Legislature(2003 - 2004)

02/27/2004 03:25 PM House L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                       February 27, 2004                                                                                        
                           3:25 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Tom Anderson, Chair                                                                                              
Representative Carl Gatto, Vice Chair                                                                                           
Representative Nancy Dahlstrom                                                                                                  
Representative Bob Lynn                                                                                                         
Representative Norman Rokeberg                                                                                                  
Representative Harry Crawford                                                                                                   
Representative David Guttenberg                                                                                                 
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 505                                                                                                              
"An  Act  relating  to  importing   beer  or  wine  for  personal                                                               
consumption and a  liquor license for that purpose,  and to taxes                                                               
on beer or wine imported for personal consumption."                                                                             
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
HOUSE BILL NO. 453                                                                                                              
"An  Act  exempting  from  regulation  under  the  Alaska  Public                                                               
Utilities  Regulatory Act  wholesale agreements  for the  sale of                                                               
power by  joint action  agencies and  contracts related  to those                                                               
agreements,  and   joint  action  agencies  composed   of  public                                                               
utilities  of  political  subdivisions  and  utilities  organized                                                               
under the Electric and Telephone Cooperative Act."                                                                              
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
HOUSE BILL NO. 450                                                                                                              
"An   Act  providing   for  a   special   deposit  for   workers'                                                               
compensation insurers; relating to the  board of governors of the                                                               
Alaska  Insurance  Guaranty   Association;  relating  to  covered                                                               
workers'  compensation  claims  paid   by  the  Alaska  Insurance                                                               
Guaranty Association; stating the  intent of the legislature, and                                                               
setting   out   limitations,   concerning   the   interpretation,                                                               
construction, and  implementation of workers'  compensation laws;                                                               
relating  to  restructuring   the  Alaska  workers'  compensation                                                               
system;  eliminating  the  Alaska  Workers'  Compensation  Board;                                                               
establishing  a  division  of workers'  compensation  within  the                                                               
Department  of  Labor  and Workforce  Development  and  assigning                                                               
certain  Alaska  Workers'  Compensation Board  functions  to  the                                                               
division and  the Department of Labor  and Workforce Development;                                                               
establishing   a   Workers'  Compensation   Appeals   Commission;                                                               
assigning certain  functions of the Alaska  Workers' Compensation                                                               
Board to  the Workers' Compensation Appeals  Commission; relating                                                               
to  agreements that  discharge  workers' compensation  liability;                                                               
providing   for  hearing   officers   in  workers'   compensation                                                               
proceedings; relating  to workers' compensation  awards; relating                                                               
to an  employer's failure to  insure and keep insured  or provide                                                               
security;  providing   for  appeals  from   compensation  orders;                                                               
relating  to  workers'  compensation proceedings;  providing  for                                                               
supreme  court   jurisdiction  of   appeals  from   the  Workers'                                                               
Compensation Appeals  Commission; providing for a  maximum amount                                                               
for  the cost-of-  living  adjustment  for workers'  compensation                                                               
benefits;  providing for  administrative penalties  for employers                                                               
uninsured   or    without   adequate   security    for   workers'                                                               
compensation; relating  to assigned risk pools  and insurers; and                                                               
providing for an effective date."                                                                                               
                                                                                                                                
     - BILL HEARING POSTPONED                                                                                                   
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 505                                                                                                                  
SHORT TITLE: ALCOHOL LICENSING: CONNOISSEUR LICENSE                                                                             
SPONSOR(S): REPRESENTATIVE(S) KOTT                                                                                              
                                                                                                                                
02/16/04       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/16/04       (H)       L&C, FIN                                                                                               
02/27/04       (H)       L&C AT 3:15 PM CAPITOL 17                                                                              
                                                                                                                                
BILL: HB 453                                                                                                                  
SHORT TITLE: JOINT ACTION AGENCIES                                                                                              
SPONSOR(S): REPRESENTATIVE(S) HEINZE                                                                                            
                                                                                                                                
02/16/04       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/16/04       (H)       L&C, FIN                                                                                               
02/27/04       (H)       L&C AT 3:15 PM CAPITOL 17                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
SUE STANCLIFF                                                                                                                   
House Majority Office                                                                                                           
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Presented HB 505 on behalf of                                                                              
Representative Kott, sponsor.                                                                                                   
                                                                                                                                
BOB BAILEY                                                                                                                      
Alaska Wine and Spirits Wholesalers Association                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 505.                                                                            
                                                                                                                                
MATT JONES                                                                                                                      
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified against HB 505, saying it gives                                                                  
the consumer fewer choices.                                                                                                     
                                                                                                                                
DOUG GRIFFIN, Chairman                                                                                                          
Alcoholic Beverage Control Board                                                                                                
Department of Public Safety                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions on HB 505.                                                                              
                                                                                                                                
REPRESENTATIVE CHERYLL HEINZE                                                                                                   
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified as sponsor of HB 453.                                                                            
                                                                                                                                
JON BITTNER, Staff                                                                                                              
to Representative Cheryll Heinze                                                                                                
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Presented HB 453 on behalf of                                                                              
Representative Heinze, sponsor, and answered questions.                                                                         
                                                                                                                                
JOE GRIFFITH, Chief Executive Officer                                                                                           
Chugach Electric Company                                                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 453.                                                                            
                                                                                                                                
TOM LOVAS, Chief Executive Officer                                                                                              
Four Dam Pool Power Agency                                                                                                      
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Gave background information on joint action                                                                
agencies and answered questions.                                                                                                
                                                                                                                                
JIM POSEY, General Manager                                                                                                      
Municipal Light and Power                                                                                                       
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 453.                                                                            
                                                                                                                                
TUCKERMAN BABCOCK, Manager                                                                                                      
Government and Strategic Affairs                                                                                                
Matanuska Electric Association                                                                                                  
Palmer, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in opposition to HB 453.                                                                         
                                                                                                                                
MARK JOHNSON, Commissioner                                                                                                      
Regulatory Commission of Alaska                                                                                                 
Department of Community and Regional Affairs                                                                                    
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 453.                                                                         
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 04-20, SIDE A                                                                                                            
Number 0001                                                                                                                     
                                                                                                                                
VICE CHAIR  GATTO called  the House  Labor and  Commerce Standing                                                             
Committee meeting to  order at 3:25 p.m.   Representatives Gatto,                                                               
Dahlstrom, Crawford, and  Guttenberg were present at  the call to                                                               
order.   Representatives Anderson, Lynn, and  Rokeberg arrived as                                                               
the meeting was in progress.                                                                                                    
                                                                                                                                
HB 505-ALCOHOL LICENSING: CONNOISSEUR LICENSE                                                                                 
                                                                                                                                
VICE  CHAIR GATTO  announced  that the  first  order of  business                                                               
would be HOUSE  BILL NO. 505, "An Act relating  to importing beer                                                               
or wine  for personal consumption  and a liquor license  for that                                                               
purpose,  and to  taxes on  beer  or wine  imported for  personal                                                               
consumption."                                                                                                                   
                                                                                                                                
Number 0089                                                                                                                     
                                                                                                                                
SUE STANCLIFF,  House Majority Office, Alaska  State Legislature,                                                               
introduced  HB 505  on behalf  of  Representative Kott,  sponsor.                                                               
She explained that the bill  would require individuals who import                                                               
beer and wine for personal  consumption to acquire a license from                                                               
the Alcoholic and  Beverage Control Board ("ABC  Board") prior to                                                               
importing wine and  beer, and to pay the  alcoholic beverage tax,                                                               
the  excise  tax, on  those  imports  through the  Department  of                                                               
Revenue.                                                                                                                        
                                                                                                                                
MS.  STANCLIFF said  the Twenty-first  Amendment [to  the federal                                                               
constitution] grants  states the authority to  regulate taxation,                                                               
distribution, and sale of alcoholic  beverages; the key provision                                                               
in  that amendment  reads:   "The  transportation or  importation                                                               
into any  State, Territory,  or Possession  of the  United States                                                               
for  the delivery  or  use therein  of  intoxicating liquors,  in                                                               
violation of the laws thereof, is hereby prohibited."                                                                           
                                                                                                                                
Number 0207                                                                                                                     
                                                                                                                                
MS.  STANCLIFF   noted  that  the  majority   of  states  require                                                               
consumers   to  purchase   alcoholic  beverages   from  retailers                                                               
licensed  by  the state.    This  "three-tiered system"  is  what                                                               
Alaska adopted at statehood and  has used successfully for nearly                                                               
half a  century.  However,  technology, primarily in the  form of                                                               
direct  purchasing of  alcohol over  the Internet,  threatens the                                                               
system in  Alaska.   An estimated $1  billion-plus in  alcohol is                                                               
illegally  shipped to  consumers  in the  U.S., thereby  avoiding                                                               
state taxation and  state laws that prohibit the  sale of alcohol                                                               
to minors.  This bill would  establish a framework for control of                                                               
alcohol  sales via  the Internet  and  to attempt  to avoid  some                                                               
problems identified in the Lower 48 with the sale of alcohol.                                                                   
                                                                                                                                
Number 0324                                                                                                                     
                                                                                                                                
MS.  STANCLIFF, in  response to  a  question from  Representative                                                               
Dahlstrom, said  enforcement would  fall to the  ABC Board.   She                                                               
acknowledged  the difficulty  of  enforcement  and indicated  the                                                               
intention isn't  to spend  a lot  of money  on enforcement.   She                                                               
related  that  other  states  with  similar  laws  use  it  as  a                                                               
deterrent,  a  notification  to  the public  that  this  type  of                                                               
activity  is illegal.    Ms. Stancliff  offered  her belief  that                                                               
minors are purchasing alcohol via the Internet.                                                                                 
                                                                                                                                
