Legislature(2007 - 2008)BELTZ 211
04/24/2007 01:30 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB120 | |
| HB118 | |
| SB124 | |
| SB102 | |
| SB140 | |
| SB155 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 155 | TELECONFERENCED | |
| + | SB 28 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 140 | TELECONFERENCED | |
| += | SB 102 | TELECONFERENCED | |
| += | SB 124 | TELECONFERENCED | |
| += | HB 118 | TELECONFERENCED | |
| = | SB 120 | ||
SB 155-REGULATION OF WATER/WASTEWATER UTILITIES
2:41:02 PM
CHAIR ELLIS announced SB 155 to be up for consideration.
MARK PREMO, General Manager of the Anchorage Water and
Wastewater Utility Authority (AWWU), supported SB 155. He said
this bill would exempt AWWU from economic regulation by the
Regulatory Commission of Alaska (RCA) and place it in the same
status as every other municipally owned water/wastewater utility
in Alaska, except one, Pelican. He related:
The AWWU is two separate utilities, both subject to
economic and service area regulations by the RCA. The
Water Utility, a former City of Anchorage utility, has
been under RCA regulation since inception of the
Alaska Public Utilities Commission (APUC) in 1970.
The Anchorage Sewer Utility, which was formerly owned
by the Greater Anchorage Area Borough, was voluntarily
submitted to the APUC for regulation in 1971. An
umbrella organization, AWWU, was formed in 1975,
following unification of the Borough and City into the
Municipality of Anchorage. The Municipality of
Anchorage in 1991 petitioned the then APUC to exempt
AWWU and its electric utility from regulation.
The Commission split evenly, by a 2-2 vote, on the
question of exempting the electric utility and AWWU.
The opinion by the commissioners opposing self-
regulation cited competition by the Municipality's
electric utility and telephone utility with other
utilities as the primary reason why AWWU should remain
regulated by the state.
No commissioner suggested then or has since suggested
that competition between the water and wastewater was
present, nor is there any competition there today.
Also the telephone utility is no longer owned by
Anchorage.
The House of Representatives previously approved HB
515 and HB 108. Both of these bills would have
exempted AWWU from economic regulation by the RCA. The
Senate did not act on either bill.
HB 108 included a requirement from the House that the
Municipality of Anchorage create an AWWU Authority
with a Board of Directors that reports directly to the
Municipal Assembly to provide oversight of AWWU and
remove AWWU from under the Mayor of Anchorage.
In September 2005, the Municipal Assembly created the
AWWU Authority with a seven member Board of Directors
which are approved by the Assembly and serve 5-year
overlapping terms. Five of the seven Board members
must be customers of AWWU and four must be experts in
the respective fields of engineering, business, public
health and law. A supermajority (five of the seven)
must be AWWU customers, thereby ensuring a strong
level of consumer input into decision-making.
The work of the Board of Directors is written into
Municipal Code by Assembly Ordinance passed in
September, 2005. The Board is empowered to recommend
rates to be charged by the utility to its customers.
Code requires that ratemaking follow standard industry
practice of developing revenue requirements on the
basis of true and documented costs. Public hearings
for proposed rates are required before Board Approval
and public hearings are required again at the
Municipal Assembly level prior to the current practice
of filing tariff adjustments with the RCA. We know of
no other utility in the country that faces three tiers
of public approval prior to establishment of new
rates.
With the Board of Directors in place, the RCA approval
process becomes redundant and value-less
Why does the Municipality of Anchorage desire
exemption from RCA Regulation?
1) The current RCA regulation processes and
procedures are slow and expensive.
From 1993 to 2003, AWWU filed only minor housekeeping
and procedural matters with the RCA and never
requested a rate increase. Yet AWWU ratepayers have
paid approximately $2.8 million in regulatory
assessments to the RCA during this period as part of
every monthly bill. Currently, annual cost to
ratepayers for regulatory commission charges amount to
more than $600,000.
However, the greater cost to AWWU and its customers is
in the form of the cost of preparing filings and
regulatory lag. The cost of staff, consultants and
attorneys currently exceed $700,000 per year over and
above the $600,000 in fees to RCA. A typical tariff
rate adjustment case takes a minimum of 15 months and
requires the preparation of thousands of pages
filings, responses to discovery questions, testimony
and exhibits to adjudicate the case before the RCA.
The large delays substantially increase the jeopardy
for the AWWU rate payers and AWWU in the event that a
portion of the requested rates have to be refunded.
History and present events show that local regulation
is faster, less structured and more economical.
2) Current RCA regulations and procedures are non-
responsive to local needs.
The RCA process was designed for private utilities and
is not entirely appropriate for municipal utilities.
The RCA process is a very structured and adversarial
process that is not consumer friendly.
