Legislature(2005 - 2006)BUTROVICH 205

01/26/2005 03:30 PM Senate RESOURCES

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved SJR 2 Out of Committee
Moved CSSB 32(RES) Out of Committee
Heard & Held
          SB  32-WATER/SEWER/WASTE GRANTS TO UTILITIES                                                                      
SENATOR THERRIAULT, sponsor of SB 32, said it was introduced to                                                                 
correct a problem that manifested itself with the sale of the                                                                   
Fairbanks Municipal Water System.                                                                                               
He said The State of Alaska provides a water system grant                                                                       
program specifically to keep water utility rates affordable and                                                                 
     The  program  is authorized  through  AS  46.03.030  and                                                                   
     available   funds    are   accessible    through   grant                                                                   
     applications. However,  because of changing  patterns of                                                                   
     ownership,  not  all state  regulated  public  utilities                                                                   
     under  the Regulatory  Commission  of  Alaska (RCA)  are                                                                   
     now  eligible  for  those state  grants.  The  Fairbanks                                                                   
     water  utility  became  ineligible to  apply  for  these                                                                   
     grants  when it  was sold  to  a private  entity. SB  32                                                                   
     amends current  law to accommodate the growing  trend of                                                                   
     publicly  regulated,  privately-owned,  utility  systems                                                                   
     while  remaining  consistent  with  the  law's  original                                                                   
     intent of keeping  safe water affordable to  the public.                                                                   
     With  the changes  to AS 46.03.030  made  in SB 32,  all                                                                   
     public utilities  subject to the burdens  and associated                                                                   
     costs imposed  by the state RCA regulations  will now be                                                                   
     eligible  to apply for  grants as currently  established                                                                   
     under AS 46.03.                                                                                                            
3:39:13 PM                                                                                                                    
SENATOR SEEKINS arrived.                                                                                                        
3:39:24 PM                                                                                                                    
SENATOR THERRIAULT iterated that the Fairbanks water utility                                                                    
sale into private ownership made the City of Fairbanks                                                                          
ineligible to apply for the grants.                                                                                             
     The  policy question  for us  as legislators  is if  the                                                                   
     federal  government  makes  money  available  to  assure                                                                   
     that  the broadest  number  of  people possible  have  a                                                                   
     safe  and  affordable  source of  drinking  water,  then                                                                   
     should   the   ownership  structure   of   the   utility                                                                   
     determine  whether  the  people   can  apply  for  those                                                                   
     grants  or  not.  My  contention  to  you  is  that  the                                                                   
     ownership  structure shouldn't  automatically make  that                                                                   
     group of citizens in the State of Alaska ineligible.                                                                       
3:40:15 PM                                                                                                                    
     I know there  is some question with regard  to 'Well, if                                                                   
     a privately held  entity is able to seek a  grant, get a                                                                   
     grant,  expand facilities  or  update equipment,  should                                                                   
     that private  entity be able  to enrich the  pocketbooks                                                                   
     of its  owners through  the future  sale of the  entity,                                                                   
     then,  to somebody  else?'  But the  way  that the  rate                                                                   
     structure looks,  RCA would not allow a  rate that would                                                                   
     allow  a new owner  to recoup  the cost  of buying  that                                                                   
     transparent  asset. So, when  a grant  is given and  the                                                                   
     money  is invested  into the  system that  is placed  on                                                                   
     the  books as  a transparent  asset. If  the utility  is                                                                   
     then sold to  somebody else, the buyer is  only going to                                                                   
     pay a  price that he  can then charge  a rate to  recoup                                                                   
     his money.  If RCA does not  allow you to charge  a rate                                                                   
     for  that part  of the  infrastructure that  was put  in                                                                   
     place  through a grant,  then the  owner's not going  to                                                                   
     pay  that  price. He  is  only  going  to pay  for  that                                                                   
     portion  of the  assets that  he can  actually charge  a                                                                   
     rate for to recoup his purchase prices.                                                                                    
SENATOR  THERRIAULT   noted  correspondence  from   Nan  Thompson,                                                              
former RCA chairperson, that supported his statement.                                                                           
CHAIR WAGONER asked how that would be tracked.                                                                                  
SENATOR  THERRIAULT replied  that  he wasn't  sure. Department  of                                                              
Environmental  Conservation  (DEC) might  be  able  to answer  how                                                              
utilities indicate equity ownership on the books.                                                                               
3:42:54 PM                                                                                                                    
He said  an inadvertent problem  with the wording was  created for                                                              
the  City of  Ketchikan and  that proposed  Amendment 1  addresses                                                              
3:43:12 PM                                                                                                                    
SENATOR  SEEKINS  asked  if  there  was  an  accounting  when  the                                                              