REPRESENTATIVE DAHLSTROM  asked how a customer  provides proof of                                                               
age for an Internet transaction.                                                                                                
                                                                                                                                
MS. STANCLIFF  replied that it is  often necessary to fax  a copy                                                               
of  identification to  the seller.   An  Alaskan who  traveled to                                                               
California  and returned  with  a  case of  wine  wouldn't be  in                                                               
violation of this  proposed law, since the  product wouldn't have                                                               
been shipped in.  She specified  that the purpose of this bill is                                                               
to gather shipping  revenues through taxation and  licensing.  In                                                               
this bill  the two-year  connoisseur license  for wine  carries a                                                               
fee of $100.                                                                                                                    
                                                                                                                                
Number 0616                                                                                                                     
                                                                                                                                
REPRESENTATIVE DAHLSTROM  asked:   If a California  winery wanted                                                               
to ship  a case  of wine,  would that  transaction be  covered by                                                               
this bill?                                                                                                                      
                                                                                                                                
MS. STANCLIFF said she believes,  but isn't certain, that alcohol                                                               
shipped into the state would be covered.                                                                                        
                                                                                                                                
Number 0667                                                                                                                     
                                                                                                                                
REPRESENTATIVE  CRAWFORD asked  if  the cost  of the  connoisseur                                                               
license would be prohibitive.                                                                                                   
                                                                                                                                
MS.  STANCLIFF replied  that,  for her,  the  primary concern  is                                                               
legality rather than expense.                                                                                                   
                                                                                                                                
REPRESENTATIVE CRAWFORD  asked what the  cost to the  state would                                                               
be for issuing these licenses that he believes are expensive.                                                                   
                                                                                                                                
MS.  STANCLIFF replied  that the  Department of  Revenue or  [the                                                               
Division  of   Occupational  Licensing   in  the   Department  of                                                               
Community & Economic Development (DCED)]  might be better able to                                                               
respond.   She said  she believes  the fiscal  note was  based on                                                               
costs   that  other   states   with   similar  legislation   have                                                               
experienced.                                                                                                                    
                                                                                                                                
Number 0807                                                                                                                     
                                                                                                                                
CHAIR ANDERSON  asked if this  legislation would affect  even one                                                               
bottle of wine coming through the mail.                                                                                         
                                                                                                                                
MS. STANCLIFF replied,  "It does affect even one bottle.   If you                                                               
are a member of wine-of-the-month club - one bottle."                                                                           
                                                                                                                                
CHAIR  ANDERSON  asked  what penalties  would  result  from  this                                                               
legislation.                                                                                                                    
                                                                                                                                
MS. STANCLIFF replied that the  provider who breaks the law would                                                               
have  committed a  class  C felony.   She  read  from Section  5,                                                               
page 3, subsection (d).                                                                                                         
                                                                                                                                
CHAIR ANDERSON asked  about the procedure if a  person has bought                                                               
a bottle  of wine  through a  wine-of-the-month club  and doesn't                                                               
have a connoisseur's license.                                                                                                   
                                                                                                                                
MS. STANCLIFF replied  that violating this law would  result in a                                                               
class  A misdemeanor  for  the person  purchasing  the wine;  the                                                               
winery  that provided  the  wine would  be guilty  of  a class  C                                                               
felony.                                                                                                                         
                                                                                                                                
Number 1003                                                                                                                     
                                                                                                                                
VICE CHAIR GATTO remarked:                                                                                                      
                                                                                                                                
     I  can order  a bottle  of wine  and if  I get  caught,                                                                    
     spank my hand  and I won't order any more.   If I don't                                                                    
     get caught, I can order wine  all day and all night and                                                                    
     all week and  all year until I get caught.   Now, on my                                                                    
     next  offense I'm  subject to  penalty.   I'm going  to                                                                    
     guess that  if a  person wants a  bottle of  wine, they                                                                    
     are probably not going to get caught.                                                                                      
                                                                                                                                
MS. STANCLIFF  offered that  when people want  a bottle  of wine,                                                               
they usually buy  one at a local liquor store,  rather than order                                                               
it over  the Internet.  She  said she didn't believe  people were                                                               
readily violating the  law, but could also  understand Vice Chair                                                               
Gatto's point.                                                                                                                  
                                                                                                                                
VICE CHAIR GATTO asked, if his  sister sent him a bottle of wine,                                                               
whether she would be in violation.                                                                                              
                                                                                                                                
MS. STANCLIFF responded that she didn't  know, but that this is a                                                               
concern and  may require an  amendment because the intent  of the                                                               
bill  is to  prevent  minors from  ordering  alcohol through  the                                                               
Internet, and  as a revenue-generating  tax.  She  also expressed                                                               
concern  for the  dry communities  in  Alaska that  can bring  in                                                               
alcohol through the Internet.                                                                                                   
                                                                                                                                
REPRESENTATIVE LYNN questioned whether  many minors order alcohol                                                               
via the Internet.                                                                                                               
                                                                                                                                
Number 1209                                                                                                                     
                                                                                                                                
BOB  BAILEY, Alaska  Wine  and  Spirits Wholesalers  Association,                                                               
Anchorage, said  his association supports restricting  the direct                                                               
shipment  of   alcohol  into  Alaska  for   three  main  reasons:                                                               
preventing the  sale of alcohol  to minors;  addressing shipments                                                               
into dry  communities; and tax  revenue that isn't coming  to the                                                               
state,  but  should be.    He  related  that  there has  been  an                                                               
increase in  Internet ordering  of alcohol  into Alaska  and that                                                               
while  there  are  providers  who  are  diligent  about  checking                                                               
identification,   this  doesn't   preclude  someone   from  using                                                               
another's identification.                                                                                                       
                                                                                                                                
MR. BAILEY spoke  to the increase in the alcohol  excise tax that                                                               
went  into effect  October  of  2002.   He  said  Alaska has  the                                                               
highest  alcohol excise  tax in  the  U.S., and  this provides  a                                                               
legitimate  financial reason  for someone  to order  alcohol from                                                               
out of state, in particular,  low-priced, low-weight liquor goods                                                               
in  plastic  bottles.    He  informed  the  committee  that  when                                                               
Alaska's  alcohol tax  is  over $30  a case,  that  pays for  the                                                               
freight quickly.   He said  Alaska is only  one of two  states in                                                               
the U.S.  that have  no restrictions on  direct sale  of alcohol.                                                               
He gave  an example of  a winery  in California that  can legally                                                               
ship directly to  anyone in Alaska, but said  an Alaskan licensed                                                               
retailer is unable to do so.                                                                                                    
                                                                                                                                
Number 1399                                                                                                                     
                                                                                                                                
MR. BAILEY pointed  out that enforcement would  be necessary, but                                                               
opined that the felony provision  would be the primary deterrent.                                                               
He predicted that  wineries would oppose this  bill, since they'd                                                               
prefer the status  quo that allows them to ship  freely.  He also                                                               
surmised  they'd notify  customers  of  a change  in  the law  so                                                               
they'd  be in  compliance.   He noted  that the  process for  the                                                               
legitimate connoisseur  includes getting  a license;  getting the                                                               
appropriate  shipping  label; and  sending  it  to the  provider,                                                               
who'd then be alerted that shipping to Alaska was legal.                                                                        
                                                                                                                                
Number 1436                                                                                                                     
                                                                                                                                
REPRESENTATIVE CRAWFORD  asked for clarification of  which states                                                               
allow shipping of alcoholic beverages.                                                                                          
                                                                                                                                
MR.  BAILEY pointed  to a  map.   He  noted that  states can  use                                                               
federal courts to enforce their liquor laws.                                                                                    
                                                                                                                                
REPRESENTATIVE CRAWFORD  expressed concern  that the  process was                                                               
complicated and the cost of the license onerous.                                                                                
                                                                                                                                
MR.  BAILEY noted  that this  bill is  patterned on  a bill  from                                                               
Montana  and  that  the  actual  cost of  the  license  could  be                                                               
changed.  He indicated support for the felony penalty.                                                                          
                                                                                                                                
REPRESENTATIVE LYNN  asked how many connoisseurs  in Alaska would                                                               
apply for this license.                                                                                                         
                                                                                                                                
MR. BAILEY  replied that he  didn't know, but Montana  had issued                                                               
18 of  these licenses since passing  a similar law.   He stressed                                                               
that  this  legislation,  because  of the  felony  provision,  is                                                               
focused  on  providers  of  alcohol.   In  further  response,  he                                                               
reiterated the  three projected  areas of  impact from  the bill:                                                               
collection of  taxes, aid in preventing  minors' consumption, and                                                               
aid in  preventing alcohol from  getting to dry communities.   He                                                               
added that in  some cases, up to 10 percent  of alcohol that goes                                                               
to minors  was purchased  via the Internet  in other  states, but                                                               
there are no related statistics for Alaska.                                                                                     
                                                                                                                                
MR. BAILEY, in response to  further questions from Representative                                                               
Lynn,   admitted  the   revenue  from   this  bill   wouldn't  be                                                               
substantial.   He  mentioned the  amount the  state is  losing on                                                               
cheap liquor being  shipped into the state by people  who want to                                                               
avoid paying  the state tax  of $30 a case.   Likening it  to the                                                               
state's efforts to  tax tobacco, he noted that  the industry pays                                                               
over $30  million a year  in alcohol  tax into the  general fund,                                                               
and suggested some of that could pay for this bill.                                                                             
                                                                                                                                
