04/11/2005 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB129 | |
| SB52 | |
| HB157 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 157 | TELECONFERENCED | |
| + | SB 129 | TELECONFERENCED | |
| + | SB 52 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
April 11, 2005
3:28 p.m.
MEMBERS PRESENT
Representative Tom Anderson, Chair
Representative Bob Lynn
Representative Harry Crawford
Representative David Guttenberg
Representative Norman Rokeberg
Representative Pete Kott
MEMBERS ABSENT
Representative Gabrielle LeDoux
COMMITTEE CALENDAR
SENATE BILL NO. 129
"An Act relating to the wrongful recording of a notice of
pendency of an action relating to title to or right to
possession of real property."
- MOVED CSSB 129(JUD) OUT OF COMMITTEE
SENATE BILL NO. 52
"An Act relating to the reorganization of certain functions of
the division of banking, securities, and corporations and the
division of occupational licensing in the Department of
Commerce, Community, and Economic Development; and providing for
an effective date."
- MOVED CSSB 52(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 157
"An Act relating to the powers of electric or telephone
cooperatives."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 129
SHORT TITLE: WRONGFUL FILING OF LIS PENDENS
SPONSOR(S): SENATOR(S) HUGGINS
03/03/05 (S) READ THE FIRST TIME - REFERRALS
03/03/05 (S) JUD
03/23/05 (S) JUD AT 8:30 AM BUTROVICH 205
03/23/05 (S) Moved CSSB 129(JUD) Out of Committee
03/23/05 (S) MINUTE(JUD)
03/24/05 (S) JUD RPT CS 3DP 2NR SAME TITLE
03/24/05 (S) DP: SEEKINS, THERRIAULT, HUGGINS
03/24/05 (S) NR: FRENCH, GUESS
03/31/05 (S) TRANSMITTED TO (H)
03/31/05 (S) VERSION: CSSB 129(JUD)
04/01/05 (H) READ THE FIRST TIME - REFERRALS
04/01/05 (H) L&C, JUD
04/11/05 (H) L&C AT 3:15 PM CAPITOL 17
BILL: SB 52
SHORT TITLE: OCCUPATIONS/CORPORATIONS/BANKS/SECURITIES
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
01/12/05 (S) READ THE FIRST TIME - REFERRALS
01/12/05 (S) L&C
02/01/05 (S) L&C AT 1:30 PM BELTZ 211
02/01/05 (S) -- Meeting Rescheduled to 02/08/05 --
02/08/05 (S) L&C AT 1:30 PM BELTZ 211
02/08/05 (S) Moved CSSB 52(L&C) Out of Committee
02/08/05 (S) MINUTE(L&C)
02/15/05 (S) L&C AT 1:30 PM BELTZ 211
02/15/05 (S) Moved CSSB 52(L&C) Out of Committee
02/15/05 (S) MINUTE(L&C)
02/16/05 (S) L&C RPT CS 2DP 1NR
NEW TITLE
02/16/05 (S) DP: BUNDE, SEEKINS
02/16/05 (S) NR: ELLIS
03/03/05 (S) TRANSMITTED TO (H)
03/03/05 (S) VERSION: CSSB 52(L&C)
03/04/05 (H) READ THE FIRST TIME - REFERRALS
03/04/05 (H) EDT, L&C
03/22/05 (H) EDT AT 5:00 PM CAPITOL 124
03/22/05 (H) -- Meeting Canceled --
04/05/05 (H) EDT AT 5:00 PM CAPITOL 124
04/05/05 (H) Moved CSSB 52(L&C) Out of Committee
04/05/05 (H) MINUTE(EDT)
04/06/05 (H) EDT RPT 3DP 3NR
04/06/05 (H) DP: COGHILL, CRAWFORD, DAHLSTROM;
04/06/05 (H) NR: LYNN, RAMRAS, NEUMAN
04/11/05 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 157
SHORT TITLE: ELEC/PHONE COOP & OTHER ENTITIES
SPONSOR(S): REPRESENTATIVE(S) ANDERSON
02/18/05 (H) READ THE FIRST TIME - REFERRALS
02/18/05 (H) CRA, L&C
02/28/05 (H) SPONSOR SUBSTITUTE INTRODUCED
02/28/05 (H) READ THE FIRST TIME - REFERRALS
02/28/05 (H) CRA, L&C
03/22/05 (H) CRA AT 8:00 AM CAPITOL 124
03/22/05 (H) <Bill Hearing Canceled>
03/31/05 (H) CRA AT 8:00 AM CAPITOL 124
03/31/05 (H) Moved CSSSHB 157(CRA) Out of Committee
03/31/05 (H) MINUTE(CRA)
04/05/05 (H) CRA RPT CS(CRA) NT 3DP 1NR
04/05/05 (H) DP: SALMON, THOMAS, OLSON;
04/05/05 (H) NR: LEDOUX
04/11/05 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
DEBORAH GRUNDMANN, Staff
to Senator Charlie Huggins
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented SB 129 on behalf of Senator
Huggins, sponsor.
RUTH HAMILTON HEESE, Assistant Attorney General
Environmental Section
Civil Division
Department of Law
POSITION STATEMENT: Answered questions regarding SB 129.
MIKE FLEAGLE, Chairman
Board of Game
Alaska Department of Fish & Game (ADF&G)
POSITION STATEMENT: Provided background information on SB 129.
RICK URION, Director
Division of Occupational Licensing
Department of Commerce, Community, & Economic Development
(DCCED)
Juneau, Alaska
POSITION STATEMENT: Presented CSSB 52(L&C) to the committee.
JON BITTNER, Staff
to Representative Anderson
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 157 on behalf of
Representative Anderson, sponsor.
ERIC YOULD, Executive Director
Alaska Power Association (APA)
Juneau, Alaska
POSITION STATEMENT: Testifed in support of HB 157 and answered
questions regarding the bill.
ROBERT BAUMGARTNER, President
Bristol Alliance Fuels (BAL)
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 157.