Fairbanks utilities  were sold  to a private  entity that  said it                                                              
couldn't sell the assets that were granted to it.                                                                               
SENATOR THERRIAULT  replied that he didn't know, but  the rate the                                                              
purchasing entity  applied for couldn't include repayment  for any                                                              
money it used to buy the grant portion of the asset.                                                                            
SENATOR SEEKINS  mused, "So,  if it goes  from public  to private,                                                              
they couldn't  do it. So,  we can assume  that going  from private                                                              
to public they couldn't, as well."                                                                                              
3:44:44 PM                                                                                                                    
SENATOR THERRIAULT  replied  he understands  that as ownership  of                                                              
transparent assets  float along,  no one can  put together  a rate                                                              
that recoups  money for infrastructure  that has been paid  for by                                                              
a grant.                                                                                                                        
3:45:07 PM                                                                                                                    
SENATOR SEEKINS responded  that the grants are for  the benefit of                                                              
the  end users,  the  citizens of  the state.  He  asked if  Power                                                              
Equalization   Program  funds   are   channeled  through   private                                                              
utilities for the benefit of the end user.                                                                                      
SENATOR THERRIAULT  replied that he  didn't know how  those grants                                                              
SENATOR SEEKINS said  it appears to him that the  intent is to try                                                              
to lower  the cost for the  end user whether  it is a public  or a                                                              
private utility.                                                                                                                
3:45:47 PM                                                                                                                    
SENATOR STEDMAN offered Amendment 1.                                                                                            
                       A M E N D M E N T                                                                                    
OFFERED IN THE SENATE                     BY SENATOR THERRIAULT                                                                 
     TO:  SB 32                                                                                                                 
Page 1, line 1:                                                                                                                 
     Delete "regulated"                                                                                                       
Page 2, line 17, following "if":                                                                                                
     Insert "(1)"                                                                                                               
Page 2, line 18, following "AS 42.05":                                                                                          
     Insert "; or                                                                                                               
               (2)  the utility is owned and operated by a                                                                      
     political subdivision of the state that is a municipality"                                                                 
He   explained   that  it   doesn't   modify  the   ability   that                                                              
municipalities  currently  have from  entering  this program,  but                                                              
keeps  the playing  field  level  by including  private  utilities                                                              
that were once public and then sold into the private sector.                                                                    
3:47:19 PM                                                                                                                    
SENATOR   ELTON  objected   to  ask  more   about  the   Ketchikan                                                              
situation. He  also asked if  deleting "regulated" from  the title                                                              
expanded the pool of potential applicants for the grant program.                                                                
3:48:06 PM                                                                                                                    
SENATOR STEDMAN  responded that  Ketchikan is included  with other                                                              
municipalities that  have enterprise funds. This  bill would allow                                                              
a lot  more communities  to become eligible  to apply  for grants.                                                              
He thought Juneau has an enterprise fund for its utilities.                                                                     
3:48:53 PM                                                                                                                    
SENATOR THERRIAULT  said he understands that the  problem comes up                                                              
with  the   word  "regulated"  and   asked  if  that   meant  just                                                              
regulation  by  the  RCA.  Ketchikan   is  regulated  by  its  own                                                              
separate  public utility  board.  He didn't  intend for  it to  be                                                              
precluded and this legislation clarifies that.                                                                                  
3:49:40 PM                                                                                                                    
SENATOR ELTON  asked if deleting  "regulated" expands the  pool of                                                              
new applicants who want access to the grant funds.                                                                              
3:50:20 PM                                                                                                                    
SENATOR   THERRIAULT  replied   yes,  the   group  that   requests                                                              
regulation  could expand,  but this  amendment  was structured  to                                                              
specifically  take care  of  those entities  that  have their  own                                                              
public  utility   board.   Presently  there   are  23  water   and                                                              
wastewater  utilities in  the state.  That number  could go  up to                                                              
170, but  he didn't  expect that many  real small utilities  would                                                              
3:51:28 PM                                                                                                                    
SENATOR  ELTON asked  if  adopting Amendment  1  would change  the                                                              
fiscal note.                                                                                                                    
3:51:53 PM                                                                                                                    
SENATOR  THERRIAULT replied  that  Amendment 1  doesn't solve  the                                                              
department's  potential fiscal problem  of having  a flood  of new                                                              
grant   applications.   He   was   willing  to   work   with   the                                                              
