SB 47 - APUC EXTENSION AND REGULATORY COST CHARGE Testimony was presented by Josh Fink, Don Schroer, Bob Lohr, Jimmy Jackson, and Dave Hutchens. The bill was HELD in committee for scheduling on next week's agenda. SENATE BILL NO. 47 An Act relating to the extent to which the Alaska Public Utilities Commission may exercise its powers when regulating utilities; establishing a regulatory cost charge on public utilities and pipeline carriers; relating to the allocation of costs in hearings before the Alaska Public Utilities Commission; relating to the method by which utilities are exempted from and made subject to regulation by the Alaska Public Utilities Commission; relating to the monetary threshold for regulation of certain kinds of utilities by the Alaska Public Utilities Commission; extending the Alaska Public Utilities Commission; relating to staggered terms for members of the Alaska Public Utilities Commission; and providing for an effective date. Co-chairman Halford directed that SB 47 be brought on for discussion. JOSH FINK, aide to Senator Kelly, came before committee. He directed attention to a sectional analysis prepared by Senator Kelly, sponsor, and a separate sectional prepared by Legislative Legal Services. He explained that SB 47 reflects reintroduction of SB 213 from the previous legislature. It accomplishes two goals: 1. Extension of the Alaska Public Utilities Commission currently scheduled to sunset the end of June, 1995. 2. Reenactment of the regulatory cost charge that expired December 31, 1994. Given the unknown and potentially serious ramifications of expiration of APUC, SB 47 was introduced as consensus legislation. All provisions have been extensively debated and are either unopposed or the result of compromise by all concerned parties, in the best interest of consumer protection. SB 47 is almost identical to the version that reached the House floor last May and failed to pass prior to adjournment. A separate bill including further APUC amendments has also been introduced. It is Senator Kelly's hope that SB 47 will remain unamended as it travels through the legislative process. Mr. Fink provided a review of the sponsor's sectional analysis (copy on file in the SFC file for SB 47) and highlighted the following provisions: 1. Sec. 1 replaces language granting the commission "liberally construed" powers with language allowing the commission to do "all things necessary or proper to carry out the purposes and exercise the powers expressly granted or reasonably implied." The foregoing reflects compromise language developed last year. 2. Secs. 2, 3, 10 and 11 reenact the regulation cost charge for utilities and pipelines. Reenactment does not include sunset provisions. The RCC should be considered when the commission "comes up for sunset." 3. On Page 3, Lines 11-13, provisions adjust allocation of the RCC for electric utilities by subtracting the cost of power from gross revenues. 4. On Page 2, Line 27 and Page 6, Line 4, the ceiling on the RCC for utilities and pipeline carriers is raised from .61 % to .8 %. The RCC has never reached the ceiling. If the cost of power is subtracted from gross revenues for electric utilities, the ceiling for other utilities must be increased or sufficient program receipts will not be generated to cover the commission budget. 5. Page 3, Lines 20-24 and Page 6, Lines 15-19, contain language requiring the Dept. of Administration to earmark regulatory cost charge collection overages for possible appropriation by the legislature for the commission's next fiscal year, thus lowering the RCC for that year. That charge is passed directly to consumers and averages $10 annually, for all utilities. 6. Secs. 4, 5, 6, 7, 8, and 9 are the result of audit recommendations. Secs. 4, 8, and 9 permit subscribers of small utilities or utilities exempt from regulation to petition for regulation under the same procedures used by subscribers of a regulated utility to petition for removal from regulation. 7. Sec. 12 extends the sunset date for the commission to June 30, 1999. 8. Sec. 13 staggers the terms of commission members. Two terms presently expire at the same time. The new provision will not impact the terms of current commissioners. 9. Secs. 14 and 15 provide for new language enacted in Sec. 1 (changing language from "liberally construed" to "reasonably implied") to become effective July 1, 1996. 10. Sec. 16 provides an immediate effective date for all provisions with the exception of Sec. 1. Senator Donley voiced concern over the above-noted language change in Sec. 1, suggesting that it would lead to increased litigation over the meaning of the new standard. Consumers will pay the cost of that litigation through increased utility bills. He then inquired concerning why the change was made. Mr. Fink deferred to APUC staff. He briefly referenced situations in which utilities felt the commission overstepped its authority and made policy decisions beyond its statutory mandate. Alternatively, other utilities were pleased that the commission had authority to grant temporary operating permits, a function for which it does not have express authority. Compromise language is "a shade more restrictive." Senator Sharp attested to the fact that under "liberally construed," commission philosophy often swung in accordance with the make up of the commission. Administrative and court challenges are expensive. "Necessary and proper" is better, particularly in light of provisions which allow the commission to levy the RCC to cover its budget expenses. Senator Rieger voiced support for the more moderate language. Senator Donley cautioned that new language appears "ripe with potential for litigation." Co-chairman Halford voiced his understanding that should the proposed bill not pass, utility bills would decrease because the RCC would not be applied. Mr. Fink concurred that individual bills would decrease by approximately $10. He pointed, however, to federal mandates associated with utilities and suggested that staff from APUC speak to potential problems should APUC cease to exist. Senator Donley next addressed statements by Mr. Fink that reenactment of the RCC reflects a compromise, noting that while it might represent a compromise among utilities, it is not a compromise "among the consumers." He then attested to constituent complaints over new charges on utility bills. The situation is worsened by the proposed legislation which enacts the "first, new tax bill of this year." Further, restructuring increases the tax for urban residents more than for those in rural Alaska. DON SCHROER, Alaska Public Utilities Commission, next spoke via teleconference from Anchorage. He stressed the importance of early action on SB 47, and noted the audit recommendation for a ten-year extension, since the commission is