Legislature(1995 - 1996)
03/21/1995 01:43 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE LABOR AND COMMERCE COMMITTEE March 21, 1995 1:43 P.M. MEMBERS PRESENT Senator Tim Kelly, Chairman Senator John Torgerson, Vice Chairman Senator Mike Miller Senator Jim Duncan Senator Judy Salo MEMBERS ABSENT All Members Present COMMITTEE CALENDAR SL&C 3/21/95 SB 95 (INSURANCE AGAINST UNINSURED DRIVERS) was scheduled, but not taken up this date. CS FOR SENATE BILL NO. 54(STA) "An Act relating to exclusive service areas for utilities certificated to provide electric utility service and to the definition of `general public' for utilities furnishing electric service." SENATE BILL NO. 58 "An Act restricting the use of the title `industrial hygienist' and related titles and initials." SENATE BILL NO. 108 "An Act relating to the powers and duties of the commissioner of commerce and economic development concerning the Alaska Tourism Marketing Council; relating to the per diem and travel expenses of the council's board of directors; relating to the powers and duties of the council; extending the termination date of the council; and providing for an effective date." SENATE BILL NO. 131 "An Act relating to investments by fiduciaries." PREVIOUS ACTION SB 95 - See Labor and Commerce minutes dated 2/28/95. SB 54 - See State Affairs minutes dated 2/14/95 and 3/9/95. SB 58 - See Health, Education & Social Services minutes dated 2/15/95. See Labor and Commerce minutes dated 3/7/95. SB 108 - No previous action to consider. SB 131 - No previous action to consider. WITNESS REGISTER David Hutchens, Executive Director Alaska Rural Energy Cooperative Association 703 W. Tudor, #200 Anchorage, AK 99503 POSITION STATEMENT: Supported SB 54. Don Schorer, Chairman Alaska Public Utilities Commission 1016 W. 6th Anchorage, AK 99501 POSITION STATEMENT: Opposed SB 54. Virginia Rush, APUC Assistant Attorney General Alaska Public Utilities Commission 1016 W. 6th Anchorage, AK 99501 POSITION STATEMENT: Commented on SB 54. Nick Carney Alaska Refuse Utilities Association POSITION STATEMENT: Commented on SB 54. Jim Arneson Commercial Refuse 1825 Ship Ave. Anchorage, AK 99501 POSITION STATEMENT: Opposed SB 54. Janet Ogan, Legislative Aide Senator Loren Leman State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Commented on SB 58. Vernon Sayles, Vice President Key Trust Corp. 101 W. Bensen Blvd. Anchorage, AK POSITION STATEMENT: Supported SB 131. Susan Locke, Vice President and Senior Counsel Key Trust Corp. Cleveland, OH POSITION STATEMENT: Supported SB 131. Willis Kirkpatrick, Director Division of Banking Department of Commerce and Economic Development P.O. Box 110803 Juneau, AK 99811-0803 POSITION STATEMENT: Commented on SB 131. ACTION NARRATIVE TAPE 95-13, SIDE A CHAIRMAN KELLY called the Senate Labor and Commerce Committee meeting to order at 1:45 p.m. and announced that SB 95 INSURANCE AGAINST UNINSURED DRIVERS would not be taken up today, because the proposed committee substitute was not prepared. SL&C SB 54 ELECTRIC UTIL & SOLID WASTE REMOVAL SENATOR KELLY announced SB 54 to be up for consideration. DAVID HUTCHENS, Alaska Rural Energy Cooperative Association (ARECA), said this legislation deals specifically with an amendment to Section 221, inserting a new subsection that makes a clear statement that the Public Utilities Commission is to provide separate service areas for each electric utility. Currently Section 221 has the effect of instructing the commission on separating service areas, but it doesn't have the clear statement that they should be kept separate. When Section 221 was originally enacted, he explained, the electric utility service areas were intermixed. Wherever they were adjacent to each other, there were fights going on, different houses on both sides of the same street served by different utilities, etc. This was a very wasteful system of investment and it was determined at that time that electric utilities are by their very nature monopolies, because of the technical way they have to be built. MR. HUTCHENS explained that there has been a lot of talk around the country about going back to some kind of competitive system among the electric utilities called "retail wheeling." This means that a large customer can buy power from whoever they wanted to at some point and force their local utility to "wheel," meaning deliver, it into them. He explained that Alaska doesn't have interconnected systems in much of the state, but little isolated systems, so that if a company comes in and picks off all the little companies, it leaves the electric utility no choice but to recover all of its costs from the other customers. This is called the "stranded investment problem." He said the little systems in Alaska are always struggling to gain economies of scale, not only in terms of kilowatt hours, but the matter of balancing their loads so there is some diversity within the system, mixing industrial and commercial with residential, so they have a better load factor. MR. HUTCHENS said it was important to point out that this bill doesn't interfere with competition at the wholesale level which is governed under federal law nor does it prevent anyone from generating their own power. He said the intent section was requested by GCI to make it clear that this applies only to electric utilities. Section 2 is the main policy statement. Section 3 is a conforming amendment removing conflicting language