Legislature(2009 - 2010)BELTZ 105 (TSBldg)
02/11/2010 02:00 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB227 | |
| SB205 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 205 | TELECONFERENCED | |
| *+ | SB 227 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 205-RCA RATE CHANGE
2:27:03 PM
CHAIR PASKVAN announced SB 205 to be up for consideration.
2:27:45 PM
SENATOR WIELECHOWSKI, sponsor of SB 205, said this bill tells
the RCA in statute that it may not compensate a for-profit
public utility for its negligent conduct, recklessness, or
intentional violation of the law. For-profit utilities are
operating monopolies; therefore, if allowed to recoup from
reckless behavior, a for-profit utility has no incentive to be
efficient or to act as a reasonable or prudent company because
if a utility makes a mistake, the consumer can't go down the
street to another utility because they have a regulated
monopoly. This bill encourages efficiency and encourages
utilities to act in a reasonable and prudent manner that will
ultimately keep costs down and protect the consumers of the
State of Alaska. He said SB 205 has a zero fiscal note.
SENATOR THOMAS asked for an example of a case like this.
2:29:51 PM
SENATOR WIELECHOWSKI answered that he knew of a highly
publicized incident, but essentially a company could
intentionally be violating the law, and under current RCA law
they could pass that cost on to the consumers.
SENATOR THOMAS asked if this bill related to situations in the
realm of maybe a company extended some utility lines and did
sloppy work or used a product that wasn't for that application
and it failed; it would get replaced and then the company would
come back to the RCA who would then have the authority to deny
any increase in rates to consumers.
SENATOR WIELECHOWSKI answered something like that; SB 205 is not
trying to penalize companies for making a mistake if it was
legitimate; they could file with the RCA for it and be
compensated. But if the company was truly acting negligently,
typically defined as breaching their duty which was the cause of
the damages that follow, then they wouldn't be able to recoup
those expenses. He couldn't think of many instances in the
American free enterprise system where companies can be
compensated for their negligence like that.
2:32:29 PM
SENATOR THOMAS asked what the utilities' recourse would be if
they were found to be negligent.
SENATOR WIELECHOWSKI replied if the RCA ultimately determines
under this bill that there was negligence or recklessness for-
profit utilities would not be able to be compensated from the
consumers. That money would have to come from their profits.
SENATOR THOMAS asked if that decision could be taken to court.
SENATOR WIELECHOWSKI answered yes.
SENATOR BUNDE asked who makes the determination of reckless.
SENATOR WIELECHOWSKI answered the RCA, but he understands there
is a right to appeal that decision to the court.
SENATOR BUNDE asked if someone makes a huge mistake and it makes
the utility go bankrupt, is there something in place to make
sure it continues operating.
SENATOR WIELECHOWSKI answered that companies go bankrupt now,
but they just look for another better company to continue
operation.
SENATOR MEYER asked if recklessness already has some
ramifications.
2:35:19 PM
SENATOR WIELECHOWSKI answered that nothing in law says the RCA
can't allow a rate to compensate a utility for negligent
reckless conduct - and the RCA determines what is just and
reasonable - so it could find that allowing a rate for
negligence was just and reasonable. This bill would prevent them
from doing so.
2:35:56 PM
CHAIR PASKVAN said current statute, AS 42.05.431(a), indicates
that the Commission can find that a rate demand or a practice
affecting the rate is unjust, unreasonable, unduly
discriminatory or preferential. Is SB 205 adding anything here?
SENATOR WIELECHOWSKI answered yes; he thought it was. But the in
the specific case from which this issue stems, the RCA allowed
Enstar to collect on the backs of Southcentral consumers for
months and months even though it was clearly negligent. They
even admitted it was negligent conduct. He didn't think the
language is as clear as they would like; the facts of what has
been allowed already prove that.
CHAIR PASKVAN said he understood that a determination would be
coming out in a couple of weeks as to whether that collection
can be retained, and maybe it would be proper to defer this
issue until they know the outcome.
SENATOR WIELECHOWSKI answered that a decision in that particular
case is expected on March 1, but this is really about an
overarching principle. He explained that the RCA can come out
and say this particular case is unjust or unreasonable, but they
can't make law that will protect consumers in future cases.
Whatever happens to this bill will have no bearing on that case;
it would not be ex post-facto.
2:39:07 PM
SENATOR MEYER said he supported protecting consumers, but wanted
to know how far-reaching this bill would be. He asked if it was
going after the for-profit utilities that include ACS, GCI, and
AT&T and what it would do to ML&P that is owned by the City of
Anchorage.
