Legislature(1993 - 1994)

02/08/1994 01:30 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 EXTENSION AND REGULATORY COST CHARGE) to committee and invited the            
 chairman of the commission, DON SCHROER, to testify on the Sunset             
 Hearing.  SENATOR KELLY announced there would be a working session            
 at the conclusion of the testimony, to review proposed amendments,            
 and to work on a proposed committee substitute.                               
 Number 204                                                                    
 MR. SCHROER read prepared remarks from a document,  Sunset Hearing            
 Testimony , and excerpts have been included in the minutes.                   
 MR. SCHROER began by expressing support for SB 213 and gave his               
 recommendation for several amendments to the bill.                            
 In the  General Commission Overview , MR. SCHROER read the A.P.U.C.           
 mission statement, and extended his comments to include elaboration           
 on certificates of public convenience and necessity, pipeline                 
 carriers, rates, and terms of conditions of service to the public.            
 He described the membership, budget, and staff of the commission.             
 Under  Legislative Recommendations , MR. SCHROER outlined those in a     a    
 series beginning with  A. Regulatory Cost Charge , in which he                
 suggested the regulatory cost charge should be made permanent,                
 rather than simply extending the repeal date by four years.  He               
 explained the Commission's sunset review is adequate to address any           
 problems that might arise in the budget.                                      
 MR. SCHROER addressed concerns expressed by the utilities, and he             
 used the statute which directs the Commission, to answer the                  
 concerns of over-collection.  He said the Commission has proposed             
 language to ensure that over-collection of the Regulatory Cost                
 Charge Program (RCC) does not happen, as stated in Section 32 of              
 the Operating Budget, which recommends similar permanent language             
 in AS 42.05.253 and 42.06.285.                                                
 Number 248                                                                    
 Under  B. Power Cost Equalization , MR. SCHROER reviewed the                  
 responsibilities of the Commission for setting the electric rates             
 for PCE-eligible utilities, as well as SB 106, which would transfer           
 the power cost equalization responsibility to the Department of               
 Community and Regional Affairs.  He referred to a drafting error              
 and explained a revisor's bill had been prepared to correct the               
 On to  C. Cable Television Regulation , MR. SCHROER explained the             
 Commission has received authority from the Federal Communications             
 Commission to regulate the basic tier of cable utilities currently            
 regulated by the Commission under state law.  He also explained a             
 change in statutes would be needed to allow local governments to              
 regulate Cable TV.                                                            
 MR. SCHROER said  D. Pipeline Legislative Recommendations  would be           
 described in the annual report.                                               
 Finally, in  E. Commission procurement of expert witnesses , MR.              
 SCHROER quoted the Commission recommendations adding an exemption             
 to the Procurement Act, AS 36.30.850, to allow its expert witnesses           
 for cases in a timely manner, and he continued to explain why this            
 has not been previously possible.                                             
 Next, MR. SCHROER responded to the legislative changes suggested by           
 the Alaska Rural Electric Cooperative Association, beginning with             
  (1) Liberally Construed .  He gave the only instance where this              
 phrase is found in AS 42.05.141 in the powers and duties section,             
 which he read to the committee.  He quoted a case HEA vs. City of            
 Kenai in which the Supreme Court interpreted the meaning as the              
 actual area in which the A.P.U.C. may exercise its adjudicatory               
 authority as being quite narrow, but allows for broad specific                
 provisions within the narrow authority.  He continued to explain              
 the guiding principles to determine the extent of the A.P.U.C.'S              
 jurisdiction to include limitations, restrictions, as well as a               
 principle of expansion.                                                       
 MR. SCHROER reviewed the dealings with this phrase by the Alaska              
 Supreme Court, and in four of the cases the Court found the                   
 Commission lacked authority.  He described the scrutiny received on           
 this phrase and its authority.                                                
 Number 296                                                                    
 In  (2) The second issue is Negotiated Rulemaking , MR. SCHROER               
 explained, under the Constitution, it cannot mean the delegation of           
 the rulemaking power of the Commission to another body, and he                
 further explained the negotiating group must be treated as a state            
 agency for the purposes of the open meetings and public records               
 act.  He expressed concern the process would be slowed further and            
 suggested additional research on the subject.                                 