JODI MITCHELL, Chief Financial Officer
Inside Passage Electric Cooperative (IPEC)
Auke Bay, Alaska
POSITION STATEMENT: Commented on HB 157 and answered questions
from the committee.
BRYAN BOGEN, President
Delta Western
[Address not provided]
POSITION STATEMENT: Testified in opposition to HB 157 in
current form.
RICHARD GEORGE
Angoon, Alaska
POSITION STATEMENT: Testified in support of HB 157.
MARK HICKEY, Lobbyist
Petro Marine Services
Juneau, Alaska
POSITION STATEMENT: Provided criticism to HB 157.
DEAN THOMPSON, Attorney
Alaska Power Association
[Address not provided]
POSITION STATEMENT: Testifed in support of HB 157.
BRUCE BARTO
Crowley Marine Services
[Address not provided]
POSITION STATEMENT: Testified in opposition to HB 157.
BRAD REEVE, General Manager
Kotzebue Electric Association
[Address not provided]
POSITION STATEMENT: Testified in support of HB 157.
DONNA VUKICH, General Manager
Naknek Electric Association
[Address not provided]
POSITION STATEMENT: Testified in support of HB 157.
BUELL RUSSELL, Utility Financial Analyst
Regulatory Commission of Alaska (RCA)
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding HB 157.
MARK SMITH, President
Yukon Fuel Company
[Address not provided]
POSITION STATEMENT: Testified in opposition to HB 157.
THOMAS BOLEN, Public Services Director
Northwest Arctic Borough (NWAB)
Kotzebue, Alaska
POSITION STATEMENT: Testified in support of HB 157.
ACTION NARRATIVE
CHAIR TOM ANDERSON called the House Labor and Commerce Standing
Committee meeting to order at 3:28:48 PM. Representatives
Anderson, Lynn, Crawford, and Guttenberg were present at the
call to order. Representatives Kott and Rokeberg arrived as the
meeting was in progress.
SB 129-WRONGFUL FILING OF LIS PENDENS
CHAIR ANDERSON announced that the first order of business would
be CS FOR SENATE BILL NO. 129(JUD), "An Act relating to the
wrongful recording of a notice of pendency of an action relating
to title to or right to possession of real property."
DEBORAH GRUNDMANN, Staff to Senator Charlie Huggins, Alaska
State Legislature, presented the CSSB 129(JUD) on behalf of
Senator Huggins, sponsor. She explained that the bill is an act
related to the wrongful recording of a notice of pendancy of an
action relating to title to or right to possession of real
property. She continued:
Senate Bill 129 discourages abusive filings of illegal
lis pendens notices and, in fact, makes it a class A
misdemeanor to file a wrongful notice of a lis
pendens. While the filing does not create a formal
lien, such a notice can have an impact similar to that
of a lien on the ability of the targeted person to do
business with the affected real estate.
MS. GRUNDMANN continued:
Senate Bill 129 responds to instances to nuisance
filings used as a form of retribution against public
officials. Current laws clear that lis pendens are
only supposed to be filed against property for which
the title or right to possession is subject to
litigation. But the recorder's office currently has
no way to prevent people from filing improper lis
pendens. Ordinarily the improper filing is against
property that is not subject to dispute, however, the
filing is made simply because the filer has a
grievance against the owner or someone connected with
the owner. There's an example: in 2003, a former
state employee filed a lis pendens targeting the home,
development property, mining claims of members of
Alaska Board of Game, an assistant attorney general,
and a real estate developer. None of the properties
were actually the subject of a title or possession
dispute, but the case took months and thousands of
dollars in attorney time to resolve.
REPRESENTATIVE LYNN asked how many lis pendens abuses there have
been.
3:31:32 PM
RUTH HAMILTON HEESE, Assistant Attorney General, Environmental
Section, Civil Division, Department of Law, stated that there
have been two instances that have been high profile. She
commented, "Whether they have occurred elsewhere, we're not
really knowledgeable at this moment because oftentimes you don't
know that a lis pendens has been filed on your real property
until you go to do something with the real property."
CHAIR ANDERSON noted that he has filed many lis pendens when he
worked for a law firm, and many of them were either in
commercial transaction or divorce proceedings. He asked that
Ms. Hamilton Heese to explain lis pendens for the committee.
MS. HAMILTON HEESE explained that lis pendens is a pending
lawsuit, or in other words, "a notice filed on public records
with the purpose of warning all persons who are interested in
the property that the title to certain property is in litigation
and that they are in danger of being bound by an adverse
judgment." She reiterated that this bill makes it a class A
misdemeanor to file a wrongful notice of a lis pendens;
therefore an individual would be subject up to a $10,000 fine,
or up to a year in prison. An organization that frivolously
files a lis pendens would be subject to a $200,000 fine.
3:34:00 PM
REPRESENTATIVE GUTTENBERG asked if [a person could file a lis
pendens against any other person, regardless of whether the
second person works for the state or other government].
MS. HAMILTON HEESE replied that the bill does have a broader
application and could be for people outside of the realm of the
public decision process. She continued: "If something like this
happens, that the land isn't at issue, that person could take
advantage of this law. But this ... amendment to the existing
law is being spurred by the very situation that we are here
discussing with you."
3:34:55 PM
REPRESENTATIVE GUTTENBERG asked for further clarification if the
motivation behind the bill was the previously mentioned action
against the Board of Game.
MS. HAMILTON HEESE replied affirmatively, and added that the
"experience behind the 1998 law being passed" was also a
motivating factor.
REPRESENTATIVE GUTTENBERG asked what kind of penalty would there
be for "people that have already done this" before the bill
passes.
MS. HAMILTON HEESE responded that she did not know.
3:36:07 PM
REPRESENTATIVE ROKEBERG asked why the current legislation
doesn't apply to the case used in the example.
MS. HAMILTON HEESE explained that the 1998 law dealt with names
against property, and she said, "This is a different animal, a
different type of document."
REPRESENTATIVE ROKEBERG commented, "So it's the way the statute
was drafted."
MS. HAMILTON HEESE agreed.