SENATOR WIELECHOWSKI answered that ML&P is not considered a for-
profit utility; it is owned by a political subdivision. As he
was thinking this through, he concluded that it would be very
difficult to cover co-ops or companies that are owned by
political subdivisions because they have nowhere else to go for
the compensation. Chugach Electric Association, for instance, is
owned by all the ratepayers. The co-ops and companies that are
owned by political subdivisions are held in check by the
citizens who have a right in those cases to vote out the members
of the boards or assemblies. For-profit companies, however, can
pay for mistakes out of their profits.
2:42:41 PM
TIM MCCLOUD, President and General Manager, Alaska Electric
Light and power (AEL&P) Juneau, opposed SB 205, because he said
it discriminates against the investor-owned utilities. If it
included the other utility structures they would be expressing
similar concerns, because they all operate under the same
regulatory principles.
MR. MCCLOUD said he is confident that the RCA would not allow a
utility, profit or non-profit, to receive compensation under
existing regulations unless it could demonstrate that the
rationale is just and reasonable. The proposed language would
eliminate the RCA's discretion to rule on very complex issues.
It could lead to higher utility rates by encouraging
unreasonable investments in system redundancy, maintenance
operations, and inspections that a company might want to have to
protect themselves from being considered negligent for a system
failure. For instance, he asked if under this bill a utility
could recover the cost of repair as a result of a heavy snow
storm or would it be negligent for not burying the lines even
though the investment would result in a higher rate to the
customers.
2:45:13 PM
SENATOR BUNDE asked where AEL&P gets its money and if it
provides a dividend to its investors.
MR. MCCLOUD answered that it pays a small dividend. Most of
their profits go into repairs and upgrades to the existing
system - the same as a non-profit utility's would be used.
SENATOR BUNDE said under current law, the public ends up paying,
but under this law it would just be another part of the public
that would end up paying, because with reduced profits there
would be reduced dividends and return on investment.
MR. MCCLOUD said that is correct. It is important for utilities
of all types to be healthy, because the financing is critical to
maintaining low rates. The cost of borrowing money, which is how
they get their money, could end going up very high.
2:47:00 PM
SENATOR THOMAS asked if they generally self-perform on
interties.
MR. MCCLOUD replied that AEL&P is not an intertie, but generally
they do their own construction work on transmission lines.
Sometimes they subcontract.
SENATOR THOMAS asked if he was concerned that this measure would
make him responsible for someone else's work.
MR. MCCLOUD answered that he hadn't considered that.
CHAIR PASKVAN asked his current understanding of how the RCA
deals with reckless conduct.
MR. MCCLOUD answered that the RCA rules correctly on these
issues. A company could not be compensated for intentionally
being reckless. He would hate to take away that discretion
because these cases are very complicated.
2:49:54 PM
CHAIR PASKVAN asked what the RCA experience and capacity is to
conduct hearings on reasonable practice.
JAN WILSON, Commissioners, Regulatory Commission of Alaska
(RCA), answered that the RCA has conducted extensive hearings in
many proceedings on those kinds of issues.
2:50:52 PM
SENATOR BUNDE asked if this bill would be a tool in their
endeavors.
MS. WILSON answered that the commission had no position on this
bill.
SENATOR BUNDE asked if it would be a help or a hindrance to
their work.
MS. WILSON answered that the commission takes its guidance from
statutes the legislature passes and executes them in the best
way they can. Currently the commission operates under the just
and reasonable standard, and the concept of cost-based rates
underlies that standard. However, she suggested that the just
and reasonable standard may not be a very good standard by which
to judge the kind of conduct this bill is trying to prohibit.
She added that a "prudent management" concept also underlies
utility rate making principles. Even if a utility spends money
that is definitely for the service it is providing, but it does
so imprudently, then the commission would normally not allow
those actions to be collected in rates.
SENATOR BUNDE asked if the commission needs more clarification
on the standard.
MS. WILSON replied that the general rate making principles under
which they now operate have always guided them since enactment
of AS 42.05, but if the legislature wants to give them more
specific guidance, the commission is capable of administering
it.
SENATOR BUNDE stated that the commission's job is to protect the
consumer and asked if they are able to do that now or do they
need this bill.
MS. WILSON replied that the commission would have to have a
meeting to take an official position on it. She was speaking for
herself at that time. She added that the imprudent standard has
a lot of precedent, but if the legislature wants to establish a
negligent standard they could administer that, too.