The RCA is not accountable to Anchorage residents. The
Municipal Assembly and Authority Board of Directors
are more responsive to local needs and are directly
accountable to the ratepayers who are served by the
utilities. These customers are Municipal voters.
Public hearings are now required by Code to be held by
both the new Authority Board and the Municipal
Assembly on all rate matters. The public hearings are
non-adversarial and are much more customer friendly.
I ask for the Committee's support of SB 155. Self
regulation has worked effectively across the nation,
in other Alaskan communities, and in Anchorage.
Anchorage has regulated its own public utilities for
many more years than have state regulators. The
Municipality of Anchorage has a proven track record of
effectively regulating the Port of Anchorage, Merrill
Field and Solid Waste Services. All are financially
strong, highly reputable enterprises that provide
excellent customer service.
For nearly 20 years, rate payers have benefited as
AWWU has reduced staff positions and labor expenses by
leveraging technology and improving business processes
while at the same time increasing spending on system
repairs and rehabilitation. In 1987, AWWU employed 339
people on staff for 84,000 customer accounts (water
and sewer). Today, we serve over 110,000 accounts with
a staff of 266 individuals. This has all been done
without direction and assistance (or value added) from
the RCA.
Over the years, the municipal assembly has made sound
decisions in their oversight of AWWU and other
municipally owned utilities, including such decisions
as the creation of the AWWU Authority Board to
specifically address governance of the utility with
focused, local expertise and consumer interests in
mind.
In conclusion, the passage of SB 155 provides for
local regulation of municipal water and wastewater
utilities and facilitates the proper local-regulation
of the AWWU Authority like other utilities across
Alaska and the rest of the nation. It will also
facilitate the most efficient and effective operation
and management of the AWWU Authority. Thank you.
2:48:22 PM
CALVIN WEST, Chairman, Anchorage Water and Wastewater Authority
Board, supported SB 155 saying it will exempt the AWWU from
economic regulation from the RCA. The following is a transcript
of his testimony:
This bill would exempt the Anchorage Water and
Wastewater Utility, commonly referred to as AWWU, from
economic regulation by the Regulatory Commission of
Alaska. This action will allow AWWU to operate like
every other municipally owned water and/or wastewater
utility in Alaska, except the City of Pelican which
voluntarily opted for economic regulation.
Some history is necessary to understand why AWWU is
economically regulated. Currently, AWWU is two
separate utilities, both subject to economic and
service area regulations by the RCA. The Water
Utility, a former City of Anchorage utility, has been
under economic regulation since inception of the APUC
in 1970, because of competition with other local
utilities.
The Anchorage Sewer Utility, which was established by
the Greater Anchorage Area Borough, and the Borough
voluntarily submitted to the APUC for economic
regulation in 1971 to facilitate the creation of the
utility. In 1975, following unification of the Borough
and City into the Municipality of Anchorage, the two
utilities were organized into single operation forming
AWWU.
The current status today - In September 2005, the
Municipal Assembly created the AWWU Authority with a
seven member Board of Directors to provide governance
and oversight of the utilities. This action
transferred responsibility for guidance and direction
of AWWU from the Mayors Office to the Authority Board.
Board members are approved by the Assembly and serve
5-year overlapping terms. Five of the seven Board
members must be customers of AWWU and four must be
experts in the respective fields of engineering,
business, public health and law. Since five of the
seven Board Members must be AWWU customers, a strong
level of consumer input is ensured in the decision-
making process.
Oversight of AWWU and the Authority Board is provided
by the Municipal Assembly in three key areas:
appointment of board members, approval of changes in
the tariffs, including rates, and approval of debt.
Through Municipal code the Board is empowered to
recommend rates charged for utility services. The
Municipal code requires that ratemaking follow
standard industry practice. Public hearings before
the Board are required for new proposed rates prior to
Board approval. Board approved rates are then
submitted to the Municipal Assembly and public
hearings are again required prior to Assembly
approval. Following Assembly approval the current
practice is the filing of tariff adjustments with the
RCA. We know of no other utility in the United States
that has three tiers of public approval prior to
establishment of new rates.
It is important to note that the initiation of this
legislation, allowing AWWU to become economically
self-regulated, emanates from the Board and is
endorsed by the Municipal Assembly. While Mayor Begich
may also embrace the concept of self-regulation, he
has not expressed his opinion to the Board.
Some key points to consider regarding economic self-
regulation for AWWU are:
1) No other municipally-owned utility in the United
States has three tiers of public governance and
oversight.
2) The seven-member AWWU Authority Board, comprised of
at least five AWWU customers, is more responsive to
the needs of the utilities and its customers than a
state-wide board appointed to oversee a number of
utilities throughout the state.
