to have the decision of deregulation of the refuse
utility to be made by the legislature and not the Commission. The
commission over the past several years have made decisions to issue
competing certificates and to regulate parts of the refuse industry
in some parts of the state. Those decisions were not made on the
basis of the public's interest. They were made on the basis of
someone wanting to get into the business.
He asked for an amendment that would simply state in plain language
that it is the prerogative of the legislature to deregulate garbage
and to decide how that is to be accomplished rather than to leave
it in the hands of the appointed commission.
SENATOR MILLER said he would offer an amendment. He supported the
deregulation of garbage, because he did not support government
sponsored monopolies unless there's a compelling reason to have a
state sponsored monopoly. He's not sure it's there in garbage
service. However, he has thought that some of these major
decisions need to be made by the legislature vs. some commission or
bureaucrat somewhere, because the legislature was made up of
elected officials who are responsible to the public.
SENATOR KELLY asked Senator Miller if he wanted to amend Section 3
to add, "except for refuse collection utilities and service."
SENATOR MILLER said that was correct.
SENATOR KELLY commented that this bill would then keep electric
utilities and refuse collection utilities out of APUC.
SENATOR SALO commented that a title amendment was needed, also.
SENATOR MILLER responded that the first half of his amendment was
a title change.
Number 480
JIM ARNESON, Commercial Refuse, said he was a new entrant into the
market place in Anchorage. He said he was currently operating a
small refuse hauling operation under the provisions provided in the
statutes. Under the statutes an exception is provided wherein a
operator is not required to be certificated or regulated if the
number of customers does not exceed nine. Presently his customers
are both Price Cost Co. stores and all the Safeway Stores in
Anchorage. A recent ruling by the APUC says the definition of
customer was stated to be the location. He had been operating
under the customer being an entity, as it appears elsewhere in the
Alaska Administrative Code. Under the new definition, he cannot
take on any new customers, because he services nine locations.
This is restricts his business. Furthermore, the customers wanting
to utilize his superior and less costly services cannot do so at
this time. He has applied for a new certificate, but he is not
assured of receiving one and the time frame is lengthy.
MR. ARNESON suggesting adding a definition of customer to the
statutes which is entity based and to increase the exemption limit
for customers before regulation occurs to 100 for commercial and
3,000 for residential. He also thought "only upon proving public
convenience and necessity will a certificate be issued" needed to
be changed. If there is already a provider, the chances of a
competitor entering the market are greatly diminished because there
is no need. This does not allow open competition, better
servicing, lower prices, choice of providers, etc. A certificate
should be given to those who are willing, able, and ready to
provide services.
In summary, he felt the need for regulation and governmental
interference in free enterprise is not needed in the refuse
industry. It does not possess the characteristics of a natural
monopoly deserving such regulation.
SENATOR KELLY asked him if he had any objections to SB 54 or any of
the proposed amendments today. MR. ARNESON said he thought Mr.
Carney's suggestion was counter to what he was proposing.
SENATOR KELLY asked him if he was in favor of deregulating the
refuse industry. MR. ARNESON answered that he was in favor of
deregulation, but, he said there are other ways to allow
competition into the market place, if they do not wish to
deregulate.
SENATOR KELLY commented that it was clear there were two divergent
approaches; one is in the House Bill, mentioned by Senator Miller;
and one is in SB 54. The Committee may choose to deal with them as
separate entities. He said Mr. Arneson's position would be better
stated in the House Bill.
SENATOR SALO asked if the subject of deregulation comes up, should
it be heard by the APUC or the legislature. MR. SCHORER said they
hadn't formally met on that issue, but he didn't think the
commission would object to the legislature handling any
deregulation.
SENATOR TORGERSON moved to adopt the two technical amendments.
There were no objections and it was so ordered.
SENATOR MILLER moved to adopt amendment number three. There were
no objections and it was so ordered.
SENATOR MILLER moved to pass CSSB 54 (L&C) from committee with
individual recommendations. There were no objections and it was so
ordered.
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