fulfilling its public purpose. During the past two years, no one has testified in favor of APUC sunset. Mr. Schroer acknowledged that SB 47 contains provisions the commission could "live without." It is, however, supported in its present form, in the interest of the impending time crunch. Mr. Schroer further spoke to investigative delays and uncertainty in APUC hire as a result of scheduled sunset. He thanked utilities for their cooperation through early, lump-sum payment of the RCC prior to expiration of commission authority to levy the charge. He urged passage of SB 47 without amendment. In response to a question from Co-chairman Halford concerning areas of the bill the commission does not look favorably upon, Mr. Schroer replied that while the commission sees no need to change "liberally construed" to the proposed new language, the change is acceptable. Discussion followed regarding ability of a utility to opt out of APUC regulation. BOB LOHR, Executive Director, Alaska Public Utilities Commission, testified from Anchorage. He explained that a number of utilities may not opt out of economic regulation because of size. Proposed changes in the bill would increase the number of utilities allowed to do so, but maximum size prohibitions would remain. Cooperatives may opt out regardless of size, and municipal utilities are exempt from regulation by law, unless the municipal utility competes with a privately owned utility. If one of a number of utilities owned by a municipality elects to compete with a private utility, all of the utilities owned by the municipality are automatically subject to economic regulation by the commission. Senator Zharoff commented upon the amount of paperwork and duplication in state and federal filings for small utilities. Mr. Schroer attested to recent regulations allowing simplified rate filings for both electric and telephone utilities. JIMMY JACKSON, Attorney for GCI, next spoke from Anchorage. He voiced support for passage of the legislation as quickly as possible, without amendment. The present state of "limbo" is undesirable and imposing an adverse affect on the agency. DAVE HUTCHENS, Executive Director, Alaska Rural Electric Cooperative Association, next came before committee, voicing support for the legislation. He attested to the fact that the commission should be extended for the same reasons it was initially created: to prohibit territorial utility wars, which are both wasteful and destructive, and bring peace in the electric utility industry. Mr. Hutchens reiterated previous testimony asking that SB 47 be passed in its present form, without amendments. Speaking to language in Sec. 1, Mr. Hutchens advocated the change from "liberally construed" to "necessary or proper . . . or reasonably implied." In response to a question from Co-chairman Halford, Mr. Hutchens voiced his understanding that new language means that the commission cannot embark on new kinds of regulation which "liberally construed" previously allowed. As an example, he cited application by the community of King Cove and the resulting three-to-two vote by the commission regarding whether environmental issues and regulations should be included in deliberations. The community and AIDEA prevailed, but the vote was close. With different members on the commission, the vote could easily have gone the other way. The supreme court supported the commission exclusion, but the ruling was accompanied by a long dissenting opinion. That is the type of situation the new language seeks to prevent. If there is to be an expansion of commission powers, that decision should be made by the legislature rather than the commission and the courts. Co-chairman Halford asked if the APUC would come under standard statutory language (reasonably necessary to implement the statute) if there was no specific language relating to regulatory standards for the commission. Mr. Hutchens responded affirmatively and said that was what he originally proposed. Changes within Sec. 1 reflect compromise language modeled on wording from the state of Wisconsin. Mr. Hutchens next addressed adjustments to the regulatory cost charge. He voiced concurrence in comments by Senator Donley and agreed that utilities do not enjoy serving as tax collectors. However, if the decision is that utilities should play that role, the burden of collection should be equitably distributed. An adjustment was the primary recommendation of legislative audit. The proposal was to allocate the RCC based on time records evidencing how commission time is expended on regulation. That approach was determined to be too time consuming. The present formula keys the RCC to retail revenues, but revenue dollars have no real relationship to commission activities. While electric utility regulation comprises 30% of commission activity, electric utilities were paying 45% of the cost of the commission. The proposal contained within SB 47 was crafted by Senator Sharp as a means of providing equity in allocation of regulatory costs. Co-chairman Halford asked if cost charges would increase in Anchorage while decreasing in other locations. Mr. Hutchens responded, "Perhaps, very slightly . . . ." Reallocation could have that effect because of availability of heat from a regulated natural gas utility. In other areas, providers of heat are unregulated and thus not taxed to support the commission. Senator Zharoff sought clarification of the impact of increasing the RCC rate. Mr. Lohr explained that the effect of allowing the cost-of-power exclusion for electric utilities shifts approximately 45% of the cost of the commission to all other utilities. Since the commission is mandated to collect its operating budget from all sources subject to the RCC, a reduction for one type of utility requires a commensurate increase for others. RCC rates for utilities other than electrical will increase by roughly 31% to offset the 45% reduction to electric utilities. The commission is only authorized to collect the amount necessary to cover its budget. Mr. Lohr reiterated that the RCC has never hit the existing ceiling. The initial rate equivalent of .45% has dropped since inception. It was .42% last year. While the trend has been downward, the commission seeks to maintain latitude within the ceiling, in light of proposed changes in levies upon electric utilities. Discussion followed between APUC staff in Anchorage and Senator Rieger regarding activity (brush clearing and tree removal) in utility right-of-ways. End: SFC-95, #3, Side 2 Begin: SFC-95, #5, Side 1 Co-chairman Halford called for additional testimony on the bill. None was forthcoming. He then advised that the testimony portion of committee review was concluded and directed that SB 47 be HELD in committee and available for further consideration during the coming week.