3) The Municipal Assembly, elected by the citizens of
the Municipality, is more responsive to the citizens
of the Municipality and the customers of AWWU than a
board appointed by the state.
4) The reasons that brought economic regulation of the
water and wastewater utilities are no longer valid.
The water utility does not compete with other adjacent
utilities and the wastewater utility is now well
established and accepted by the community.
5) The current RCA regulation processes and procedures
are slow and expensive: Annual cost to AWWU ratepayers
for regulatory commission charges amount to more than
$600,000 a year. The cost of staff, consultants and
attorneys currently exceeds $700,000 per year for rate
case filings. A typical tariff rate adjustment case
takes a minimum of 15 months to complete. Current RCA
regulations and procedures are non-responsive to local
needs for municipally-owned utilities; it is designed
to regulate privately-owned utilities.
In conclusion, the passage of SB 155 provides for
local regulation of Anchorage's water and wastewater
utilities. It facilitates the proper local regulation
of the AWWU Authority like other utilities across
Alaska and the rest of the nation. It will also
facilitate the most efficient and effective operation
and management of the AWWU Authority.
I ask for the Committee's support of SB 155. Thank
you.
2:54:20 PM
VIRGINIA RUSH, AARP, opposed SB 155 because it removes the AWWU
from RCA oversight that provides consumer protections. She said
that she served as an Assistant Attorney General in Alaska for
23 years, 14 of those years she was assigned to the RCA and so
has a lot of experience with the RCA's expertise in utility
rate-making and its processes.
She said she wanted to respond today to the arguments they had
just heard from Mr. Premo and Mr. West. They say that the Board
that has been established and the Anchorage Assembly adequately
do the job that the RCA does, but the RCA is an independent
judicial-type agency that is given the responsibility of
protecting consumers by assuring that the rates they pay are
just and reasonable. They do that through a rate-making process
which Mr. Premo has described as "adversarial and not consumer
friendly."
MS. RUSH responded further:
But in fact let me tell you what that process is. It's
that the utility files a rate case with the cost
justification for the rates it wants and then a state-
funded consumer organization, which is now in the
Attorney General's Office, has a chance to audit and
carefully examine the cost justification for those
rates. It files a report and then to the extent there
is a disagreement between the utility and the AG as
consumer advocate, there is a hearing for the
independent judicial body that the RCA represents to
decide those issues.
Now, AARP has also participated in a couple of rate
cases because of its concern for consumer rates. Let
me compare that with the process that AWWU proposes as
I understand it. There are consumer hearings - they
said - before the Board and I believe that means that
any citizen can come in and talk for three or five
minutes without the opportunity to audit or have
professional expertise to look at those costs.
The Board is not independent like the RCA. It is the
Board; it's just like the Board of Enstar might be.
It's the number of people who are in charge of running
that utility. Do they take an independent consumer-
protection look at the rates they themselves have
proposed? Well. No.
The Anchorage Assembly, we have talked to and they
have been very helpful and I have nothing but
admiration for people who spend so much time in the
role of Assembly members, but their plates are stacked
a foot high with numerous numerous issues that they
have to decide. They do not have the time or the
expertise to look at the data on cost justification
that the RCA does.
2:58:48 PM
As far as local control goes, the utility and its
management along with its municipal budgeting have all
kinds of authority. They decide if a new main line is
needed through south Anchorage; they decide what
facilities to repair - local needs like that are
addressed exclusively by those bodies. But the RCA's
area of authority is rate making and they do it
independently.
Now, there is a great need for it as illustrated by
AWWU's four new requests for rate increases since the
beginning of 2004 and a large percentage of that
increase that the utility sought - and they are
currently getting it - is to pay additional money
right into the municipalities' coffers as a payment in
lieu of taxes. And when the RCA was asked to look at
the fairness of that, they rejected that. They said it
doesn't follow our precedence; it doesn't follow good
utility policy and currently that issue is on appeal.
But look back and realize that AWWU's first effort to
deregulate itself came just at the same time about
three years ago that the City of Anchorage was
attempting to put more money into its own pocket
through this extra charge in the utility bills, which
they don't come out and declare it to be tax. They
don't call it a tax; it's well hidden in the utility
base, but it is a tax.
3:00:47 PM
CHAIR ELLIS apologized for interrupting and asked her to wrap up
and said that he would hold this bill over for further testimony
and consideration.
MS. RUSH concluded that the RCA is more responsive to consumers
and protects them in a way that is independent and has more
expertise as opposed to two in-house layers that are not
independent at all.
SENATOR STEVENS asked if they could get some response from
Pelican on whether it would want to be exempt as well.
CHAIR ELLIS replied that Pelican would be contacted. He held SB
155 in committee.
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