3:37:06 PM
MIKE FLEAGLE, Chairman, Board of Game, Alaska Department of Fish
& Game (ADF&G), stated that he was a member of the Board of Game
when the previously mentioned lawsuit was filed against the
board. He clarified that the lawsuit was not only directed
against ADF&G and the board, but also against specific board
members. He said that some of his colleagues on the board had
some pretty major problems trying to straighten it out. He
pointed out that Board of Game members serve in a voluntary
capacity, although they do receive a daily honorarium. He
expressed concern that members could be personally filed against
for actions that they take as officials of the state; this makes
it difficult to find members willing to serve. He offered his
belief that this bill would alleviate some of those concerns.
3:41:04 PM
REPRESENTATIVE GUTTENBERG asked for the definition of the term
"reckless disregard."
MS. HAMILTON HEESE replied that it is a standard term and refers
to "knowingly doing something that probably is not quite right."
CHAIR ANDERSON closed public testimony.
3:42:09 PM
REPRESENTATIVE LYNN moved to report CSSB 129(JUD) out of
committee with individual recommendations and the accompanying
fiscal notes. There being no objection, CSSB 129(JUD) was
reported from the House Labor and Commerce Standing Committee.
SB 52-OCCUPATIONS/CORPORATIONS/BANKS/SECURITIES
CHAIR ANDERSON announced that the next order of business would
be CS FOR SENATE BILL NO. 52(L&C), "An Act relating to certain
functions of the division of banking, securities, and
corporations and the division of occupational licensing in the
Department of Commerce, Community, and Economic Development;
relating to program receipts and record search fees of the
Department of Commerce, Community, and Economic Development
related to banking, securities, and corporations; and providing
for an effective date."
RICK URION, Director, Division of Occupational Licensing,
Department of Commerce, Community, & Economic Development
(DCCED), stated that with Administrative Order 219, the Division
of Banking, Securities, and Corporations functions will be moved
to the Division of Occupational Licensing. He indicated that
this was a great move since the two division have many common
issues. He started off stating that the bill before the
committee is a housekeeping bill and makes no substantive
changes to the law. He explained that CSSB 52(L&C) replaces all
references to specific divisions with the word "department".
Mr. Urion expressed the hope that with the passage of CSSB
52(L&C), the Division of Occupational Licensing will change its
name to more accurately reflect the inclusion of the Division of
Banking, Securities, and Corporations.
REPRESENTATIVE ROKEBERG asked if there will be any investigatory
efforts that will require the division to police its new
responsibility.
MR. URION answered that there would be no more policing than the
division already does. He explained that the creation of one
common databank will enable the division to do in-house
investigations.
REPRESENTATIVE GUTTENBERG asked if the department has
authorities that the division didn't have with regard to
enforcement and prosecution.
MR. URION asserted that the division would assume absolutely no
more authority than it has now. He reiterated that the
references to specific divisions in statute are being eliminated
and replaced with references to the "department".
REPRESENTATIVE ROKEBERG stated that one of the issues that he
knew about from the Division of Banking, Securities, and
Corporations were problems concerning oversight of Native
corporations with their elections of boards of directors. He
then asked if this responsibility now falls under the auspices
of the [Division of Occupational Licensing].
3:47:06 PM
MR. URION answered yes. In further response to Representative
Rokeberg, he specified that there are nine positions with three
vacancies.
3:47:44 PM
REPRESENTATIVE ROKEBERG asked if the division received personnel
after the passage of the executive order.
MR. URION answered that there are nine positions, with three
vacancies. He expressed the need for more staff.
REPRESENTATIVE ROKEBERG said that this was all being done by
executive order and that basically this was a name change. He
asked if, by doing this, [the legislature] is ratifying the
governor's executive order.
MR. URION stated that this is a "one stop business shop". He
highlighted the new departmental website, where one can take
care of many business-related tasks.
REPRESENTATIVE ROKEBERG reported that this was an administrative
order and not an executive order, and therefore the legislature
had no opportunity to accept or reject the change.
3:49:24 PM
CHAIR ANDERSON closed public testimony.
REPRESENTATIVE ROKEBERG moved to report CSSB 52(L&C) out of
committee with individual recommendations and the accompanying
fiscal notes. There being no objection, CSSB 52(L&C) was
reported from the House Labor and Commerce Standing Committee.
HB 157-ELEC/PHONE COOP & OTHER ENTITIES
3:50:22 PM
CHAIR ANDERSON announced that the next order of business would
be HOUSE BILL NO. 157, "An Act relating to the powers of
electric or telephone cooperatives."
JON BITTNER, Staff to Representative Anderson, Alaska State
Legislature, presented HB 157 on behalf of Representative
Anderson, sponsor. He explained:
[This bill] makes two basic changes to the Alaska
Electric and Telephone Cooperative Act, which is AS
10.25. Basically AS 10.25 grants the electric and
telephone cooperatives broad powers to conduct various
activities. Those powers include the ability to
become a member of other cooperatives or corporations
or own stock in them and to do and perform any other
act and thing, and have and exercise any other power
which may be necessary, convenient, or appropriate to
accomplish the purpose for which the cooperative is
organized.
[House Bill] 157 proposes to clarify AS 10.25.020 to
make clear that a cooperative utility may own an
interest in another entity that does not provide
electric utility services. This particular change was
made because of recent court decisions in Georgia,
Mississippi, and Texas, which have called into
question a cooperative's ability to own subsidiary
corporations which don't directly deal with their
particular utility. There have been other court cases
in other states that have gone the other way. What
we're trying to do is help interpret Alaska's laws in
the off chance that there is a lawsuit in the future
that deals with this particular issue, to stay within
the intent of the statutory language.
MR. BITTNER continued:
The second change we make in HB 157 is the addition of
limited liability companies to the list of entities a
cooperative may become a member of. Limited liability
companies, or LLCs, are a relatively new type of
member owned legal entity which became popular after
these statutes were written. We're basically just
bringing the statutes up to speed....
CHAIR ANDERSON moved to adopt the committee substitute for SSHB
157, labeled 24-LS0562\X, as the working document. There being
no objection, Version X was before the committee.