administration to control the fiscal impact.                                                                                    
3:52:34 PM                                                                                                                    
SENATOR  ELTON asked  how much  money has  been available  through                                                              
the grant program over the years?                                                                                               
3:53:02 PM                                                                                                                    
SENATOR  THERRIAULT replied  that  the FY'06  budget  appropriates                                                              
$11  million to  the  grant program.  The  bill doesn't  guarantee                                                              
qualification  for the funds,  but it allows  entities to  turn in                                                              
an  application, to  have  it scored  and  be  evaluated with  all                                                              
other applicants.                                                                                                               
3:53:28 PM                                                                                                                    
SENATOR ELTON  said the  pie doesn't  increase, but "You're  going                                                              
to cut it into more slices is the likely result."                                                                               
SENATOR THERRIAULT agreed that was correct.                                                                                     
3:53:59 PM                                                                                                                    
CHAIR WAGONER asked  if there was further discussion  on Amendment                                                              
1. There were no further objections and Amendment 1 was adopted.                                                                
3:54:14 PM                                                                                                                    
SENATOR GUESS asked  if there might be unintended  consequences by                                                              
having  one   utility  that  serves   multiple  areas   getting  a                                                              
different reimbursement  rate than if  it was getting a  grant for                                                              
one of its  specific areas - in  reference to language  on page 2,                                                              
line 4.                                                                                                                         
3:54:53 PM                                                                                                                    
SENATOR  THERRIAULT  said  he didn't  think  a  grant  application                                                              
could be put  in for a specific  area - neither could  he think of                                                              
a utility  that would fall into  the category of  serving separate                                                              
and distinct areas.                                                                                                             
3:55:07 PM                                                                                                                    
SENATOR GUESS  asked if  there was  a reason  language on  page 1,                                                              
line 13,  refers to  municipalities and  public utilities,  but on                                                            
page  2, lines  4-11  "municipalities  with"  is deleted  so  that                                                              
language  refers   only  to  utilities.   She  was   wondering  if                                                              
"municipality or" should  be deleted in (e) to  be consistent with                                                              
language on page 2.                                                                                                             
SENATOR  THERRIAULT explained  that  language "municipality  with"                                                              
means any ownership that was non-municipal would be excluded.                                                                   
3:56:43 PM                                                                                                                    
SENATOR SEEKINS  moved CSSB 32(RES)  from committee  with attached                                                              
fiscal notes and individual recommendations.                                                                                    
SENATOR  ELTON  objected   to  note  that  the   city  manager  of                                                              
Petersburg,  who has  some experience  with  the program,  opposes                                                              
the  bill.  He  would  be  more  comfortable  with  some  kind  of                                                              
communication from  the Alaska Municipal  League (AML) or  a group                                                              
that recognizes  organized municipalities  on what the  net effect                                                              
may  be  for  them. He  especially  thought  about  the  potential                                                              
diminishment of  grants - their number  and size - that  may occur                                                              
across the board.                                                                                                               
3:58:12 PM                                                                                                                    
CHAIR  WAGONER  responded  that  he  discussed  that  letter  with                                                              
Senator Therriault,  but not with Senator Stedman,  who represents                                                              
Petersburg.  He pointed  out that  this bill  goes to the  Finance                                                              
Committee next and  Senator Stedman has a seat  on that committee.                                                              
The question could be asked there.                                                                                              
3:58:41 PM                                                                                                                    
SENATOR  THERRIAULT  commented that  he  understands  Petersburg's                                                              
concerns,  which are  twofold.  One is  whether  a private  entity                                                              
could make  a profit at  the state's expense  by having  access to                                                              
these grants;  but the  RCA has assured  the Legislature  it would                                                              
not  allow a  rate for  an entity  to repay  itself for  something                                                              
that was constructed using grant fund money.                                                                                    
The  second issue  is more  entities  will potentially  be in  the                                                              
pool to  compete for the  same size pie.  He is proposing  to just                                                              
go  back to  the kind  of participants  that existed  a few  years                                                              
ago. He  feels if government  money (mostly federal)  is available                                                              
to  make a  safe  and affordable  source  of  drinking water,  the                                                              
ownership   structure   shouldn't   preclude  some   people   from                                                              
qualifying and some not.                                                                                                        
4:00:53 PM                                                                                                                    
CHAIR  WAGONER recognized  that James  Keen, RCA,  was on  line to                                                              
answer questions.                                                                                                               