REPRESENTATIVE CRAWFORD agreed the  felony provisions in the bill                                                               
are good, but questioned the amount for the license fee.                                                                        
                                                                                                                                
MR. BAILEY agreed with Representative Crawford.                                                                                 
                                                                                                                                
Number 1860                                                                                                                     
                                                                                                                                
REPRESENTATIVE  DAHLSTROM   asked  Mr.  Bailey  to   address  the                                                               
benefits that  this bill  would bring  to local  business owners.                                                               
She also asked Mr. Bailey to state his major concern.                                                                           
                                                                                                                                
MR.  BAILEY said  it wasn't  possible to  measure the  benefit at                                                               
this point.  He said his  major concern is consumption by minors,                                                               
specifically, "regulating  that the  people who shouldn't  get it                                                               
don't get it."                                                                                                                  
                                                                                                                                
Number 1943                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  surmised that probably the  major effect                                                               
would be  prohibiting the purchase  of spirits via  the Internet.                                                               
He asked whether that is correct.                                                                                               
                                                                                                                                
MR. BAILEY replied:                                                                                                             
                                                                                                                                
     Right  now, we  suspect  that  inexpensive liquor  like                                                                    
     vodka  in plastic  bottles,  which may  or  may not  be                                                                    
     going  to bootleggers  -  we have  no  idea where  it's                                                                    
     going -  that would  be prohibited completely  by this.                                                                    
     The  only  thing   allowed  through  the  connoisseur's                                                                    
     license is the purchase of wine or beer, not spirits.                                                                      
                                                                                                                                
REPRESENTATIVE ROKEBERG recounted his  personal experience with a                                                               
California vineyard.   He said the  genuine connoisseurs wouldn't                                                               
be affected as much as  the wine-of-the-month club customers.  He                                                               
noted that  this bill  prohibits the  illegal purchase,  over the                                                               
Internet  primarily,  of  spirits,  wine,  and  beer.    It  thus                                                               
maintains  the   integrity  of  the  three-tiered   system,  with                                                               
regulation  of the  manufacturer, wholesaler,  and retailer.   He                                                               
referred to cyberspace as the  fourth tier that needs regulation.                                                               
He asked  if Mr.  Bailey thought  there was  a sense  of fairness                                                               
involved, since in-state people were paying taxes but out-of-                                                                   
state people weren't.                                                                                                           
                                                                                                                                
Number 2113                                                                                                                     
                                                                                                                                
MR.  BAILEY  said his  association  had  attempted to  pass  this                                                               
legislation in  the past,  and the  increased alcohol  excise tax                                                               
provided further impetus for HB 505.                                                                                            
                                                                                                                                
VICE CHAIR GATTO  asked whether a person could, at  this time, go                                                               
to the Internet and order wine legally.                                                                                         
                                                                                                                                
MR.  BAILEY  replied that  retailers  have  to purchase  products                                                               
through  wholesalers   who  are,  in  turn,   designated  by  the                                                               
supplier.     Individuals  can  order  over   the  Internet,  and                                                               
retailers  can order  over the  Internet but  cannot legally  put                                                               
that product in their stores for resale.                                                                                        
                                                                                                                                
VICE CHAIR GATTO asked about the urgency of this bill.                                                                          
                                                                                                                                
MR.  BAILEY  said one  could  infer  that  the  high use  of  the                                                               
Internet in Alaska has resulted  in a higher-than-average rate of                                                               
ordering alcohol  over the Internet,  which has resulted  in lost                                                               
revenue to the state.                                                                                                           
                                                                                                                                
CHAIR  ANDERSON said  he  supported the  bill,  but didn't  think                                                               
minor consumption was an issue, and  also felt the excise tax was                                                               
too high in Alaska, so that  he wasn't overly concerned about the                                                               
lost revenue.   He said  he did  believe, however, that  the dry-                                                               
community issue in Alaska was a salient point.                                                                                  
                                                                                                                                
Number 2338                                                                                                                     
                                                                                                                                
MATT JONES, Anchorage, testified that  he thought it important to                                                               
clarify  that Montana  is a  "control state"  where the  sale and                                                               
distribution of alcohol  is controlled by the state,  so there is                                                               
a vested interest in reducing  sales of "non-state-sold alcohol."                                                               
However, Alaska  is a  "license state" where  alcohol is  sold by                                                               
private companies.                                                                                                              
                                                                                                                                
TAPE 04-20, SIDE B                                                                                                            
Number 2372                                                                                                                     
                                                                                                                                
MR. JONES  said he understood  and supported the need  to collect                                                               
taxes,  as  well  as  the  need   to  keep  alcohol  out  of  dry                                                               
communities and  away from minors.   He wasn't sure  beyond these                                                               
effects what  the purpose  of this  bill was.   He said  the bill                                                               
would result in  out-of-state wineries' not wanting  to deal with                                                               
shipping  to  Alaska  because  of   the  added  regulation.    He                                                               
suggested  this would  be unfortunate  because  liquor stores  in                                                               
Alaska don't  carry every wine,  and he  felt that as  a consumer                                                               
his  choices  would   be  diminished.    He   proposed  that  the                                                               
legislature  could regulate  the  sale of  hard  liquor over  the                                                               
Internet with another bill, rather than HB 505.                                                                                 
                                                                                                                                
REPRESENTATIVE ROKEBERG  read from the  bill, page 2,  Section 3.                                                               
He asked,  "So, there's  a requirement of  registration.   Do you                                                               
think  these  wineries  will  not register  with  the  board  and                                                               
therefore will not send you any wine?"                                                                                          
                                                                                                                                
MR. JONES said  his concern was more than that,  since the winery                                                               
or brewery  has to obtain a  general wholesale license and  get a                                                               
registered agent,  and these requirements of  the bill constitute                                                               
a burden for a small winery or brewery.                                                                                         
                                                                                                                                
REPRESENTATIVE ROKEBERG  clarified that the current  law requires                                                               
obtaining a  general wholesale license, appointing  an agent, and                                                               
obtaining  other applicable  licenses.   He  said subsection  (b)                                                               
actually makes it less cumbersome,  since the business could sell                                                               
wine directly to the consumer without a wholesale license.                                                                      
                                                                                                                                
MR. JONES asked  why there is a  limit on the number  of cases of                                                               
wine he can buy, since this would also limit revenue from taxes.                                                                
                                                                                                                                
Number 2145                                                                                                                     
                                                                                                                                
DOUG  GRIFFIN,   Chairman,  Alcoholic  Beverage   Control  Board,                                                               
Department of  Public Safety, said  the amount of  alcohol coming                                                               
into the  state due to  the Internet sales  is unknown.   He said                                                               
this bill would not be a  large revenue-generator.  He noted that                                                               
he  suspects  there  have been  occurrences  of  underage  people                                                               
getting alcohol  through the Internet,  but had never  received a                                                               
complaint about this.   He thought increased use  of the Internet                                                               
would be an indicator  that the ABC Board had done  a good job of                                                               
reducing access to alcohol for underage persons.                                                                                
                                                                                                                                
MR. GRIFFIN said he wasn't aware  of the cheap spirits Mr. Bailey                                                               
had  referred to,  and  felt  this bill  was  aimed primarily  at                                                               
fairly  high-end wine.    He commented  that this  is  part of  a                                                               
nationwide battle  between wineries,  which argue they  can't get                                                               
their product to  be carried by wholesalers,  and wholesalers who                                                               
feel that  wineries are avoiding  taxation, that  underage people                                                               
may have access  to alcohol, and that taxes aren't  being paid by                                                               
these direct  shipment routes.   He surmised this battle  is ripe                                                               
for  adjudication before  the U.S.  Supreme Court,  since circuit                                                               
courts have ruled in favor  of the Twenty-first Amendment, saying                                                               
states have the  right to regulate alcohol, and also  in favor of                                                               
the  interstate commerce  clause, saying  states could  not limit                                                               
the ability of people to carry out commerce between states.                                                                     
                                                                                                                                
Number 1948                                                                                                                     
                                                                                                                                
CHAIR ANDERSON  said he had  some concerns and thought  it better                                                               
to hold the bill until next week.  [HB 505 was held over.]                                                                      
                                                                                                                                
HB 453-JOINT ACTION AGENCIES                                                                                                  
                                                                                                                                
CHAIR ANDERSON announced  that the final order  of business would                                                               
be HOUSE  BILL NO. 453,  "An Act exempting from  regulation under                                                               
the Alaska  Public Utilities Regulatory Act  wholesale agreements                                                               
for  the sale  of power  by joint  action agencies  and contracts                                                               
related to  those agreements, and joint  action agencies composed                                                               
of  public  utilities  of political  subdivisions  and  utilities                                                               
organized under the Electric and Telephone Cooperative Act."                                                                    
                                                                                                                                
Number 1875                                                                                                                     
                                                                                                                                
REPRESENTATIVE   CHERYLL   HEINZE,  Alaska   State   Legislature,                                                               
sponsor,  introduced  HB 453.    She  referred  to a  chart  that                                                               
illustrated  upgrades needed  for  the  Railbelt area  electrical                                                               
grid, noting  that the transmission  lines date to the  1950s and                                                               
that  generation  assets are  20  to  30  years  old.   She  said                                                               
Alaska's  energy  infrastructure  is  in  desperate  need  of  an                                                               
upgrade.   According to  the Railbelt Energy  Study, the  cost of                                                               
building,   upgrading,   and   maintaining  these   upgrades   is                                                               
anticipated to be  around $5 billion.  She predicted  the cost of                                                               
new generators alone  over this period would be  $750 million, or                                                               
$2,000 for every resident along  the Railbelt.  She believed that                                                               
the House  and Senate  recognized this when  they passed  HCR 21,                                                               
establishing the Joint Energy Policy Task Force.                                                                                
                                                                                                                                