3:53:05 PM
MR. BITTNER continued:
This is a CS we came up with working with the co-
chairman of the [House Community and Regional Affairs
Standing Committee (HCRA)], which was the previous
committee this bill was in, as well as the Department
of Revenue and the various parties for and against
what we have here. Basically we took out [paragraph
(9)] of the [HCRA] version, which stated that ... the
cooperative could only use fuel oil that was not
needed for electric generation. By putting that
particular language specifically under that section it
was felt that it ... granted too much authority to the
cooperatives outside of what we were trying to do.
CHAIR ANDERSON noted that Representative Kurt Olson, Alaska
State Legislature, had recommended this change.
MR. BITTNER explained that paragraph (9) was removed because the
cooperatives don't want the direct authority to sell heating oil
as a cooperative; they want to authority to own all or part of a
subsidiary corporation or entity that will sell this heating oil
or bulk fuel storage, not necessarily to do it as a cooperative,
which, he noted, raises certain other issues.
3:54:26 PM
ERIC YOULD, Executive Director, Alaska Power Association (APA),
noted that APA members generate roughly 90 percent of the
electricity in the State of Alaska. He stated:
My board of directors passed a resolution basically
saying Alaska's electric cooperatives ... are
increasingly receiving requests from members asked the
cooperative to become the full service energy supplier
in the community, supplying not only electricity but
also home heating oil and other forms of energy. ...
This particular bill, 157, the version which you have
before you today, which we also endorse, confirms
[cooperatives'] authority to own some or all of other
for-profits, nonprofits, or LLCs, and play by the same
rules of these entities in the conduct of their
business. If we do otherwise, we would lose our tax
exempt status. In other words, if we own or have
shares in any of these companies we would pay all due
taxes and play by the same rules as everybody else.
... Nonprofit organizations already the authority to
own for-profit, nonprofit, and LLCs. We're really
trying to get the same authority that even nonprofits
presently have. And basically that means that we're
going to play by the rules. ...
Examples of the kind of business that the
[cooperatives] would envision getting into would be
exporting their expertise in development of wind
power, Internet access in communities where there is
no access, providing management for other utilities
that perhaps don't have the capabilities of some of
the larger utilities, and we're doing this in some
occasions already, and even at the request of the
Denali Commission and others. And more recently we
have been asked by certain communities, at least two,
to get into the fuel distribution business. And once
again these are situations ... where the local
distributors are looking to get out of the business
and the communities are thinking that because the
[cooperatives] have a certain infrastructure in place
[and] expertise, that they could perhaps bring down
the cost of fuel in rural Alaska.
MR. YOULD remarked that it is not APA's objective to be
competing with the fuel industry, but when there's a need, the
cooperatives would like to have the option to step in. He
continued, "Basically we're trying to clarify that we can
develop subsidiaries to protect ourselves from the liability
that any other corporation would be wanting to protect
themselves from." He commented that the fuel industry has come
before the House Labor and Commerce Standing Committee to
suggest that because of tax breaks and grants, the cooperatives
would represent undo competition, and to point out that the
cooperatives get power cost equalization (PCE). He remarked
that the PCE program has been beneficial to the consumers in
rural Alaska, but it doesn't help the utility. He noted that
PCE also goes to investor-owned utilities. He continued:
It's suggested that the electric [cooperatives] will
get grants that are not available to the private
sector. As a matter of fact, grants, according to the
Denali Commission, shall be available to any entity,
whether it's a profit, nonprofit, cooperative,
investor-owned, whatever; they all have access to it.
MR. YOULD pointed out several instances in which investor-owned
utilities have received grants, and he noted that the private
sector receives certain tax breaks from the federal government.
4:02:10 PM
REPRESENTATIVE ROKEBERG asked how Mr. Yould would propose to
implement this law in an area where there currently are private
sector fuel distributors.
4:03:44 PM
MR. YOULD replied:
There's a lot of elements to this. Number one: ... by
law we cannot cross-subsidize; otherwise we will lose
our tax-exempt status. ... Number two: there's
probably, in most rural villages, not enough room for
the capital infrastructure that would support two
competing distributors. ... Number three: the Denali
Commission itself, if they are the major source of
grants, if you will, that would somehow give us an
unequal advantage, ... has a policy that says, "You
will not be issued a grant or a low-interest loan, or
anything else if it will be used to develop a business
that will be in competition with somebody that's
already in business." So unless we go out and get
market rate loans to start up such a subsidiary, which
would be a taxable entity in the first place, I don't
see how we'd have an advantage.
4:04:52 PM
MR. YOULD continued:
Number four: [cooperatives] are owned by those people
in the local community. They may come and ask the
[cooperative] to try and get into the business to
compete with somebody else, but once again, the board
of directors is going to look at it and if they can't
see a way to raise the capital and be competitive,
that's not going to happen. ... I think it's very
unlikely that you would actually find the
[cooperatives] in direct competition with certainly
the individuals that are presently in the business.
That's not to say that if significant gouging was
taking place, which is not the case, I don't believe,
that the community wouldn't approach the [cooperative[
with the idea of trying to force down the rates by
virtue of getting in the business, but that's a pretty
heavy handed way to drive down rates; it would cost an
awful lot of money.
4:06:27 PM
REPRESENTATIVE GUTTENBERG, referring to Mr. Yould's previous
comment that a community might not be able to support two
different infrastructures, commented that it seems as though
[the cooperative] would already have infrastructure in place if
it had a utility with fuel storage and a metering system in a
community.
MR. YOULD replied that infrastructure would also include fuel
trucks and pump trucks, which the cooperatives don't already
have. He noted that the utilities' storage tanks are all for
diesel fuel, while the communities need gasoline and heating
fuel, which the utilities do not have the infrastructure for.
He stated that the utilities do however have the management
expertise that could be made available on a contract basis.
4:08:09 PM
ROBERT BAUMGARTNER, President, Bristol Alliance Fuels (BAL),
explained that BAL is an independent tank farm operator and fuel
supplier in Dillingham. He commented:
There has been a tremendous infrastructure that has
been invested in and assembled by many private
entities throughout the State of Alaska for the
purpose of providing fuel products to the residents of
Alaska. In my opinion, HB 157 provides an unfair
advantage to electric utilities, including publicly
funded or subsidized electric cooperatives, to provide
this service in competition with private industry.