 In  (3) Lower RCC rates for Electric Utilities , MR. SCHROER read the    he   
 response to the Legislative Audit of March 1, 1993, and he quoted             
 the Commission as agreeing the program should be made permanent by            
 deleting the automatic repeal date for the RCC.  He said the                  
 Legislature switched the funding source for the Commission from               
 general funds to a regulatory assessment, and he explained the                
 Commission's work to assert compliance by affected entities, which            
 he claims is now running smoothly.                                            
 MR. SCHROER discussed the reasons the Commission could not support            
 the recommendation to require itemization of the rates under the              
 RCC program by utility/pipeline carrier type.                                 
 MR. SCHROER explained the individual RCC rates would require full             
 and direct allocation of the Commissioner's costs, but the                    
 recommendation, if implemented as drafted, would increase the cost            
 of the RCC program.  He also explained the burden this would place            
 on the Commission.                                                            
 MR. SCHROER quoted the auditor's recommendation for future                    
 refinement of the RCC would require the statutory cap of .61% of              
 the adjusted gross revenues to be substantially increased, and he             
 cited AS 42.05.253(a).  If the RCC allocation was altered to                  
 reflect the percent of time spent per utility type, he projected              
 the current authorized budget for the Commission would require an             
 increase of the cap to .85% for certain utility groups, which would           
 increase a bill for a utility customer to less than $20 per year.             
 Number 348                                                                    
 Next, MR. SCHROER reviewed  III. A.P.U.C.'S Response to the                   
 Recommendations of the Legislative Auditor  in which the Alaska               
 Public Utilities Commission concurs with the Legislative auditor's            
 findings on public purpose and supports the extension of the sunset           
 In  A. Regulatory Cost Charge , MR. SCHROER quoted the Commission's           
 opposition to the required re-adjustment of the RCC on an industry            
 by industry basis and explained their response.                               
 In  B. Easier Access for Utility Consumers to Opt In or Out of                
 Regulations , MR. SCHROER indicated support for the cut-off from              
 $325 thousand to either $500 thousand or a million for economically           
 regulated electric utilities, which would mean that nine more                 
 electrical utilities would be able to hold deregulation elections             
 including one local telephone company.                                        
 MR. SCHROER explained the Commission agreed the  C.   Timekeeping             
 System  was worthwhile to pursue, but he suggested a fiscal note              
 would be required to carry out this recommendation.                           
 In  D. Commissioner's Access to Adequate Staff Support , MR. SCHROER     R    
 explained why the Commission proposed to increase the staff support           
 available for Commissioners on regulatory policy issues, to be done           
 by upgrading one position and creating one new slot to serve as the           
 Commissioners' Policy Analyst.                                                
 In  E. Stagger Commissioner's Terms , MR. SCHROER explained why the           
 Commission supported this statutory change.  At this point, he                
 asked for questions.                                                          
 SENATOR RIEGER questioned the different regulatory cost charges for           
 separate industries and asked what would happen if the A.P.U.C.               
 ever got into a big legal battle.  They discussed a standard cost             
 spread across all the industries.  MR. SCHROER described the                  
 process of cost allocation, citing a provision in the present                 
 statute and a PC adjustment.                                                  
 Number 417                                                                    
 There being no more questions, SENATOR KELLY called on DAVE                   
 HUTCHENS, Director of the Alaska Rural Electric Cooperative                   
 Association, (ARECA) to testify.                                              
 SENATOR KELLY asked MR. SCHROER when the "liberally construed"                
 language passed the legislature, but MR. SCHROER didn't know.                 
 MR. HUTCHENS explained the language became part of the A.P.U.C.               
 statute when it was recreated into its present form back in the               
 1970's, and it became a full time commission.  SENATOR KELLY asked            
 MR. FINK to check on the precise time.                                        
 MR. HUTCHENS quoted his association as being in support of                    
 continuing the A.P.U.C., and he cited the same reasons used when it           
 was created in its present form.  From the perspective of ARECA,              
 MR. HUTCHENS discussed the value in the diversity of interest                 
 between the consumers and the owners who regulate the rates to be             
 fair and reasonable.  Another reason, MR. HUTCHENS thought still              
 valid is that electric utilities are very natural monopolies, which           
 can lead to territorial disputes, and someone should assign the               
 service areas.                                                                
 MR. HUTCHENS described the resolution of the long standing dispute            
 between the Chugach Electric Association and the Municipality of              
 Anchorage over where each would serve.  He explained this resolve             
 lead to the creation of the A.P.U.C. in its present form, and                 
 through the years the A.P.U.C. has resolved territorial disputes.             