SENATOR BUNDE suggested that the commission meet and take an
official position.
MS. WILSON said they could certainly do that.
2:55:50 PM
SENATOR MEYER asked if someone is intentionally negligent, would
that also be imprudent.
MS. WILSON answered probably, but the imprudent standard is one
that says "a prudent manager under the same circumstances at the
time the decision was made would not have made the decision that
lead to these costs" - a little bit different than the negligent
standard.
2:56:56 PM
SENATOR MEYER said the reason for this bill is to protect the
consumer from a for-profit utility and the fact that the
consumer doesn't have a choice. He was concerned that going
after one kind of utility would adversely impact others. The
telephone industry, for instance, is very competitive and the
consumer has multiple choices.
2:58:00 PM
RICH GAZAWAY, Staff, Regulatory Commission of Alaska (RCA), said
Senator Meyer was correct in that the telecom arena is
competitive in several markets. How the carriers are rated
depends in large part on how competitive the market is and
whether the competitor is the incumbent or the entrant.
2:59:08 PM
MATT WALLACE, Alaska Public Interest Research Group (AKPIRG),
said he supported SB 205 for two reasons. One is that companies
will respond to financial incentives and two, standard
competitive market forces don't apply to utilities. The
incentive in SB 205 provides additional protection for consumers
by prohibiting companies from putting their mistakes or reckless
behavior on their backs.
3:01:33 PM
SENATOR BUNDE said in his view, one of the reasons for the high
cost of medicine in this country is that providers practice
defensive medicine to avert lawsuits. Could something like this
cause a lot of similar defensive behavior by a utility company
with the unintended consequence that the rates go up for the
consumer - maybe doing more harm than good when that happens?
MR. WALLACE answered that this situation is substantially
different than with health care - mainly because those
situations often have very large awards that are the result of
civil suits for malpractice. This bill would simply prevent
companies from passing the costs of their negligence or reckless
behavior on to consumers.
SENATOR THOMAS asked if he is concerned that adding this
language creates a different standard for non-profits versus
for-profits and another classifications of utility that might
lead to confusion.
MR. WALLACE answered no one can say for sure, and he wasn't as
concerned about that type of situation mostly for the reasons
outlined by Senator Wielechowski. Other co-op utility structures
tend to have other avenues for consumers' voices.
3:07:06 PM
BOB GRIMM, President and CEO, Alaska Power and Telephone, said
he viewed this as a reaction to a single incident that will be
remedied by the RCA using existing statutes. This legislation,
while well-meaning, targets only one segment of the utility, and
the electric industry is a very small minority. It could
handicap that segment of the industry and become a potential
barrier for an IOU to enter into that segment of the industry.
He was also concerned that regulatory administrative law is a
body with precedent that goes back many years and is practiced
in every state of the union. SB 205 comes up with a remedy to a
situation which he was sure had occurred in the past in the
practice of public utility administrative law, and was dealt
with in an effective manner. He believed this is overreacting to
a single instance.
3:10:13 PM
Finally, Mr. Grimm said that by regulation, the RCA's powers and
duties are to be deliberately construed by the courts; this
means when they make a decision they have a higher standing than
a normal statute under the law. Also, under state law, the RCA
has the ability to levy civil penalties and fines upon public
utilities that exhibit repeated behavior that might be at the
root of this proposed legislation. Finally, Alaska Power and
Telephone is an investor-owned utility; the largest part of
their equity is owned by their own employees. So, the actual
burden for any hardship, due or undue under this change, would
be borne by them.
He directed this question to the sponsor - if any other state
has this specific language or provides specific guidance to
regulatory agencies dealing with public utility regulation
similar to the RCA.
3:11:42 PM
PAT LUBY, Advocacy Director, AARP, supported SB 205. He said if
a negligent error is made, the company should be responsible -
for instance, like Toyota. Their profits will be lower and their
shareholders will lose some of their profits, but Toyota's
customers are not responsible for the cost of the error. That is
how it should be for Alaska utilities. He said the RCA should be
empowered to hold the party who made the negligent error
responsible and the customer should be held harmless.
CHAIR PASKVAN thanked him and finding no further testimony, held
SB 205. He said he would reopen public testimony later if
needed.
3:14:09 PM
There being no further business to come before the committee, he
adjourned the meeting at 3:14 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 205 Bill Packet.pdf |
SL&C 2/11/2010 2:00:00 PM |
SB 205 |