There are currently 117 ... Motor Fuel Qualified
Dealers licensed by the State of Alaska ... that will
be affected by this legislation if passed the way it
is.
Bristol Alliance operates a single site located in
Dillingham. ... Our particular operation requires
invested and working capital of $10 million, and
that's one of two in that community. Some of these
117 Motor Fuel Qualified Dealers have multiple sites.
You're talking about hundreds of millions if not
billions of dollars of infrastructure involved in
providing fuel services to Alaska.
I also believe that this bill will result in an even
greater imbalance in the price of energy products
because the barriers to exit are pretty high in this
industry; you can't take your tanks easily and move
them downstream somewhere else. So those people that
will be left to support private industry with the
reduced marketplace will have to pay a higher price,
and they're the ones who can least afford it.
MR. BAUMGARTNER continued:
The Institute of Social and Economic Research (ISER)
previously investigated a similar idea in the early
[1990s] for the onetime Western Alaska Fuel
Cooperative located in Dillingham, Alaska. The
ultimate end of years of effort and support by the
Alaska Power Association as well as the explicit
assistance of the City of Dillingham and the
investigation by the local electric utility, Nushagak
Electric Cooperative, found the effort was not
practical because fundamentally there were two other
suppliers there. And a fuel cooperative would not be
economically feasible if required to stand on its own
merits in a divided and small marketplace. ...
I was fairly intimate with the details of that study
by ISER, and actually there were quite a few assets
that Nushagak Electric would have been able to bring
to the table to assist in starting a competitive fuel
operation. There are communities [that are] very
small, with no fuel delivery system in place where a
waiver of current restrictions placed on electric
utilities or perhaps clarification might apply, but
this blanket approach encourages subsidies and
movement away from the entrepreneurial effort is not
the way.
REPRESENTATIVE ROKEBERG asked for more information regarding the
ISER study.
MR. BAUMGARTNER replied that he couldn't remember the exact year
of the study, but knew if was in the early 1990s. He stated
that he did not have a copy of that study with him, but he could
get one. He recalled that the Alaska Power Authority funded the
study with a $25,000 grant.
JODI MITCHELL, Chief Financial Officer, Inside Passage Electric
Cooperative (IPEC). She commented that IPECs goal is to lower
the price of fuel for its customers in the villages, but it is
not its desire to put anyone out of business or to compete
unfairly. She said, "We just want to do it where it makes sense
and where we can enhance the lives of our customers."
4:14:21 PM
REPRESENTATIVE GUTTENBERG asked Ms. Mitchell is she saw any way
to address the concerns voiced by Mr.Baumgartner.
MS. MITCHELL replied that the villages IPEC serves are pretty
small, with populations under 900. She said she couldn't see
that there is room for two distributors. She commented that the
only way she could see IPEC becoming a fuel distributor would be
if it were to take over a current business when the owner chose
to leave the business.
4:15:41 PM
BRYAN BOGEN, President, Delta Western, explained that this
company is a fuel distributor in Western Alaska and Southeast
Alaska. He stated that he has a significant degree of concern
regarding the current draft of the HB 157. He said, "The
margins in our business have stayed flat while the prices of
fuel to the consumers have doubled or tripled." He noted that
as the bill is currently drafted, it would allow electric
utilities that are receiving subsidized funds to compete with
[the fuel distributors], and would significantly change the way
he would make decisions about investing in the long term
viability of some of the Delta Western sites.
4:17:17 PM
MR. BOGEN commented that if there is no cross subsidization from
the electric utilities where they're getting subsidies, "I'm not
sure where they come up with the capital to turn around and
invest in these fuel distributors." He stated that it is his
goal to make sure that there is a level playing field and that
[fuel distributors] are not put at a competitive disadvantage.
4:18:44 PM
REPRESENTATIVE LYNN asked if there are any changes that could be
made to the bill to help protect the [fuel distributors].
MR. BOGEN responded that there are certain communities
throughout the state that are not served by a fuel distributor
that could be. He said that he wouldn't object to those being
served by an electric utility. "That might make sense in
certain limited cases," he said, "The problem with this bill as
it's drafted it that it's one size fits all. ... Every one of
our sites is very different."
4:20:14 PM
CHAIR ANDERSON asked for Mr. Bogen's response to Ms. Mitchell's
statement that the cooperatives didn't plan to make any major
changes.
MR. BOGEN replied:
If there was some sort of authority set up, and if an
electric utility wanted to go into a market that
wasn't being served by private competition, and hadn't
been served or the price of fuel was high in a
community, and the electric utility went and made a
case that this market isn't being served, ... that's
great; as long as there is that opportunity to provide
that feedback so that we can all debate the merits of
each one of these individual markets, we'd be amenable
to some sort of compromise like that.
4:21:40 PM
REPRESENTATIVE ROKEBERG asked, "To become a dealer in this
state, is there any solvency or capital requirements necessary
to do that?"
MR. BOGEN replied that there are bonding requirements, and
minimums required in order to be exempt from paying taxes
directly to the distributor. He said he could get the committee
more information if so requested.
REPRESENTATIVE ROKEBERG asked, "If you're going to establish any
kind of infrastructure, do you have to provide the bonding or
permits or depending upon the jurisdiction?"
MR. BOGEN replied affirmatively and added, "It would be one of
our goals to make sure that the ... electric utilities needed to
meet those same sorts of requirements."
RICHARD GEORGE testified that he is from Angoon and has been
with the electrical utility [IPEC] for almost 30 years and has
never seen fuel the big issue that it is today. He commented:
Our community unemployment rate is about 80 percent.
Our school system is on the verge of early shutdown
because [there is] not enough money. Their biggest
cost is electricity. IPEC would like to alleviate the
high cost of electricity by selling heating fuel. ...