Number 1793                                                                                                                     
                                                                                                                                
REPRESENTATIVE HEINZE  explained that HCR 21  mandated the review                                                               
and analysis  of the  state's long-term  energy needs,  and asked                                                               
the task force to develop  a long-term energy plan to efficiently                                                               
enhance Alaska's economic future.   She commented that one of the                                                               
major recommendations made  by the task force was  that the state                                                               
promote   unified  operation   of  a   Railbelt  generation   and                                                               
transmission system.   The unified system operator would  be in a                                                               
position to  undertake the financial obligation  of upgrading the                                                               
Railbelt.   She pointed out  that each company alone  couldn't be                                                               
responsible  for the  $5 billion  cost, but  she thought  several                                                               
companies together could.                                                                                                       
                                                                                                                                
REPRESENTATIVE HEINZE said this bill  makes slight changes to the                                                               
joint  action agency  (JAA) statute,  AS 42.45.300,  specifically                                                               
changing   language   to   exempt  contracts   from   regulation.                                                               
Contracts made  by the  JAA with another  public utility  for the                                                               
sale  of power,  storage, regeneration,  or wholesale  repurchase                                                               
under a wholesale agreement would  be an agreement between two or                                                               
more willing and  capable parties.  Any dispute  would be handled                                                               
under  contract law.   She  urged the  committee to  support this                                                               
bill.  She  indicated she'd spoken with members  of the utilities                                                               
in the Railbelt and had addressed their concerns.                                                                               
                                                                                                                                
REPRESENTATIVE HEINZE  focused attention  on two  questions she'd                                                               
asked Legislative  Legal and  Research Services.   First,  do the                                                               
exemptions given to  JAAs in this bill apply to  the retail rates                                                               
of the individual utilities and  cooperatives that are members of                                                               
the  agency?   She said  the  answer is  no.   This won't  affect                                                               
retail rates; it  only affects the sale of wholesale  power.  And                                                               
second,  will   this  bill  affect  existing   contracts  between                                                               
individual utilities?  Again, she said,  the answer is no.  A new                                                               
law won't operate to modify existing contracts.                                                                                 
                                                                                                                                
[Chair Anderson passed the gavel to Vice Chair Gatto.]                                                                          
                                                                                                                                
Number 1633                                                                                                                     
                                                                                                                                
JON  BITTNER,  Staff  to   Representative  Heinze,  Alaska  State                                                               
Legislature,  testified  that in  December  2003  the task  force                                                               
report on  the electrical  system in  the Railbelt  was released.                                                               
In its  long-term energy needs  section, the report  said, within                                                               
the next  20 years  it was  determined that  Alaska will  need to                                                               
provide  energy  infrastructure   for  economic  development,  to                                                               
establish a  unified system  of operation,  and to  replace aging                                                               
generation  [facilities].   He  said  HB  453 aids  the  Railbelt                                                               
utilities  in  achieving  these needs  and  provides  a  stronger                                                               
framework in the statutes that  large business enterprises like a                                                               
Railbelt JAA would need.                                                                                                        
                                                                                                                                
MR. BITTNER explained  that this bill would  ensure the utilities                                                               
could assume  the economic  leverage they  need to  replace aging                                                               
generators  and  old  transmission  lines.    He  commented  that                                                               
Alaska's  energy   infrastructure  is  in  need   of  repair  and                                                               
replacement.   According  to the  task force  report released  in                                                               
January 2004,  most of the  Railbelt's generation capacity  is 20                                                               
to  40 years  old and  will become  more costly  to maintain  and                                                               
replace.   He  concluded that  the JAA  being created  by Chugach                                                               
Electric Company ("Chugach Electric"),  Municipal Light and Power                                                               
(ML&P), and  Golden Valley Electric Association  (GVEA) will fill                                                               
the need to resolve these issues.                                                                                               
                                                                                                                                
Number 1574                                                                                                                     
                                                                                                                                
MR.  BITTNER  continued, saying  the  Railbelt  report makes  two                                                               
things   clear.     First,  the   cost   of  upgrading   Alaska's                                                               
infrastructure will  continue to  increase.   Second, there  is a                                                               
need for  a unified  system operator.   He said  HB 453  helps to                                                               
address   these  issues   by  providing   support  for   Alaska's                                                               
generation-transmission  facilities that  must  undertake a  huge                                                               
financial  burden to  maintain and  expand the  Railbelt's energy                                                               
infrastructure.  He opined that  utilities would gladly undertake                                                               
the necessary  improvements if  they could.   All they  need from                                                               
the legislature are better tools to develop them.                                                                               
                                                                                                                                
MR. BITTNER  explained that with  wholesale power  agreements and                                                               
infrastructure   improvements  exempt   from  conventional   rate                                                               
regulation,  the participating  utilities  would  feel secure  in                                                               
committing  to  the necessary  large-scale  projects.   Far  from                                                               
removing all oversight from wholesale  power agreements, he said,                                                               
HB 453 would remove an  unnecessary burden of regulatory scrutiny                                                               
of  wholesale   power  sales  contracts   and  simply   make  the                                                               
utilities' transactions  subject to contractual law,  as are most                                                               
other contracts.   The involved  parties would make  an agreement                                                               
based  on a  mutually acceptable  contract that  would cover  all                                                               
aspects  of the  transaction over  the course  of that  contract.                                                               
Mr.  Bittner suggested  if this  unnecessary,  onerous burden  is                                                               
removed, the  new Railbelt partnership will  further reduce costs                                                               
to  consumers, and  said this  deregulation is  entirely in  line                                                               
with existing JAA guidelines and statutes.                                                                                      
                                                                                                                                
Number 1500                                                                                                                     
                                                                                                                                
REPRESENTATIVE  CRAWFORD said  Chugach Electric  had assured  him                                                               
this bill doesn't affect consumers.   However, if wholesale rates                                                               
doubled, this would  surely affect the rates  that consumers pay,                                                               
and he  knew of no  entity other than RCA  [Regulatory Commission                                                               
of Alaska] that protects the consumer.                                                                                          
                                                                                                                                
MR. BITTNER  replied that this  bill wouldn't  remove regulations                                                               
to retail customers, and that  RCA would still regulate rates for                                                               
them.  He  said the federal antitrust laws would  cover most rate                                                               
changes for the wholesale agreements as well.                                                                                   
                                                                                                                                
REPRESENTATIVE HEINZE proposed that  one of the utility companies                                                               
involved should answer  Representative Crawford's question, since                                                               
they have more expertise.                                                                                                       
                                                                                                                                
Number 1371                                                                                                                     
                                                                                                                                
JOE GRIFFITH, Chief Executive  Officer, Chugach Electric Company,                                                               
Anchorage, testified  in support of  HB 453, saying costs  of the                                                               
generation  and  transmission of  power  will  be passed  to  the                                                               
ultimate consumer, since  that's the only source of  money to pay                                                               
for  the generation  and transmission  system.   He informed  the                                                               
committee that in places that  don't have sufficient competition,                                                               
where there  are cases of over-monopolistic  service territories,                                                               
RCA has the responsibility to regulate.                                                                                         
                                                                                                                                
MR.  GRIFFITH  pointed  out  that  this  does  not  describe  the                                                               
proposed JAA,  and said  he thought the  assumption was  that the                                                               
JAA might  not do  business in a  proper and  appropriate manner.                                                               
But, he pointed out, it wouldn't  make good business sense to the                                                               
JAA to price-gouge,  and it's against the law.   He asserted that                                                               
they'd  do  business   in  a  reasonable  manner   and  charge  a                                                               
reasonable amount for  their product, with margins,  just as they                                                               
do today.  He  pointed out that in 38 or  40 states the wholesale                                                               
power  and   the  distribution   of  the  retail   [power]  isn't                                                               
regulated.    He said  Alaska  is  unique  in  this matter.    He                                                               
explained  that  the  current wholesale  contracts  that  Chugach                                                               
Electric  has  couldn't  be  regulated  if  they  hadn't  written                                                               
regulation  language  in  to  start  with,  when  they  made  the                                                               
contracts.  He said he didn't see deregulation as a problem.                                                                    
                                                                                                                                
Number 1269                                                                                                                     
                                                                                                                                
VICE CHAIR GATTO remarked, "Utilities,  by their very nature, are                                                               
not a free-market enterprise."                                                                                                  
                                                                                                                                
MR. GRIFFITH  responded that the  wholesale side of  the business                                                               
generally is.                                                                                                                   
                                                                                                                                
VICE CHAIR  GATTO replied  that the  utility isn't  a free-market                                                               
enterprise,  since there  is no  competing utility  with parallel                                                               
power  lines running  down  the road  that  customers could  take                                                               
advantage  of.   He  further  said the  only  thing  in place  to                                                               
prevent a monopoly was a regulatory commission.                                                                                 
                                                                                                                                
MR. GRIFFITH replied that this  was correct for public utilities,                                                               
but not for JAAs, which aren't a public utility.                                                                                
                                                                                                                                
VICE CHAIR GATTO  read from the bill, saying, "In  the very first                                                               
words of  the bill,  'An Act exempting  from regulation',  and in                                                               
the second word  [line 2], 'wholesale agreements for  the sale of                                                               
power'."  Noting that he  lives in the Matanuska-Susitna area, he                                                               
remarked, "We  purchase our power  wholesale, and  very recently,                                                               
within the  last year,  there was  a lawsuit  that said,  ... 'We                                                               
have been  overcharged,' and  the court  said, 'Yes,  you have.'"                                                               
He asked whether that is correct.                                                                                               
                                                                                                                                