 Number 455                                                                    
 MR. HUTCHENS referred to a long standing dispute over service areas           
 overlapping between the Tlingit-Haida Regional Electrical Authority           
 and Alaska Power and Telephone in Southeast Alaska, and he gave               
 some of the particulars in the case.  He discussed their exception            
 to a sentence about service areas not being exclusive, and whether            
 they should add some to the sunset review with proposed language to           
 correct a new problem.                                                        
 MR. HUTCHENS explained they had become comfortable with the                   
 adequacy of the present law, and he cited a long legislative                  
 history to confirm that service areas for ARECA'S to be exclusive.            
 He mentioned it to renew the long history of the law, and he                  
 submitted to the committee copies of a letter for the record from             
 Senators Duncan and Zharoff in that regard.                                   
 The second point to be discussed by MR. HUTCHENS was in relation to           
 the Legislative Audit booklet distributed to the committee members,           
 and he referred to Audit Recommendation #1 to provide a better                
 equity in the manner in which the regulatory cost charge is                   
 allocated among the different kinds of utilities.  He quoted the              
 specific recommendation for a method of allocating these charges              
 that sounded reasonable and equitable, but the Commission objected            
 as being too expensive to administer.                                         
 Since the ARECA pays the bills for APUC, MR. HUTCHENS said they               
 have to be sensitive to the costs as well, and he suggested what he           
 considered a simpler way of getting reasonable allocations among              
 the different kinds of utilities.  He quoted a solution first                 
 proposed by then REPRESENTATIVE BERT SHARP in the House Finance               
 Committee when RCC was originally adopted about three years ago.              
 MR. HUTCHENS explained basically the A.P.U.C. should subtract the             
 cost of power on electric utilities from their total revenues                 
 before the allocation was determined, and he explained how the                
 formula could be accomplished with the present accounting system.             
 He claimed there was something wrong with the present formula, and            
 SENATOR SHARP'S plan would be a rough and ready kind of justice               
 that would fix the allocation problem, besides being easy to                  
 Number 499                                                                    
 MR. HUTCHENS explained SENATOR SHARP'S proposal from three years              
 ago, saying it would recalculate the regulatory cost charge for               
 electric utility to approximately the same percentage of the work             
 load, or 28%.                                                                 
 SENATOR KELLY asked who loses if you assume a neutral revenue to              
 A.P.U.C.  Someone would have to go up?                                        
 MR. HUTCHENS confirmed SENATOR KELLY was correct and explained                
 others would go up, particularly the telephone companies regulated            
 by the A.P.U.C.  He said presently the auditor estimates the phone            
 company's share of the work load to be 45%, while they are paying             
 21% of the RCC.  MR. HUTCHENS estimated it would only increase them           
 to 27%.                                                                       
 SENATOR KELLY asked what kind of money MR. HUTCHENS was discussing,           
 and MR. HUTCHENS said he had the results from work previously done            
 on the calculations last summer, but not with him.  He suggested              
 SENATOR KELLY look in the current auditor's report for the RCC                
 recommendations for some numbers, and MR. HUTCHENS said the total             
 budget of the Commission is on the order of $3.5 million per year,            
 (He was corrected to $3.6 for this year from the audience.) and he            
 said the percentage would change for the utilities from 43% down to           
 28% of the $3.6 million dollars.                                              
 SENATOR LINCOLN asked again for the formula to subtract the cost of           
 the purchase of power ....                                                    
 MR. HUTCHENS pointed out two lines on the reports which showed the            
 cost of purchase power, and the other the cost of generation.  He             
 told her to subtract the two lines from the total revenues to get             
 the adjusted revenues for calculating the RCC.                                
 MR. HUTCHENS launched into his second topic which was also related            
 to the regulatory cost charge, and he quoted Chairman SCHROER as              
 suggesting there should be language added to provide for a true-up            
 at the end of the fiscal year to carry surplus over into the                  
 following year.  He supported that recommendation for the A.P.U.C.            
 Next, MR. HUTCHENS referred to audit recommendation #4 for adequate           
 staff during dockets when the regular staff is not available to               
 them, and he thought professional staff for the Commission would be           
 appropriate.   MR. HUTCHENS also supported the audit recommendation           
 for staggered terms.                                                          
 MR. HUTCHENS said most important from the perspective of the ARECA            
 was the removal of the phrase "liberally construed" from statute              
 and replaced with a test that "the Commission shall have the powers           
 specifically conferred or necessarily implied."                               