We are looking at [the committee] to help us deal with
the high cost of living. The price of fuel is turning
into a struggle to exist. An example of what I'm
saying: the price of fuel out there today is [$2.76
per gallon]. In my position I know the price of what
we pay for, and the dealer is buying from the same
source that we are, and we pay [$1.68 per gallon]. If
[Mr. Bogen] was speaking of somehow moderating that
price of fuel to help us in the community, then ... I
wouldn't be here. This bill, if it were to pass,
would help us a great deal....
REPRESENTATIVE ROKEBERG commented, "We in the legislature share
your concerns about your community and so forth; I hope you got
your community qualified for some of the money we just
appropriated for the emergency fuel costs."
MR. GEORGE stated, "And our utility fees: if we could moderate
that price a little bit it would help...."
4:27:01 PM
REPRESENTATIVE ROKBERG asked if the village corporation or other
municipal entity considered going into the fuel business rather
than the local electrical cooperative.
MR. GEORGE responded, "No. Money is just as tight with
them...."
REPRESENTATIVE ROKEBERG asked, "Where are you going to get the
money as a [cooperative] to go into the fuel business?"
MR. GEORGE answered, "I think it's very minimal. All we're
doing is looking at a fuel truck."
4:28:49 PM
MARK HICKEY, Lobbyist, Petro Marine Services, said that Petro
Marine Services is an Alaska-owned, Alaska-based fuel marketing
and distribution company. He noted:
The general comments you heard from [Mr. Bogen] ...
reflect the views that we have at Petro Marine
Services as well. We have not taken a position in
opposition to the bill; we are troubled by it. We see
it as overly broad. We can see circumstances ...
where, in a market area that you have no current
distributor, a need to authorize a cooperative to be
able to go into the business. There should be some
very specific rules that would govern that. One that
hasn't been mentioned is that it should be revenue
neutral to the state as far as payment of fuel taxes.
With this new CS you've addressed [paragraph] 9 in the
bill from the previous committee. I think that's
something the committee would want to look at: is
there a revenue impact, particularly as relates to
fuel taxes. We need to see a level playing field, and
the [cooperatives] do have access to various grants,
not just Denali Commission, [but] also U.S. Department
of Agriculture, low interest loans.
MR. HICKEY continued:
I have the same question that was raised earlier
about, if on the one hand, in making this investment,
the assets of the [cooperative] are not to be brought
to bear, where then is capital going to come from? It
has struck us, particularly in the small communities,
... there needs to be a tank farm; if the tank farm is
the [cooperative's] tank farm, well, that's use of the
asset. ... Working something out that's very specific
that deals with certain circumstances where it makes
sense to allow this is something that Petro Marine
could support. We would suggest looking at the
Regulatory Commission of Alaska [RCA], possibly, as a
party to be involved in making determinations to allow
such an action; they're generally involved with the
[cooperatives] now in rate setting.
4:31:34 PM
REPRESENTATIVE GUTTENBERG asked if there was anyone from the
Department of Revenue online to answer questions.
CHAIR ANDERSON replied that there was not.
4:32:02 PM
DEAN THOMPSON, Attorney, Alaska Power Association (APA),
remarked, "Mr. Yould made a lot of the points that I was going
to make." He stated:
First of all, from a legal standpoint and a factual
standpoint, cooperatives in Alaska are private member-
owned corporations; they happen to be tax exempt, but
this private sector versus public sector is
inapplicable when we're talking about cooperatives.
Cooperatives ... are not government entities, they are
not public bodies. ...
As far as the concerns about competition in the fuel
industry: from APAs perspective, that is ... a
tertiary issue. Really what we are talking about here
is broader and more important than just fuel. We're
talking about a cooperative's ability to own an
interest in some other entity. And cooperatives have
been doing that for years, just as nonprofit
corporations have been, and for-profit corporations,
and other cooperatives. It is this power that allows
cooperatives to wholly own nonprofit educational
foundations, and for cooperatives to perform
consulting services for other entities in the
community. But it's always directly democratically
from the members, what's in the members' best
interest, and from the cooperative standpoint, doing
it in a way that continues to preserve their tax-
exempt status. And that tax-exempt status is in order
to keep ... electricity prices, initially, low for
their members. So I guess it's important to recognize
a cooperative for what it is. ...
As far as the fuel dealers concerns: there's a very
large practical limitation on some of these worst-case
scenarios that are being discussed. And that is that
nonprofit electric cooperatives are subject to what's
called the 85:15 test. I'll just very briefly
summarize it: under federal tax law a cooperative
loses its tax exempt status if it receives more than
15 percent of its revenue from either nonmembers or
from providing services that aren't utility services.
So when you're talking about these small rural
electric utilities, you have a very firm limit on the
scope of any sort of competitive harm, even if that
were to occur.
4:35:24 PM
MR. THOMPSON continued:
Finally, I just wanted to put into perspective what I
think is a legal issue, and it has been discussed that
HB 157, if passed, would somehow bring about a change
that would allow cooperatives to compete with other
entities for the very first time. ... What the Alaska
Power Association is talking about is simply the
ability for a cooperative to own an interest in
another legal entity. The cooperative would not be
competing with anyone. If there was competition it
would be between the corporation or LLC or whatever
that happens to have some competition with another
entity. And the subsidiary itself, most likely would
be a for-profit, or at least a taxable entity, and it
would be subject to the same rules, requirements, and
challenges as competitors.
Again, I would agree with what I heard from the
proponents earlier, that this is not about
competition; it's more about just bringing certainty
to the existing power of a cooperative to own a
subsidiary or own an interest in that. And I would
remind the committee that nonprofit corporations in
Alaska have that power, [and] other cooperatives,
other than electric and telephone cooperatives, have
the power to be members in other entities and own
stock in them. And right now, today, through AS
10.25.010(a)(9), electric cooperatives have the ...
power to become a member or own stock in another
cooperative or a corporation. So, HB 157, under the
[Version X], if I understand it correctly, is not
really a change to the law, it just adds the
clarification, mainly with the LLC issue and by adding
the term "any lawful purpose.
4:37:40 PM
REPRESENTATIVE ROKEBERG asked Mr. Thompson, "How is it that a
member cooperative is going to finance the establishment or
acquisition of a portion of a fuel distribution business out of
their own equity or net worth?"