Number 1086                                                                                                                     
                                                                                                                                
MR.  GRIFFITH  replied that  Vice  Chair  Gatto was  not  exactly                                                               
correct.  He explained:                                                                                                         
                                                                                                                                
     It  was a  rate case,  ... the  first one  that Chugach                                                                    
     Electric had  taken forward  since 1987.   And  in that                                                                    
     rate case we asked for  a ... refundable rate increase.                                                                    
     We  were granted  that and  then,  through the  process                                                                    
     before the regulatory  commission, they determined that                                                                    
     those rates  ... we  asked for were  not the  ones that                                                                    
     should be  placed, in fact.   So we refunded  the money                                                                    
     we  had collected.    There  wasn't any  overcollection                                                                    
     from the  standpoint of  price-gouging or  anything; it                                                                    
     was that the rate-case determination was different.                                                                        
                                                                                                                                
VICE CHAIR GATTO responded:                                                                                                     
                                                                                                                                
     And so the regulatory  commission, then, was the savior                                                                    
     for   protecting  the   consumer  indirectly,   because                                                                    
     Matanuska   Electric  refunded   that   money  to   the                                                                    
     consumers in their service area.   That, ... to me, was                                                                    
     a  very novel  occurrence in  that this  commission was                                                                    
     the  protector  of this  consumer.    And without  this                                                                    
     commission,  this  consumer  would  not  have  had  any                                                                    
     refund, and  that's what the decision  was, that indeed                                                                    
     the  consumer deserved  a refund  because  of the  rate                                                                    
     application change.                                                                                                        
                                                                                                                                
     Whether  or  not  there was  an  error,  remember  that                                                                    
     without  -- that's  why ...  I'm  concerned about  this                                                                    
     exempting from  regulation.   Quite frankly,  it scares                                                                    
     me.  And  I think that any public utility,  by its very                                                                    
     nature  of  being a  monopoly,  certainly  can have  an                                                                    
     agreement with a union and  say, "OK, you want an extra                                                                    
     $5 an hour?   It doesn't matter to us.   Just come back                                                                    
     to work,  because all we've got  to do is pass  it on."                                                                    
     Without a ... regulatory  agency, we, the consumer, are                                                                    
     in one pot of trouble.  Am I correct?                                                                                      
                                                                                                                                
MR.  GRIFFITH  replied  that  he  couldn't  entirely  agree,  and                                                               
reiterated   that  JAAs   aren't   public   utilities,  but   are                                                               
wholesalers  of  generation and  transmission  assets.   He  said                                                               
contracts  for  generation,  transmission facilities,  and  labor                                                               
aren't scrutinized  or regulated  by RCA  except after  the fact,                                                               
and then only because the authority  to do this is written in the                                                               
contracts.   He pointed out  that the utilities  themselves wrote                                                               
regulation into  the contracts,  and said  he didn't  think there                                                               
was evidence to say there'd  been any example of misappropriation                                                               
of funds  or gouging of consumers.   He said he  felt the process                                                               
Chugach  Electric went  through  in the  rate  case was  entirely                                                               
appropriate.                                                                                                                    
                                                                                                                                
Number 1033                                                                                                                     
                                                                                                                                
VICE CHAIR GATTO  asked:  If this legislation had  been in place,                                                               
would that process have proceeded exactly as it did?                                                                            
                                                                                                                                
MR.  GRIFFITH said  yes, since  those contracts  weren't under  a                                                               
JAA.    He said  even  if  the  contracts were  transferred,  the                                                               
contractual language would remain the same.                                                                                     
                                                                                                                                
Number 0978                                                                                                                     
                                                                                                                                
TOM LOVAS, Chief  Executive Officer, Four Dam  Pool Power Agency,                                                               
testified,  saying   he  was  participating  to   understand  the                                                               
requests  of  this legislation,  to  gather  information, and  to                                                               
understand  the  conditions  surrounding  the  request  for  this                                                               
legislation.  He  also wanted to present  information with regard                                                               
to the  potential impact  of HB  453 on the  Four Dam  Pool Power                                                               
Agency,  now  the sole  JAA  in  operation  in Alaska  under  the                                                               
authorizing legislation.                                                                                                        
                                                                                                                                
MR. LOVAS said HB 453 was  not specifically initiated by the Four                                                               
Dam  Pool Power  Agency,  but rather  by  the Railbelt  utilities                                                               
previously mentioned.   The  board of directors  of the  Four Dam                                                               
Pool  Power   Agency  hadn't  yet   taken  a  position   on  this                                                               
legislation,  and  thus he  wasn't  there  to either  support  or                                                               
oppose it.                                                                                                                      
                                                                                                                                
MR.  LOVAS informed  the committee  that  he did  not think  this                                                               
legislation, as it was described,  would affect the Four Dam Pool                                                               
Agency at this time, but it might  in the future when it could be                                                               
beneficial if  the agency added  additional projects to  the four                                                               
hydroelectric   units  currently   operated   under  the   agency                                                               
framework, or if the Four Dam  Pool Power Agency began to provide                                                               
power to  nonmembers of the  agency directly.  He  explained that                                                               
presently  all sales  at the  wholesale level  from the  agency's                                                               
projects flow  to the  initial members of  the agency,  which are                                                               
the ultimate distribution utilities of  that power.  They make no                                                               
sales  other   than  to  members   of  the  agency,   except  for                                                               
interruptible arrangements that may be  from surplus energy.  But                                                               
those, too, are  organized through and by the  initial members of                                                               
the agency.   Consequently, wholesale  power transactions  of the                                                               
Four Dam Pool Power Agency are  only within the membership of the                                                               
agency itself and not a third party.                                                                                            
                                                                                                                                
MR.  LOVAS explained  that the  priority  of the  projects is  to                                                               
deliver  power to  those members  and only  those members  of the                                                               
agency, each  of which participates  in the determination  of the                                                               
budgets,  rates, and  charges.   Sales  of any  surplus to  third                                                               
parties are  only by  unanimous agreement of  the members  of the                                                               
agency.  Their  projects are governed by a  power sales agreement                                                               
that was  preexisting with the  State of Alaska and  continued on                                                               
through  the  arrangements  by which  the  agency  could  acquire                                                               
projects  from  the   state  for  the  purposes   of  the  member                                                               
utilities.   Mr. Lovas  said the  authorizing legislation  of the                                                               
initial  project currently  serves their  needs and  provides the                                                               
exemption from regulation that coincides  with the exemption that                                                               
occurred  in the  prior projects,  when  they were  owned by  the                                                               
State of Alaska, under the power sales agreement.                                                                               
                                                                                                                                
[Vice Chair Gatto returned the gavel to Chair Anderson.]                                                                        
                                                                                                                                
Number 0772                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG   recalled  the  negotiations   and  the                                                               
difficulties with organizing  the first JAA.  He  asked Mr. Lovas                                                               
if the  Four Dam Pool  and the legislation establishing  that JAA                                                               
was the first one in Alaska.  He  also wanted to know if the Four                                                               
Dam Pool Power Project was regulated.                                                                                           
                                                                                                                                
MR.  LOVAS replied  that his  company was  the first  JAA in  the                                                               
state.    It  is  regulated  by  the  Federal  Energy  Regulatory                                                               
Commission  (FERC)  with  regard  to  the  hydroelectric  project                                                               
licensing issues.   It is exempt from rate regulation  by the RCA                                                               
under the  terms of the  existing legislation until such  time as                                                               
any debt on the projects is fully paid.                                                                                         
                                                                                                                                
Number 0700                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked  for the  rationale  behind  this                                                               
arrangement.                                                                                                                    
                                                                                                                                
MR. LOVAS  responded that the  original arrangement by  which the                                                               
pool was formed  included exemption from rate  regulation for the                                                               
Four Dam Pool itself, while  the projects were owned and operated                                                               
on  behalf  of the  utilities  by  the  State  of Alaska.    That                                                               
longstanding   arrangement   has   continued  on   through   this                                                               
transaction whereby the  agency becomes the owner in  lieu of the                                                               
State of Alaska.  It's a continuation of a historical framework.                                                                
                                                                                                                                
REPRESENTATIVE ROKEBERG asked,  "Is the theory that  the pool has                                                               
an  existing  contractual  relationship  in place,  but  then  if                                                               
there's  any  transfer  of  your  commodity,  your  energy,  it's                                                               
between members that are already members to the agreement?"                                                                     
                                                                                                                                
MR. LOVAS affirmed that.   The power sales agreement was specific                                                               
in that  the power from the  projects could only be  used for the                                                               
purposes  of  the  members  of   the  pool  that  was  originally                                                               
established back  in the mid-1980s.   There was no  mechanism for                                                               
the agency  to move  power from  the hydroelectric  projects that                                                               
are incorporated in this to a  third party that's not a member of                                                               
the agency itself.                                                                                                              
                                                                                                                                
REPRESENTATIVE  ROKEBERG asked  how  many of  the  Four Dam  Pool                                                               
Power Agency generators are tied to the grid.                                                                                   
                                                                                                                                
MR. LOVAS  replied that none are  tied together with the  grid at                                                               
this point,  other than  the delivery  to the  local distribution                                                               
cooperatives or municipalities.                                                                                                 
                                                                                                                                
Number 0600                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG noted  that even though they  have a JAA,                                                               
they don't  have a traditional  grid whereby they can  sell power                                                               
back and forth from one location to another.                                                                                    
                                                                                                                                