 TAPE 93-7, SIDE B                                                             
 Number 001                                                                    
 MR. HUTCHENS said MR. SCHROER was correct when he said there hadn't           
 been many cases in the courts where the phrase has been used, but             
 he suggested there were other occasions where the Commission has              
 cited "liberally construed" as defensible authority to take actions           
 that did not result in lawsuits.  He said the ARECA thinks the                
 phrase needs to be removed, so it is the Legislature making the               
 decision on the authority of the Commission, not the Commission or            
 the Courts.                                                                   
 MR. HUTCHENS said the chairman of the A.P.U.C. was correct that in            
 many cases where the phrase has been invoked, the utilities have              
 benefitted, but he still contends it should be the Legislature's              
 call, only.  He gave as an example of the importance as the Healy             
 Clean Coal Project, and he said there was an effort to kill the               
 project by adding a new test by adding environmental externalities            
 into the calculation of feasibility.  He said there was no                    
 legislative history to suggest environmental externalities should             
 be included in the kind of a case before the A.P.U.C., and he                 
 described how it had been turned down by only a 3 to 2 vote.                  
 MR. HUTCHENS said the decision might still go the other way in the            
 Court, which is the basis for the appeal from the Commission's                
 order.  He reiterated the Legislature should make the call on the             
 authority of the A.P.U.C.                                                     
 SENATOR RIEGER recalled that ATA and Chugach Electric Association             
 came in for some intense oversight from the A.P.U.C., and asked MR.           
 HUTCHENS about the extent of A.P.U.C.'S involvement.                          
 MR. HUTCHENS said a number of utilities had very intensive over-              
 sight by the Commission about ten years ago, Chugach Electric                 
 Association, perhaps Alaska Telephone Utilities, and for sure, the            
 Alaska Village Cooperative.  In answer to a question by SENATOR               
 RIEGER, MR. HUTCHENS thought it just came from their general                  
 oversight powers.                                                             
 SENATOR KELLY checked with the Anchorage Teleconference Network to            
 see if JACK RHYNER was still on the line.                                     
 MR. RHYNER, representing the Alaska Telephone Association, spoke in           
 support for the exemption to the procurement practices and also ask           
 for a waiver for the state hiring practices.                                  
 Number 055                                                                    
 MR. RHYNER explained some of the tremendous changes in technology             
 experienced by the telephone industry, and he wasn't sure the                 
 Commission would have the ability to train their staff on a timely            
 basis for such specialized knowledge, while waiting on a list of              
 people to be hired within the State.  He added their support for              
 the removal of the "liberally construed" language and generally               
 agreed with MR. HUTCHENS' testimony.                                          
 MR. RHYNER also agreed that jurisdiction should be within the                 
 authority of the Legislature, and he also supported additional                
 staff for the Commissioners.  He referred to a "white paper"                  
 presented by the Alaska Telephone Association suggesting the                  
 Commission and present staff be separated.  He said they had deep             
 concerns about contact between the Commission and staff, with the             
 staff being a party to the docket which blurs the lines on ex parte           
 MR. RHYNER thought the Commission would need accounting and legal             
 staff of its own.  He said they would agree with MR. SCHROER about            
 the allocation, and he explained it would amount to about $6.04 for           
 each person in the state for the utilities, but he didn't think               
 customers wanted to be faced with any more costs.                             
 Number 098                                                                    
 SENATOR KELLY called on JIMMY JACKSON of GCI in Anchorage, but he             
 had no comments.                                                              
 Next, SENATOR KELLY explained RANDY WELKER, the Legislative                   
 Auditor, was available to answer questions from the committee.                
 SENATOR SHARP asked MR. WELKER about the sunset extension, and MR.            
 WELKER referred him to page 5 of the audit report recommending the            
 A.P.U.C. be extended ten years to year,2003, which he said was in             
 keeping with previous work in which the sunset cycle was changed to           
 spread the review process out over a longer review cycle than the             
 current four years.                                                           
 MR. WELKER explained the A.P.U.C. has been one of the most audited            
 Commissions in the sunset process and continued to demonstrate a              
 public purpose and a need.  He didn't think matters would change              
 enough to warrant an audit every four years but thought particular            
 circumstances could be handled by a special audit approach through            
 the Budget and Audit Committee.                                               
 SENATOR KELLY planned to hold the legislation for another time.               

Document Name Date/Time Subjects