MR. THOMPSON replied that a cooperative could do it through
partnership or be one of many members of an entity. Regarding
the finances, he said that either the entity would borrow money
on the market, or the cooperative would use its retained
earnings if so approved by its governing board. He noted that
it would be the same way that a nonprofit might become a member
of another entity.
REPRESENTATIVE ROKEBERG asked, "So your testimony is they could
do this under current law now, is that correct?"
MR. THOMPSON offered his belief that this was correct.
"Unfortunately," he said, "there have been these conflicting
court decisions in other states that increases the uncertainty
about that. I believe that if the issue were litigated in
Alaska a cooperative would win that litigation. But it would be
after tens of thousands of dollars, if not more, in litigation
fees and delay and uncertainty." He continued, "From APAs
perspective, that is what this very minor change, adding LLC and
adding 'any lawful purpose' accomplishes. It gives increased
certainty in light of these conflicting cases that have recently
arisen."
4:40:07 PM
REPRESENTATIVE ROKEBERG remarked:
So your opinion would be that the enumerated
exceptions are allowable activities of an electrical
cooperative under the statute that we're amending
here, [AS 10.25.020], is not limiting the activities
of a [cooperative].... Is there case law here about
that or decisions of the RCA, where the RCA would
assert their authority, prohibiting activities that
are not statutorily allowed.
MR. THOMPSON replied:
I believe [the RCA's] involvement would only ... if
the activities of that subsidiary fell within the
RCA's jurisdiction. ... As far as the provisions of AS
10.25.020: there are some utility-type services that
are listed there that are specifically authorized.
However, what I was referring to before was in AS
10.25.010(9), which provides general powers for
electric or telephone cooperatives. And it states as
it exists today that electric or telephone cooperative
may "become a member of other cooperatives or
corporations or own stock in them". And there are no
limitations in that statute limiting the generality of
that clause.
4:42:12 PM
BRUCE BARTO, Crowley Marine Services stated:
With few exceptions, most communities in rural Alaska
currently are being adequately served by existing
private fuel suppliers. Many of these are owned by
small business concerns who rely on this local
business for all or some of their livelihood. These
businesses provide a vital service to the individual
consumers and the general public in those communities.
[House Bill 157] would jeopardize the significant
investments made in Alaska by the private distribution
and delivery industry. It would also directly affect
the viability of many in this business and could
potentially result in lost jobs and reductions in the
level and quality of services not being provided.
[House Bill 157] would jeopardize the viability of
these businesses by allowing regulated utilities to
sell fuel to the same customers that these enterprises
now rely on, and could have the effect of driving
these entities out of business, or severely impacting
prices for other consumers not able to purchase fuel
from the utilities.
The private enterprise system now in place is
providing essential services for fuel sales and
delivery in Alaska. I encourage the committee to
please avoid a legislative blanket solution that has
the potential of causing lasting adverse impacts to
these businesses, and undermining the economic
viability of those in private enterprise who continue
to invest in that trade.
CHAIR ANDERSON commented that if two for-profit companies
merged, they could then have a monopoly and raise prices. He
also remarked that he had heard companies threaten to pull their
business out of Alaska is HB 157 passes.
4:46:25 PM
MR. BARTO pointed out that Crowley Marine Services has been
working to acquire Yukon Fuel Company, and he reminded the
committee that there once was a monopoly in Alaska that was
controlled by the major oil companies who, for the most part,
have withdrawn from most of rural Alaska in recent years. He
said:
I think part of the reason that those monopolies or
certainly large entities that had pricing control
withdrew from that market is [because] they didn't
feel they were getting a satisfactory rate of return
on their investment. And I think it's a unique
situation in Alaska, particularly in a lot of the
Western Alaska market that we serve because of its
isolation and seasonality, you tend to get a lot of
prices swings out there.... Over time they balance
out with what's happening in the real market, but at a
given point in time, let's say in September of any
given year, may appear to be significantly out of sync
with what's happening elsewhere in the market. And I
think those anomalies will always exist, but they tend
to unfortunately draw a lot of attention, particularly
when prices are going up. They generally don't draw a
lot of attention when prices are going down. ...
[Crowley Marine Services] has been for many years in a
... monopoly situation in Kotzebue where we are the
only ... commercial local tank farm operator. We have
a relationship with the local village corporation in
that community who competes with us for local home
heating fuel sales. ... In that instance, Crowley has
the ability to gouge the market, if you will. I can
clearly tell you, from my perspective, at least, ...
that our margins at Kotzebue are acceptable margins
but they in fact are lower than other communities
where we do compete with other established tank farm
operators. So at the end of the day, it's all market
driven, and I think it tends to balance itself out. I
don't think you'll find a situation with the number of
players that are in the market today in Alaska where
you'll have a monopoly situation for very long because
those markets tend to equalize themselves over time.
4:50:03 PM
BRAD REEVE, General Manager, Kotzebue Electric Association
(KEA), stated:
We are very much in favor of HB 157. [Kotzebue
Electric Association (KEA)] has developed the only
wind farm in the state and we as a utility are looking
for new business models to accommodate services needed
in rural Alaska, which could be the development of a
wind consulting business or wind turbine construction
company. And we have been asked to joint venture with
two different turbine manufacturers for service and
marketing. [House Bill 157] ... clarifies some of
this and allows us to move into those areas. ... One
of the greatest concerns we have in rural Alaska today
is the price of energy.
Something that we did in 1978 was change the business
model of purchasing fuel when we constructed our first
storage tank. This change in infrastructure and
delivery has saved our community millions and millions
of dollars. In 1983 we combined with other utilities
and formed a joint fuel buying group, including Nome
Joint Utilities, Nushagak, Naknek, Iliamna, Nuhalin,
[indisc.], and later we were joined by Unalakleet.
This group has been recognized as probably the most
successful model for competitive fuel purchasing. And
I think it's actually help the people delivering fuel
because it does solve one of the issues that remains a
problem in rural Alaska, and that is the ability to
finance fuel deliveries and to be able to take
deliveries.