MR.  LOVAS  concurred.    He   noted  that  development  projects                                                               
underway   would  interconnect   service  territories,   but  the                                                               
priority  obligation to  the power  would still  apply from  each                                                               
project  to  the  initial  member that  was  involved  with  that                                                               
project.  He  said there was one exception that  might develop, a                                                               
potential segment  of transmission from Petersburg  to Kake; this                                                               
would involve surplus power, not  the priority power that goes to                                                               
the members.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROKEBERG asked  Mr. Lovas,  if he  made a  third-                                                               
party sale,  whether he'd have  to have the unanimous  consent of                                                               
the   membership,  and   whether  this   would  be   a  regulated                                                               
arrangement with the third party.                                                                                               
                                                                                                                                
MR. LOVAS replied  that was correct, saying it could  only be for                                                               
power not otherwise  required by the members.   He didn't believe                                                               
such a sale would be regulated.                                                                                                 
                                                                                                                                
REPRESENTATIVE  ROKEBERG asked  Mr.  Lovas why  a  JAA model  was                                                               
adopted for the Four Dam Pool Power Agency.                                                                                     
                                                                                                                                
MR. LOVAS said  the Four Dam Pool term was  developed at the time                                                               
the  long-term power  sales agreement  was established  among the                                                               
five purchasing utilities of the  project.  He believed that term                                                               
had continued to  be carried forward into the JAA  as a matter of                                                               
familiarity.                                                                                                                    
                                                                                                                                
Number 0423                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG restated  his  question:   "Why did  you                                                               
become a joint action agency?"                                                                                                  
                                                                                                                                
MR. LOVAS  replied that it  was a mechanism available  within the                                                               
state legislation, with statutes that  provide a means by which a                                                               
number of  public utilities would  come together for  the purpose                                                               
of owning and  operating a project on their behalf.   There was a                                                               
prior, available alternative to establish a framework.                                                                          
                                                                                                                                
Number 0367                                                                                                                     
                                                                                                                                
MR. GRIFFITH  of Chugach  Electric said, "This  is a  very simple                                                               
change in the  statutes we're asking for."  He  said he feels the                                                               
JAA is  an organization  whose time  has come.   The  energy task                                                               
force had  commented on the need  for a joint system  operator of                                                               
some nature.   Mr. Griffith  said ML&P  and GVEA are  saying they                                                               
want to  be the joint  system operator; they recognize  the costs                                                               
and  the  challenges  and  are  ready to  act.    He  warned  the                                                               
committee that there was no time to dally.                                                                                      
                                                                                                                                
MR.  GRIFFITH  suggested  it  would be  advantageous  to  not  be                                                               
regulated in the wholesale sale of  power, but to be regulated in                                                               
generation  and  transmission  assets  only;  he  felt  this  was                                                               
appropriate  because the  resulting  contracts  would be  between                                                               
willing  sellers and  willing buyers,  and contract  law provides                                                               
for adjudicating  contract disputes  in superior  court.   He did                                                               
not feel that these contracts  required regulation.  He explained                                                               
that this  bill would remove  the "regulatory burden off  of this                                                               
fledgling entity  that we're  creating."   He told  the committee                                                               
the burden consists of having  to hire attorneys and build cases;                                                               
these activities  are expensive and time  consuming, and wouldn't                                                               
allow the JAA to be financially flexible.                                                                                       
                                                                                                                                
MR. GRIFFITH referred to his own  rate case that Vice Chair Gatto                                                               
had brought up, and commented  that it cost Railbelt customers in                                                               
the  neighborhood  of  $5  million.    He  said  this  money  was                                                               
"absolutely  nonproductive" and  that he  didn't think  wholesale                                                               
contracts  ought to  be saddled  with  regulation.   He said  the                                                               
underpinning  of Alaska's  economy is  the electrical  system and                                                               
that the  financing needed  lack of regulation.   He  pointed out                                                               
that the courts are there to handle disputes.                                                                                   
                                                                                                                                
Number 0087                                                                                                                     
                                                                                                                                
CHAIR ANDERSON  remarked that  there'd be  debate because  of the                                                               
many people involved  in this process.  He had  two questions, he                                                               
noted, and  said, "One was the  idea that, do you  really need to                                                               
make this  a statute, do you  really need to codify  this at this                                                               
time?  Can't you already accomplish this without codification?"                                                                 
                                                                                                                                
MR. GRIFFITH replied  that they could create a  JAA today without                                                               
codification.  He wasn't sure whether it would be regulated.                                                                    
                                                                                                                                
TAPE 04-21, SIDE A                                                                                                            
Number 0040                                                                                                                     
                                                                                                                                
CHAIR ANDERSON  asked whether,  without regulation,  the consumer                                                               
would be hurt.                                                                                                                  
                                                                                                                                
MR.  GRIFFITH responded  that this  wouldn't  happen because  his                                                               
group wouldn't use poor business practices.   He said they have a                                                               
very  low  margin  and  would be  wholly  owned  subsidiaries  of                                                               
publicly  owned  and publicly  governed  entities.   He  said  he                                                               
couldn't imagine the  boards of the utilities that  would own the                                                               
JAA, or  the assembly of  the municipality, allowing  somebody to                                                               
go out and gouge its own members.                                                                                               
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked if  Chugach Electric  is currently                                                               
regulated for wholesale sales of power.                                                                                         
                                                                                                                                
MR. GRIFFITH  replied yes, by  virtue of the  wholesale contracts                                                               
it has, because it has required that in the contracts.                                                                          
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked if  it  is  regulated by  RCA  by                                                               
contract or statute.                                                                                                            
                                                                                                                                
MR. GRIFFITH  replied that  it is regulated  by RCA  by contract,                                                               
but he  believes the  statutes were  unclear about  regulation on                                                               
the wholesale sale of power.                                                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked if  most utilities in  the country                                                               
are privately held.                                                                                                             
                                                                                                                                
MR.  GRIFFITH said  most of  the power  in the  U.S. is  owned by                                                               
publicly held corporations owned by  investors, and many of those                                                               
are regulated.                                                                                                                  
                                                                                                                                
Number 0224                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked  for clarification  on  wholesale                                                               
sales regulation.                                                                                                               
                                                                                                                                
MR. GRIFFITH responded, "In the  main, it is unregulated and sold                                                               
on almost  a spot-market basis  over several large  power pools."                                                               
He  added, "The  United  States is  fairly  well wired  together,                                                               
except for Alaska."                                                                                                             
                                                                                                                                
REPRESENTATIVE ROKEBERG  said this  legislation would  allow them                                                               
to  set up  a JAA  and exempt  them from  regulation, but  he was                                                               
unclear as to the intent of the legislation.                                                                                    
                                                                                                                                
Number 0320                                                                                                                     
                                                                                                                                
JIM   POSEY,  General   Manager,  Municipal   Light  and   Power,                                                               
Anchorage, testified in  support of HB 453,  saying the intention                                                               
of HB 453 is to deregulate.                                                                                                     
                                                                                                                                
MR. GRIFFITH  said it was  their intention  to create a  JAA, and                                                               
they could  do this under  existing statute, but  were suggesting                                                               
it would  be a better  business proposition to be  unregulated by                                                               
the RCA.   He said they would become the  unified system operator                                                               
referred  to in  the energy  task force  report.   He added  they                                                               
would  participate in  joint upgrading  projects  and new  power-                                                               
generation facilities.                                                                                                          
                                                                                                                                
Number 0393                                                                                                                     
                                                                                                                                
VICE CHAIR GATTO said:                                                                                                          
                                                                                                                                
     You  mentioned a  willing buyer  and a  willing seller.                                                                    
     Imagine ...  that we  were living  in a  Bush community                                                                    
     and  had one  store.   We  would still  have a  willing                                                                    
     buyer  and a  willing seller,  but the  store certainly                                                                    
     would still have the ability  to make ... virtually any                                                                    
     price. ...   They would certainly be able  to raise the                                                                    
     price easily, wouldn't it?                                                                                                 
                                                                                                                                
MR.  GRIFFITH  replied that  since  they  were unregulated,  they                                                               
could set any price they chose.                                                                                                 
                                                                                                                                
Number 0455                                                                                                                     
                                                                                                                                
VICE CHAIR GATTO stated:                                                                                                        
                                                                                                                                
     I  guess  that's what  troubles  me  about whenever  we                                                                    
     establish  a utility.   We  really need  to maintain  a                                                                    
     regulatory authority over  a utility.  Of  course, as I                                                                    
     mentioned  earlier,   my  concern  is  to   remove  the                                                                    
     regulatory ...  authority and  yet leave the utility in                                                                    
     place  to establish,  conceivably,  it's own  wholesale                                                                    
     power rates.                                                                                                               
                                                                                                                                
     So,  let me  go  to another  thought.  ... If,  indeed,                                                                    
     we've  looked at  future power  costs, would  they then                                                                    
     still  be  controlled  or somehow  maintained  by  some                                                                    
     regulatory  authority  when  these  existing  contracts                                                                    
     expired?                                                                                                                   
                                                                                                                                
MR.  GRIFFITH answered  that if  the JAA  makes the  contract and                                                               
this legislation is approved, then the answer is yes, post-2014.                                                                
                                                                                                                                
