Legislature(1995 - 1996)

03/21/1995 01:43 PM Senate L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
           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 When Section 221 was originally enacted, he explained, the electric           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             
 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            
 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                     
 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                       
 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           

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