regarding section 2. MR. HUTCHENS said the amendments in their packets would clarify language in both sections 2 and 3. DON SCHORER, Chairman, Alaska Public Utilities Commission (APUC), opposed SB 54 and refuted some of Mr. Hutchens' comments about the wastefulness of using two different utilities which is covered in AS 42.05.221 (d). He asked if this bill passes, would it prevent any other utility from coming into a service area. He understood that presently, exclusive service areas do not prevent another entity from applying for services in that area and then it would be up to the APUC to determine if it should be allowed. He feared that would be prevented under this bill. BOB LOHR, Executive Director, APUC, opposed SB 54, because the exclusive certificate for electric utilities proposed to be added to Section 221 changes existing law. Most utility certificates granted by the commission are exclusive as a matter of fact, because one provider can serve the customers more efficiently in the case where a natural monopoly exists. However, there are several Supreme Court cases that would be overridden by the adoption of 221 (g) of the bill - Chugach Electric Association vs. the City of Anchorage 1967 and Homer Electric Association vs. City of Kenai 1967. MR. LOHR said there are two exceptions to the general rule in Alaska, because of the extraordinary remoteness of some communities. The first authorizes a municipality to (Indistinct taping)... under Title 29, even if the area is certificated to another electric utility. The second was the 10 customer threshold. He said that possibly two bush home owners might be prevented from sharing a generator under this legislation. The one customer limit with no threshold would override the Supreme Court cases he mentioned earlier. There are also questions about the general direction of the public utility regulatory policy back to 1978 and the Energy Policy Act of 1992. He said it was difficult to say if a conflict existed. SENATOR DUNCAN asked if he said the intent of the law now is that there are exclusive service areas. MR. LOHR replied that the current law does not grant exclusive rights to a certificate holder (under a Supreme Court ruling). As a matter of fact, the commission doesn't certificate two electric utilities for the same service area. There is a de facto exclusivity, but it's not provided by law. SENATOR DUNCAN asked if there are any cases in Alaska where two utilities are certificated for the same service area. MR. LOHR there was at least one case in Klawock with overlapping boundaries. SENATOR DUNCAN asked if he thought it was good policy in rural Alaska to have overlapping service areas and why. MR. SCHORER he didn't think it was in the best interests of the people. He said one of the problems with the bill is that it is applicable state wide and not just for bush only. SENATOR DUNCAN asked why it is the policy of the commission to allow overlapping service areas in rural Alaska, Klawock, for example. MR. SCHORER said that situation is trying to be remedied at the present time. He said the commission did not know the situation existed until recently. He said they did not reaffirm having overlapping services, but they divided the city to not have overlapping service areas. SENATOR DUNCAN commented, then, that what they did was divide the consumer base which causes difficulties for rural consumers. He said the reason he brought this case up is because it does not serve the consumers, nor the public will to have overlapping service areas in small communities, because the outcome of that to require higher rates for the utilities to maintain themselves. He said he was trying to figure out why APUC opposes the bill, because it doesn't make sense to have overlapping service areas. MR. LOHR said he thought they were being consistent, because the commission was made aware of the Klawock situation and remedied it by dividing the service area which did not need the exclusivity provided by 221 (g). SENATOR DUNCAN reiterated he didn't see how the commission felt it benefited the consumer by splitting the consumer base. He asked how the court cases mentioned earlier ran counter to the proposed legislation. MR. LOHR replied that those two cases found that the commission certificate granted did not confer an exclusive or monopoly right to those electric utilities. VIRGINIA RUSH, Assistant Attorney General, explained that the Klawock and Homer situations were cases in which a municipal utility and an REA cooperative had a dispute over territory within those cities' limits. The Supreme Court found that certificates issued by the commission did not give the REA coops exclusive rights to serve, overriding the Title 29 authority of the municipal utilities to provide utility services to customers within the city limits and adjoining areas. So the holding of the those two cases was that the certificate issued by the PUC was not an exclusive right to serve an area. SENATOR KELLY commented that in the case of this bill restates that in the case of electrical utilities it is an exclusive right. MS. RUSH said she agreed. SENATOR KELLY remarked that APUC is opposed to this. MR. HUTCHENS said regarding Mr. Lohr's point about whether or not a homesteader would be able to serve adjoining cabins that the existing definition of general public, in Section 3, is not being changed. It says (a) a group of 10 or more customers that purchase