Number 0546                                                                                                                     
                                                                                                                                
TUCKERMAN BABCOCK,  Manager of Government and  Strategic Affairs,                                                               
Matanuska Electric Association (MEA),  testified that MEA opposes                                                               
this  bill, sees  no reason  to amend  the existing  statute, and                                                               
believes it  provides for the creation  of a JAA.   He commented,                                                               
"The three utilities on line today  that are intending to do that                                                               
are  perfectly  welcome  to do  so.    They  do  not need  to  be                                                               
deregulated  from   the  State  of  Alaska   and  the  regulatory                                                               
commission in order  to accomplish that goal."   He asserted that                                                               
it was  a misrepresentation  of the energy  task force  report to                                                               
claim that these three utilities,  acting together to form a JAA,                                                               
somehow  would  realize  the   recommendations  of  that  report.                                                               
Urging the  committee to read  the report, he explained  that the                                                               
task  force  recommended  a  unified   system  operator,  not  an                                                               
unregulated JAA.                                                                                                                
                                                                                                                                
MR.  BABCOCK said  MEA is  concerned  because it  is the  biggest                                                               
consumer  in the  Railbelt and  has an  all-requirements contract                                                               
with Chugach Electric that expires in  2014.  He said he believes                                                               
MEA's perspective  is really  that of a  consumer, as  opposed to                                                               
looking  for  a way  to  maximize  investment on  generation  and                                                               
transmission.   Thus MEA doesn't  see value in  the legislature's                                                               
taking  this special  step to  exempt this  JAA from  regulation.                                                               
Each of  these utilities,  under current state  law, could  go to                                                               
its  own  members today  and  request  permission to  deregulate.                                                               
However,   he   suggested,   they've  chosen   to   support   the                                                               
"legislative end-run around their own member owners."                                                                           
                                                                                                                                
MR. BABCOCK  said he didn't feel  this action boded well  for the                                                               
consumer;  even   if  the  committee   wished  to   analyze  this                                                               
legislation,  anything  of  this significance  should  take  more                                                               
consideration and  caution before making  such a major  change to                                                               
how the  utilities in the  Railbelt are regulated.   He mentioned                                                               
the need for the committee to  make sure consumers and the member                                                               
owners of these cooperatives are protected.                                                                                     
                                                                                                                                
Number 0723                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GUTTENBERG noted  that  a JAA's  members are  the                                                               
utility  companies  members,  so  why  would  their  members  not                                                               
automatically vote to deregulate themselves?                                                                                    
                                                                                                                                
MR. BABCOCK replied:                                                                                                            
                                                                                                                                
     The  various utilities  that want  to create  the joint                                                                    
     action    agency    themselves   become    economically                                                                    
     deregulated.   Once  the membership  has  done that,  I                                                                    
     think  you would  be more  secure as  a legislature  in                                                                    
     agreeing to  amend the joint  action agency  statute to                                                                    
     have  the joint  action agency  itself be  unregulated.                                                                    
     But  at  this  point  what  you  have  before  you  are                                                                    
     monopoly utilities  looking for a way  to [have] aspect                                                                    
     of  their business  to be  unregulated by  the consumer                                                                    
     protection agency.   And that makes  Matanuska Electric                                                                    
     very nervous.                                                                                                              
                                                                                                                                
Number 0785                                                                                                                     
                                                                                                                                
VICE CHAIR GATTO  said MEA is a major wholesale  purchaser and is                                                               
at the receiving end of contracts.   He referred to a letter from                                                               
the RCA  and asked that  it be read into  the record.   It stated                                                               
[original punctuation provided]:                                                                                                
                                                                                                                                
     The  Regulatory  Commission  of Alaska  is  opposed  to                                                                    
     HB 453.    This  legislation  holds  the  potential  to                                                                    
     exempt  from regulatory  oversight most  new electrical                                                                    
     generation in the  Railbelt in future years.   The only                                                                    
     effect of  HB 453 is  to provide an exemption  from all                                                                    
     forms of  regulatory oversight - this  legislation does                                                                    
     nothing to  otherwise enhance the functioning  of joint                                                                    
     action agencies  or define their operations.   From the                                                                    
     perspective of the RCA, HB  453 provides no tangible or                                                                    
     measurable benefits  to the  consuming public  while at                                                                    
     the  same time  creates significant  potential for  the                                                                    
     abuse  of  monopoly  power in  Alaska's  most  capital-                                                                    
     intensive industry.                                                                                                        
                                                                                                                                
     The principal  joint action agency under  Alaska law is                                                                    
     the  entity  created  to  manage  the  "four-dam  pool"                                                                    
     assets   which    were   built   with    direct   state                                                                    
     appropriations  in   the  1980's.    This   agency  has                                                                    
     functioned reasonably well, but  this has been the case                                                                    
     because of  the unique  circumstances which  caused its                                                                    
     formation.  Underpinning the  formation of the four-dam                                                                    
     pool joint action  agency was the fact that  all of the                                                                    
     assets which were and are  subject to agency management                                                                    
     were  already  constructed  and  that  agreements  were                                                                    
     already  in   place  for  the  purchase   and  sale  of                                                                    
     wholesale power  from those projects.   In summary, the                                                                    
     State, with  heavy Legislative  involvement, determined                                                                    
     that  these  investments   were  appropriate  and  that                                                                    
     management under  the joint  action agency  concept was                                                                    
     the preferred  course for  the administration  of these                                                                    
     facilities.   AS  42.05.431(c) grants  an exemption  to                                                                    
     the  four-dam pool  agency  from  RCA jurisdiction  but                                                                    
     that exemption is of limited duration.                                                                                     
                                                                                                                                
     In  stark contrast,  the exemption  proposed in  HB 453                                                                    
     would extend to  an unknown number of  new joint action                                                                    
     agencies  for an  undefined  number  of projects  which                                                                    
     have  not yet  been planned,  constructed, financed  or                                                                    
     operated.     Further,  the   exemption  would   be  of                                                                    
     unlimited duration.                                                                                                        
                                                                                                                                
     If  exempt   from  RCA  jurisdiction,   new  electrical                                                                    
     generation  facilities  in   the  Railbelt  constructed                                                                    
     under  the auspices  of one  or more  new joint  action                                                                    
     agencies  would  not  be  subject  to  ANY  independent                                                                    
     review as to  (1) their necessity or  prudence; (2) the                                                                    
     reasonableness of their operating  expenses; or (3) the                                                                    
     rates  to  be charged  for  power  produced from  these                                                                    
     facilities.   The  RCA believes  that a  grant of  such                                                                    
     sweeping authority  would be unprecedented  in Alaska's                                                                    
     history.                                                                                                                   
                                                                                                                                
     A   variety  of   problems  could   arise  under   this                                                                    
     legislation which  would be  very difficult  to correct                                                                    
     once  significant  resources  had been  invested  in  a                                                                    
     particular  project.   One area  lies in  the scope  of                                                                    
     projects which  might be undertaken.   For example, the                                                                    
     potential  exists  that  a  self-governed,  unregulated                                                                    
     joint action agency could  determine that the provision                                                                    
     of generation or  transmission facilities might include                                                                    
     the   construction  of   extensive  private   roadways,                                                                    
     pipelines,   or  even   railroads.     No   independent                                                                    
     mechanism  would  exist  to control  or  question  such                                                                    
     decisions  or   investments.    Similarly,   no  direct                                                                    
     mechanism  would  exist  to  control  or  question  the                                                                    
     sizing  of proposed  plant  investments  or their  fuel                                                                    
     sources.                                                                                                                   
                                                                                                                                
     In the  arena of operations and  maintenance, no agency                                                                    
     could   review  the   reasonableness  or   prudence  of                                                                    
     expenses of  joint action agency  facilities.   Any and                                                                    
     all expenses  would be included in  the wholesale rates                                                                    
     to be  charged to power  distributors on a "take  it or                                                                    
     leave it" basis.                                                                                                           
                                                                                                                                
     The  Legislature  should  understand that  while  joint                                                                    
     action agencies  are identified in the  final report of                                                                    
     the Energy  Policy Task Force  as a method  for unified                                                                    
     system  operation,  the  Task  Force  Report  does  not                                                                    
     mention or endorse the exemption  of such agencies from                                                                    
     RCA regulation.  The RCA  agrees with the Energy Policy                                                                    
     Task Force  recommendations that joint  action agencies                                                                    
     can play  a useful role in  the planning, construction,                                                                    
     and  operation  of   new  generation  and  transmission                                                                    
     facilities.  In  the view of the  RCA, constructive use                                                                    
     of  the  joint  action   agency  concept  must  include                                                                    
     statutory provisions  as to the scope,  governance, and                                                                    
     operation of such agencies.   The complete exemption of                                                                    
     such agencies from RCA jurisdiction  does not solve any                                                                    
     identifiable  problem  except   to  satisfy  a  general                                                                    
     desire for the lessening of regulatory burdens.                                                                            
                                                                                                                                
     The   Legislature  should   understand  that   regional                                                                    
     interests of  one utility  could induce  generation and                                                                    
     transmission  decisions which,  while favorable  to one                                                                    
     utility, are not  in the overall public  interest.  The                                                                    
     State    needs   to    retain   oversight    of   major                                                                    
     infrastructure  decisions,   and  continued  ratemaking                                                                    
     jurisdiction.     Decisions  on   major  infrastructure                                                                    
     projects are  best reviewed  either by  the Legislature                                                                    
     or  through  an agency  charged  with  siting and  cost                                                                    
     analysis that embraces  the Railbelt as a  whole.  This                                                                    
     will ensure major infrastructure  decisions are made in                                                                    
     the public interest.                                                                                                       
                                                                                                                                
     Multiple  and serious  costs  to  the consuming  public                                                                    
     would  arise from  the  blanket  exemption proposed  in                                                                    
     HB 453.    HB   453  should  not  be   enacted  by  the                                                                    
     Legislature.                                                                                                               
                                                                                                                                