The Northwest Arctic Borough and the North Slope
Borough have continued over a number of years to hold
joint economic summits. This past February was the
most recent and during each of those the cost of fuel
and the cost of energy remains one of the highest
priorities as an issue. And one of the major themes
has been to look at finding ways to lower the price of
energy and without that sort of lower cost energy,
economic development is stifled. And one of the
things that could be a potential as we look for new
models is to come up with a company that could provide
some financing to entities. It's not uncommon to see
fuel delivered to the same village at three different
price levels all for the same fuel.
MR. REEVE continued:
Last year ... we celebrated our fiftieth anniversary;
the utility was created out of the need and desire of
the community to have its own electric company.
Cooperatives are an integral part of Alaskan business;
they were created by the citizenry to meet a need and
exist to help lower cost. What we are really looking
at for today are new models and methods of serving our
communities and keeping our cost structures down.
4:53:43 PM
CHAIR ANDERSON asked Mr. Reeve for his response to the fuel
companies' arguments that the cooperatives have an unfair
advantage because they have access to grants and loans.
MR. REEVE replied that there was the argument in 1980 when the
fuel-buying group was formed that this would lead to higher fuel
prices, which hasn't happened. He stated:
If we want to encourage some competition then we need
to look at new business models to see what will work.
... I think there are potentially solutions to make
things work, and I think we're in a good situation of
being the local company that's really interested in
economic development to help make some of these things
take place.
DONNA VUKICH, General Manager, Naknek Electric Association
(NEA), testified in support of HB 157. She stated:
Naknek Electric Association serves the communities of
Naknek, South Naknek, and King Salmon, and
additionally NEA has a management agreement with
Iliamna, Newhalen, and Nondalton Electric Cooperative,
and through the Denali Commission, in a technical
agreement with Manokotak Power Company. [Naknek
Electric Association] also provides radio
communication to the Bristol Bay Borough. And our
members have come to us and asked us to look into
subsidiary businesses where we might be able to
provide services to the community. This is including
all types of businesses like we currently do, along
with possible fuel distribution. While it's not our
intent to be in competition with fuel distributors, if
we were to operate a fuel business we would assume
that we would be on the same playing field, and that
it would be operated as a for profit subsidiary.
[Naknek Electric Association] spent the last three
years actively engaged in economic development in
Bristol Bay Borough, and the high energy costs are a
definite deterrent to economic development. Our
position on HB 157 is also supported by the Bristol
Bay Borough and the Lake and Peninsula Borough.
REPRESENTATIVE LYNN asked what other services NEA provides.
MS. VUKICH replied that NEA has a management and administrative
agreement with ... INN Electric Cooperative in Iliamna in which
NEA provides all of the management for them as well as all the
billing and supervision of the operations staff that is located
in Iliamna. She added that NEA also has a technical agreement
with Manokotak Power Company in which NEA provides training for
power plant operation as well as providing collection services.
[Naknek Electric Association] also provides radio communications
to Bristol Bay Borough.
4:58:26 PM
REPRESENTATIVE ROKEBERG asked RCA to write an opinion letter
regarding the issue of AS 10.25.010(9) which provides for
ownership of stock and corporations. He noted that Mr. Thompson
had testified that Mr. Thompson believed that current statute
will allow this activity to take place anyway. He said, "I
would like to hear the RCA's opinion of that, particularly in
light of [AS 10.25.010(4)], which limits the abilities and
powers of a cooperative." He also asked if the RCA looks into
"the issue of solvency and cross ownership or any of these other
issues that come up before then."
BUELL RUSSELL, Utility Financial Analyst, Regulatory Commission
of Alaska (RCA) replied that the RCA will research that and get
a letter to the committee.
CHAIR ANDERSON asked that the RCA get that letter to the
committee by Wednesday.
5:00:39 PM
MARK SMITH, President, Yukon Fuel Company, testified:
I do not believe there is a level playing field out
there; I represent villages that are generally in
Western Alaska. ... We provide the fuel that for the
most part goes to local resellers whose business it is
to resell to the local community. Yes, there are some
businesses that do benefit from a variety of
subsidies, but I would say, just off-hand, I think the
absolute lions share has gone to the local electric
utilities. And this is something that no one objects
to; it's a fantastic thing to have that infrastructure
renewed. It isn't fair though to, the day after the
Denali Commission turns over that tank farm to the
local community, for the local electric utility to get
into the fuel business.
And I think one of the major concerns that we've heard
from a variety of the folks that have testified is the
difference in the cost of fuel. And just as a side
note, the gentleman from Angoon said that the fuel
price at his cooperative was ... $1.67, and the last
time I looked at the Seattle prices, it's well over $2
a gallon.... So I think there's sometimes confusion
between what the utility gets for its cost of fuel and
what you actually have to charge to cost a profound
level of infrastructure to both wholesale and retail a
variety of fuel products in the local markets. ...
In looking at the cost of fuel, I don't think that
this bill will help lower the cost of fuel. I think
there're many businesses that may be appropriate for a
utility to be in, but as long as there's another
provider in any of the utility service area, I think
that HB 157 does not do a favor to private industry
and certainly not the community.
5:03:29 PM
CHAIR ANDERSON recommended that Mr. Smith draft another letter
to the committee to finish his testimony to the committee.
THOMAS BOLEN, Public Services Director, Northwest Arctic Borough
(NWAB), testified in support of HB 157. He said that the
borough has been working on the fuel issue for the last three
years, and is specifically concerned about the cost of fuel. He
noted that one solution the borough has thought of is the
formation of a bulk fuel cooperative. He explained that in this
cooperative, the membership would only be entities that are
involved in bulk fuel; "it would not be the individual home
resident consumers." He stated, "We recognize that state
statute does not currently prohibit what we want to do but ...
if it were to pass, it would clarify that to save us from some
legal challenge that may come in the future." He noted,
"Clearly we could start a new cooperative, but it seems to be
more efficient to use an existing cooperative structure if it
exists."
[House Bill 157 was held over.]
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
5:07:12 PM.
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