the service or commodity furnished by a public utility, so less than 10 is not a public utility and, therefore, is exempt from all regulation perviewed by the PUC. The one customer, in subsection (b), refers only to electric utilities within an area certificated to an electric utility. If the legislation is adopted, it would be one or more customers that purchase electrical service for use within an area that is certificated to an electric utility if the total annual compensation paid by customers located within that certificated area to entities other than the certificated utility exceeds $50,000. So there would be a little bit of "play" within a certificated area, but not very much, which is the intent. MR. HUTCHENS said he has been asked why this legislation was needed, because the certificates have been historically treated as exclusive. The answer is it's because of a change in attitude of the commission and the staff over the last year and the need became apparent last spring. The perspective of the electric cooperatives is that the only real benefit they have from being regulated by the PUC is having exclusive area, and that's taken away, he didn't see any need for the PUC to apply to the coops. SENATOR KELLY remarked that it would save the state $3.5 million a year. Number 400 SENATOR KELLY remarked that a member of the APUC felt the whole thrust of the nation was moving against deregulation. He, personally, was not sure that was the thrust. He didn't think it was in the best public interest to talk about total deregulation in many of these areas. Number 412 JIMMY JACKSON, GCI, said he did not want to testify on this particular issue. JIM ARNESON, Commercial Refuse, said he wanted to testify regarding the refuse utility. NICK CARNEY, President and General Manager, Wasilla Refuse, Inc., said he was not concerned with the electrical part of this bill. He is trying to have the decision of deregulation of the refuse utility to be made by the legislature and not the Commission. The commission over the past several years have made decisions to issue competing certificates and to regulate parts of the refuse industry in some parts of the state. Those decisions were not made on the basis of the public's interest. They were made on the basis of someone wanting to get into the business. He asked for an amendment that would simply state in plain language that it is the prerogative of the legislature to deregulate garbage and to decide how that is to be accomplished rather than to leave it in the hands of the appointed commission. SENATOR MILLER said he would offer an amendment. He supported the deregulation of garbage, because he did not support government sponsored monopolies unless there's a compelling reason to have a state sponsored monopoly. He's not sure it's there in garbage service. However, he has thought that some of these major decisions need to be made by the legislature vs. some commission or bureaucrat somewhere, because the legislature was made up of elected officials who are responsible to the public. SENATOR KELLY asked Senator Miller if he wanted to amend Section 3 to add, "except for refuse collection utilities and service." SENATOR MILLER said that was correct. SENATOR KELLY commented that this bill would then keep electric utilities and refuse collection utilities out of APUC. SENATOR SALO commented that a title amendment was needed, also. SENATOR MILLER responded that the first half of his amendment was a title change. Number 480 JIM ARNESON, Commercial Refuse, said he was a new entrant into the market place in Anchorage. He said he was currently operating a small refuse hauling operation under the provisions provided in the statutes. Under the statutes an exception is provided wherein a operator is not required to be certificated or regulated if the number of customers does not exceed nine. Presently his customers are both Price Cost Co. stores and all the Safeway Stores in Anchorage. A recent ruling by the APUC says the definition of customer was stated to be the location. He had been operating under the customer being an entity, as it appears elsewhere in the Alaska Administrative Code. Under the new definition, he cannot take on any new customers, because he services nine locations. This is restricts his business. Furthermore, the customers wanting to utilize his superior and less costly services cannot do so at this time. He has applied for a new certificate, but he is not assured of receiving one and the time frame is lengthy. MR. ARNESON suggesting adding a definition of customer to the statutes which is entity based and to increase the exemption limit for customers before regulation occurs to 100 for commercial and 3,000 for residential. He also thought "only upon proving public convenience and necessity will a certificate be issued" needed to be changed. If there is already a provider, the chances of a competitor entering the market are greatly diminished because there is no need. This does not allow open competition, better servicing, lower prices, choice of providers, etc. A certificate should be given to those who are willing, able, and ready to provide services. In summary, he felt the need for regulation and governmental interference in free enterprise is not needed in the refuse industry. It does not possess the characteristics of a natural monopoly deserving such regulation. SENATOR KELLY asked him if he had any objections