CHAIR ANDERSON surmised that regulatory  agencies would always be                                                               
opposed to deregulation.                                                                                                        
                                                                                                                                
Number 0844                                                                                                                     
                                                                                                                                
MR. BABCOCK pointed  out that any utility or JAA  that invests in                                                               
generation and transmission  is going to get  a guaranteed return                                                               
in its  rates that  it's able  to charge by  the commission.   He                                                               
offered that  the debate that  MEA, Homer [Electric],  and others                                                               
had with Chugach Electric before  the [RCA] on Chugach Electric's                                                               
latest  rate case  was  the amount  Chugach  Electric thought  it                                                               
needed to  increase rates for  retail and for wholesale,  and the                                                               
amount the RCA,  after a few years of analysis,  determined to be                                                               
actually reasonable rates.                                                                                                      
                                                                                                                                
MR.  BABCOCK  said,  in  fact,  the  commission  granted  a  rate                                                               
increase  for Chugach  Electric's retail  consumers, although  it                                                               
was  smaller than  the rate  Chugach  Electric had  wanted.   The                                                               
commission approved a rate decrease  for the wholesale customers.                                                               
He suggested that regulation is  the procedure that best protects                                                               
the  consumers in  Alaska,  and  he urged  the  committee not  to                                                               
change it.                                                                                                                      
                                                                                                                                
Number 0895                                                                                                                     
                                                                                                                                
CHAIR ANDERSON asked  for Mr. Babcock's reaction  to Alaska Power                                                               
Association's support of HB 453.                                                                                                
                                                                                                                                
MR. BABCOCK replied that he  was not surprised that most monopoly                                                               
utilities would  like to be deregulated.   He said Mr.  Yould [of                                                               
Alaska Power Association] represented  an association of monopoly                                                               
utilities.   He related  that if  MEA were  a big  generation and                                                               
transmission utility, it would probably  be here as well, saying,                                                               
"Hey,  great, deregulate  us.   We'd love  to set  our own  rates                                                               
without  any  public scrutiny."    He  characterized MEA  as  the                                                               
biggest consumer in the Railbelt  and said that's the perspective                                                               
he brought to bear.                                                                                                             
                                                                                                                                
Number 0982                                                                                                                     
                                                                                                                                
MR. POSEY of  ML&P spoke again in  support of HB 453.   He said a                                                               
year ago  he became aware that  the state was looking  for money,                                                               
and thought they should have  a conversation about what the state                                                               
was going to  do with energy assets.  He  suggested the "Railbelt                                                               
folks" should  be ready and  should look for  a tool in  order to                                                               
accept  assets  such as  the  Alaska  Intertie and  Bradley  Lake                                                               
[projects], if  there is a  decision to do that,  "because taking                                                               
care of these  assets takes ownership in order  to invest money."                                                               
He continued:                                                                                                                   
                                                                                                                                
     If  the state  wasn't going  to be  putting money  back                                                                    
     into  infrastructure development,  we  -  that is,  the                                                                    
     Railbelt utility folks - had to  be able to have a tool                                                                    
     to  acquire the  assets and  go  out to  the market  in                                                                    
     order to repair and/or expand these group of assets.                                                                       
                                                                                                                                
     That is the total purpose.   We are also looking at the                                                                    
     Railbelt energy  study and the  task force  report that                                                                    
     says how  much investment has  to happen over  the next                                                                    
     10 to 15 years.  Once  again, we need a vehicle because                                                                    
     all  of us  together make  one medium-sized  utility in                                                                    
     the Lower 48.  So if  we can't band together to do some                                                                    
     of these things,  it would be very difficult  for it to                                                                    
     happen  at all.    That dictates  what  happens to  our                                                                    
     economy in the state of Alaska.                                                                                            
                                                                                                                                
     We're not  seeking to deregulate our  distribution, and                                                                    
     Mr.   Tuckerman  said   we  can   go  and   invoke  the                                                                    
     membership, but once  you go for that, ...  all of it's                                                                    
     deregulated,  not  just  the wholesale.    AEA  [Alaska                                                                    
     Energy Authority] and AIDEA are  not regulated for what                                                                    
     they do;  they're basic assets.   We're trying  to walk                                                                    
     into their  shoes in  order to do  the same  thing that                                                                    
     they can  do, if the state  is not going to  make major                                                                    
     investments  into infrastructure.    That's the  total,                                                                    
     real reason we're  here today.  And that  answer is, we                                                                    
     would  like to  help ourselves  with that  toolbox, and                                                                    
     this piece would help us get that done.                                                                                    
                                                                                                                                
Number 1094                                                                                                                     
                                                                                                                                
CHAIR ANDERSON asked Mr. Posey how he would respond to the fear                                                                 
that the consumer would pay the price in a monopolistic arena.                                                                  
                                                                                                                                
MR. POSEY replied:                                                                                                              
                                                                                                                                
     You  heard  Tom Lovas  basically  say  that that's  for                                                                    
     sales between  themselves and the  use of  those assets                                                                    
     to  provide   for  themselves.    It's   basically  not                                                                    
     regulated.  For  us, those things that  we're trying to                                                                    
     do, the  assets that we  use, for ourselves  and anyone                                                                    
     who wanted  to contract with  us, to do the  same thing                                                                    
     for  a relative  same  price that  we charge  ourselves                                                                    
     would fall into that same group.                                                                                           
                                                                                                                                
     Or they can  join the joint action agency  and ... join                                                                    
     the larger  group to  do these things  that have  to be                                                                    
     done for  the future  investments in our utilities - no                                                                    
     more, no  less.   If you  want to  deal with  the joint                                                                    
     action agency,  you can  join or you  can buy  from it.                                                                    
     But  for our  own purposes,  we represent  ... over  80                                                                    
     some  percent,   90  percent   of  production   of  the                                                                    
     electricity  in the  Railbelt, and  a large  portion of                                                                    
     the interests.  Current  contracts [are] not covered by                                                                    
     this at  all.  In  fact, I  think MEA is  interested in                                                                    
     building their  own generation  after the  4/2014 date.                                                                    
     They don't have  to be unless they want  to build their                                                                    
     generation as part of the joint action agency.                                                                             
                                                                                                                                
Number 1211                                                                                                                     
                                                                                                                                
VICE CHAIR GATTO said:                                                                                                          
                                                                                                                                
     It just  reminds me of something:   as a kid  in a gang                                                                    
     they  said, "You're  either with  me or  you're against                                                                    
     me."  What you're saying  sounds awful similar to that,                                                                    
     that  you can  tell MEA,  "They can  join us  or you're                                                                    
     against us."  I don't  think that's a fair appraisal of                                                                    
     MEA's position.  Their position  is ... to supply power                                                                    
     at  the  lowest  possible penny  per  kilowatt-hour  to                                                                    
     their  consumers.   And  they  do  that essentially  by                                                                    
     buying from  someone else  and reselling  it.   They do                                                                    
     the distribution  costs, but,  I think, ...  about half                                                                    
     their cost is  the purchase of power.   So the purchase                                                                    
     price of  their kilowatt  has an enormous  influence on                                                                    
     the  rates  that  the  customers pay.    Now,  ...  you                                                                    
     wouldn't  characterize  the  RCA as  being  opposed  to                                                                    
     modernization, would you?                                                                                                  
                                                                                                                                
MR. POSEY responded:                                                                                                            
                                                                                                                                
     The various  interests here are interested  in reducing                                                                    
     the total costs of  future generation and transmission.                                                                    
     And we  can only do that  if we band together  in order                                                                    
     to make these investments.   Anyone else who would like                                                                    
     to do  that is  free to do  it.  MEA  has asked  me, if                                                                    
     they build  new generation,  will I  buy from  them ...                                                                    
     because  they know  they  have to  build  to a  certain                                                                    
     size.    You  read  the  task  force  report;  it  says                                                                    
     generation of this size should be built as a group.                                                                        
                                                                                                                                
     It's  not  a gang.    It's  the recommendation  of  the                                                                    
     various task  force that say, "Where  are these areas?"                                                                    
     Fairbanks,  and for  the borough  and the  valley, they                                                                    
     need to act  together as one group in order  to do it -                                                                    
     not as  a gang, but need  to band together to  do these                                                                    
     investments, just because  of the total cost.   And you                                                                    
     don't  want  to  overbuild   nor  underbuild  for  that                                                                    
     future.   It's not one  gang against one person.   It's                                                                    
     following that  task force report,  that all of  us are                                                                    
     one medium-sized  utility in  the Lower  48.   And that                                                                    
     includes MEA.  And if we  don't work together, and I do                                                                    
     mean  work  together, we  can't  get  there, not  at  a                                                                    
     reasonable price for all the consumers.                                                                                    
                                                                                                                                
Number 1453                                                                                                                     
                                                                                                                                
MARK  JOHNSON,  Commissioner,  Regulatory Commission  of  Alaska,                                                               
Department  of Community  and Regional  Affairs, referred  to the                                                               
position paper he'd submitted [text  provided previously] and the                                                               
impact of  this bill related  to RCA  jurisdiction, specifically,                                                               
two sections affected  in AS 42.05.   He expressed disappointment                                                               
in this  legislation, saying the  commission believes there  is a                                                               
role for  JAAs in carrying  out identifiable needs in  the energy                                                               
task  force report,  but this  bill  doesn't address  any of  the                                                               
problems identified in  the report.  He said RCA  is against this                                                               
legislation  and  believes  it   represents  bad  public  policy.                                                               
[HB 453 was held over.]                                                                                                         
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Labor and  Commerce Standing Committee  meeting was  adjourned at                                                               
5:25 p.m.                                                                                                                       

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