4:01:06 PM                                                                                                                    
SENATOR ELTON  said he  understands adding  the Fairbanks  utility                                                              
back,  but the  fiscal note  says  there are  193 other  potential                                                              
applicants.  "Did  they have  access  to  the  grant fund  in  the                                                              
4:01:38 PM                                                                                                                    
SENATOR  THERRIAULT answered  that  the total  pool of  applicants                                                              
would be  larger under  the new  structure. However, he  seriously                                                              
questioned  whether every small  trailer park  would want  to live                                                              
under  RCA  regulation on  the  off-chance  that  it might  get  a                                                              
4:02:19 PM                                                                                                                    
SENATOR ELTON  said he  didn't have the  comfort level  to support                                                              
the bill at this point.                                                                                                         
4:02:56 PM                                                                                                                    
SENATOR  STEDMAN  said  that  the fiscal  note  would  come  under                                                              
scrutiny in the  Finance Committee and the AML would  have time to                                                              
have some  input. He thought it  would be impossible  for entities                                                              
to profiteer off of the grants.                                                                                                 
4:03:32 PM                                                                                                                    
CHAIR WAGONER  asked how  transactions are  accounted for  and how                                                              
that cost  would be  avoided being  passed on to  the user  of the                                                              
utility system at a future date.                                                                                                
4:04:27 PM                                                                                                                    
COMMISSIONER JIM STRANDBERG,  RCA, replied sale of a  utility is a                                                              
commercial  agreement between  two entities.  The regulators  will                                                              
only allow the new  owner to have a rate at a  certain level based                                                              
on  the  depreciated  book  value   of  the  infrastructure,  less                                                              
contributions in  AIDA construction. If the entity  that purchased                                                              
the utility  wanted it bad  enough and paid  a lot more  than what                                                              
the  book  value was,  that's  its  business.  That would  not  be                                                              
allowed in the rate to be charged to the future ratepayer.                                                                      
4:06:40 PM                                                                                                                    
SENATOR  SEEKINS  commented  that  he would  vote  for  this  bill                                                              
because  it appears  that  people  from 96  additional  utilities,                                                              
public  or  private,   will  benefit  without   discrimination  in                                                              
getting  public funding  for safe  water. If  the goal  is to  get                                                              
safe  water to  as many  people in  Alaska as  possible, that's  a                                                              
good public purpose.                                                                                                            
4:07:46 PM                                                                                                                    
MS. KARA  MORIARTY, President and  CEO, Fairbanks  Greater Chamber                                                              
of Commerce,  supported SB 32 and  the concept that  all utilities                                                              
should be  on the same  playing field and  be eligible  to receive                                                              
state grant funds.                                                                                                              
     Currently,  the only  utilities  that  are eligible  for                                                                   
     the  grants are publicly  owned and  are primarily  used                                                                   
     for infrastructure  development  and upgrades. Based  on                                                                   
     regulations  set forward  by  the Regulatory  Commission                                                                   
     of  Alaska,   the  shareholders   and  privately   owned                                                                   
     utilities  cannot generate  a  return  on investment  or                                                                   
     receive  depreciation  expense  credits  for  any  grant                                                                   
     funds they  receive. Because  of those regulations,  the                                                                   
     only beneficiaries,  then, of a privately-owned  utility                                                                   
     to receive  these grants  would be  the ratepayers,  the                                                                   
     citizens of a community.                                                                                                   
     All utilities  in Fairbanks  are either owned  privately                                                                   
     or by  a cooperative.  In essence, Fairbanks  businesses                                                                   
     and residents  are at a  disadvantage compared  to other                                                                   
     Alaska residents.  One of the  first questions  we often                                                                   
     field at  the Chamber  from perspective businesses  that                                                                   
     want  to locate to  Fairbanks or  even those  businesses                                                                   
     that are  here and want to  expand, is what is  the cost                                                                   
     of  doing business  and utility  costs  are certainly  a                                                                   
     major component of a business's operating costs....                                                                        
She concluded  by urging  the committee  to allow privately  owned                                                              
utilities to  be eligible for  grants like other  utilities across                                                              
the state.                                                                                                                      
4:10:53 PM                                                                                                                    
SENATOR  SEEKINS renewed  his  motion to  pass  CSSB 32(RES)  from                                                              
committee  with  individual recommendations  and  attached  fiscal                                                              
note.  Senators   Stedman,  Stevens,  Dyson,  Seekins   and  Chair                                                              
Wagoner  voted yea;  and  Senator Elton  voted  nay. CSSB  32(RES)                                                              
moved from committee.                                                                                                           

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