to SB 54 or any of the proposed amendments today. MR. ARNESON said he thought Mr. Carney's suggestion was counter to what he was proposing. SENATOR KELLY asked him if he was in favor of deregulating the refuse industry. MR. ARNESON answered that he was in favor of deregulation, but, he said there are other ways to allow competition into the market place, if they do not wish to deregulate. SENATOR KELLY commented that it was clear there were two divergent approaches; one is in the House Bill, mentioned by Senator Miller; and one is in SB 54. The Committee may choose to deal with them as separate entities. He said Mr. Arneson's position would be better stated in the House Bill. SENATOR SALO asked if the subject of deregulation comes up, should it be heard by the APUC or the legislature. MR. SCHORER said they hadn't formally met on that issue, but he didn't think the commission would object to the legislature handling any deregulation. SENATOR TORGERSON moved to adopt the two technical amendments. There were no objections and it was so ordered. SENATOR MILLER moved to adopt amendment number three. There were no objections and it was so ordered. SENATOR MILLER moved to pass CSSB 54 (L&C) from committee with individual recommendations. There were no objections and it was so ordered. SL&C 3/21/95 SB 58 USE OF TITLE "INDUSTRIAL HYGIENIST" SENATOR KELLY announced SB 58 to be up for consideration. JANET OGAN, Legislative Aide to Senator Leman, said this bill was heard in this committee two weeks ago and there was no objection or controversy. SENATOR MILLER moved to pass SB 58 from committee with individual recommendations. There were no objections and it was so ordered. SL&C 3/21/95 SB 108 ALASKA TOURISM MARKETING COUNCIL SENATOR KELLY announced SB 108 to be up for consideration. He said they had been working with AVA on additional language and he no longer has a concern that travel will be anything out of the ordinary. SENATOR MILLER moved to adopt the Bannister version 3/21/95 as the committee substitute. TAPE 95-13, SIDE B Number 570 There were no objections and it was so ordered. SENATOR TORGERSON moved to pass CSSB 108 (L&C) from committee with individual recommendations. There were no objections and it was so ordered. SL&C 3/21/95 SB 131 INVESTMENTS BY FIDUCIARIES SENATOR KELLY announced SB 131 to be up for consideration. VERNON SAYLES, Executive Vice President and Manager, Key Trust Co., said the bill addresses how they, as fiduciaries and trustees for customers, can provide better investment management services through using common trust funds and through the concept of mutual funds including proprietary mutual funds. The difference between a common fund and a mutual fund comes down to who is responsible for the regulatory authority over those funds and the regulations that are applied as a result of that, he explained. Common funds are typically administered and reviewed by state and federal banking regulatory authorities and mutual funds are primarily regulated by the Securities and Exchange Commission. They both provide a pool of money to customers so they can better diversify their investments, take advantage of economies of size and scale, lower expense ratios, and provide better liquidity to the customer with their investment vehicles. Number 341 SUSAN LOCKE, Vice President and Senior Counsel, Key Management Services, answering Senator Kelly's inquiry about the definition of a fiduciary, explained that it is an individual or corporation who is charged with responsibility for discharging certain duties. The duties can be imposed under law or under specific agreements. The duties may involve to care for, to conserve, and to invest assets or to discharge a plan for fiduciary administration for different trust areas. The obligations of the fiduciary are very specific involving very high standards of care, management, honor, honesty, and integrity. SENATOR SALO asked her if she would characterize the legislation before them as increasing or decreasing risk to their investors. MR. SAYLES said this legislation didn't really affect risk. In theory, it should provide a better investment opportunity, and possibly reduced risk, for customers by offering a broader range of services. MS. LOCKE said she felt that the belief in the industry is that it would tend to lower risk. WILLIS KIRKPATRICK, Division of Banking, said he had no objections to SB 131. MR. SAYLES explained that in most cases they are looking at pooling money within the smaller customer accounts. The real purpose is to take advantage of the economies of size that would hopefully reduce risk. MR. KIRKPATRICK said he thought the trust customer would be helped in the case of a small trust company. It would provide the smaller funds that are registered under the Investment Company Act of 1940 to be allowed as one of the products of the trust company. The limiting factor is that it specifics what those can be, but it would aid in the common trust business. This bill also allows the affiliates to do things with one another which can be very helpful in an area where the financial institution is quite small, but has an affiliate that has a better base, better services, and more products to offer the trust customer. Number 460 SENATOR TORGERSON moved to pass SB 131 from committee with individual recommendations. There were no objections and it was so ordered. SENATOR KELLY adjourned the meeting at 3:45 p.m.