SB 155-REGULATION OF WATER/WASTEWATER UTILITIES    2:41:02 PM CHAIR ELLIS announced SB 155 to be up for consideration. MARK PREMO, General Manager of the Anchorage Water and Wastewater Utility Authority (AWWU), supported SB 155. He said this bill would exempt AWWU from economic regulation by the Regulatory Commission of Alaska (RCA) and place it in the same status as every other municipally owned water/wastewater utility in Alaska, except one, Pelican. He related: The AWWU is two separate utilities, both subject to economic and service area regulations by the RCA. The Water Utility, a former City of Anchorage utility, has been under RCA regulation since inception of the Alaska Public Utilities Commission (APUC) in 1970. The Anchorage Sewer Utility, which was formerly owned by the Greater Anchorage Area Borough, was voluntarily submitted to the APUC for regulation in 1971. An umbrella organization, AWWU, was formed in 1975, following unification of the Borough and City into the Municipality of Anchorage. The Municipality of Anchorage in 1991 petitioned the then APUC to exempt AWWU and its electric utility from regulation. The Commission split evenly, by a 2-2 vote, on the question of exempting the electric utility and AWWU. The opinion by the commissioners opposing self- regulation cited competition by the Municipality's electric utility and telephone utility with other utilities as the primary reason why AWWU should remain regulated by the state. No commissioner suggested then or has since suggested that competition between the water and wastewater was present, nor is there any competition there today. Also the telephone utility is no longer owned by Anchorage. The House of Representatives previously approved HB 515 and HB 108. Both of these bills would have exempted AWWU from economic regulation by the RCA. The Senate did not act on either bill. HB 108 included a requirement from the House that the Municipality of Anchorage create an AWWU Authority with a Board of Directors that reports directly to the Municipal Assembly to provide oversight of AWWU and remove AWWU from under the Mayor of Anchorage. In September 2005, the Municipal Assembly created the AWWU Authority with a seven member Board of Directors which are approved by the Assembly and serve 5-year overlapping terms. Five of the seven Board members must be customers of AWWU and four must be experts in the respective fields of engineering, business, public health and law. A supermajority (five of the seven) must be AWWU customers, thereby ensuring a strong level of consumer input into decision-making. The work of the Board of Directors is written into Municipal Code by Assembly Ordinance passed in September, 2005. The Board is empowered to recommend rates to be charged by the utility to its customers. Code requires that ratemaking follow standard industry practice of developing revenue requirements on the basis of true and documented costs. Public hearings for proposed rates are required before Board Approval and public hearings are required again at the Municipal Assembly level prior to the current practice of filing tariff adjustments with the RCA. We know of no other utility in the country that faces three tiers of public approval prior to establishment of new rates. With the Board of Directors in place, the RCA approval process becomes redundant and value-less Why does the Municipality of Anchorage desire exemption from RCA Regulation? 1) The current RCA regulation processes and procedures are slow and expensive. From 1993 to 2003, AWWU filed only minor housekeeping and procedural matters with the RCA and never requested a rate increase. Yet AWWU ratepayers have paid approximately $2.8 million in regulatory assessments to the RCA during this period as part of every monthly bill. Currently, annual cost to ratepayers for regulatory commission charges amount to more than $600,000. However, the greater cost to AWWU and its customers is in the form of the cost of preparing filings and regulatory lag. The cost of staff, consultants and attorneys currently exceed $700,000 per year over and above the $600,000 in fees to RCA. A typical tariff rate adjustment case takes a minimum of 15 months and requires the preparation of thousands of pages filings, responses to discovery questions, testimony and exhibits to adjudicate the case before the RCA. The large delays substantially increase the jeopardy for the AWWU rate payers and AWWU in the event that a portion of the requested rates have to be refunded. History and present events show that local regulation is faster, less structured and more economical. 2) Current RCA regulations and procedures are non- responsive to local needs. The RCA process was designed for private utilities and is not entirely appropriate for municipal utilities. The RCA process is a very structured and adversarial process that is not consumer friendly. The RCA is not accountable to Anchorage residents. The Municipal Assembly and Authority Board of Directors are more responsive to local needs and are directly accountable to the ratepayers who are served by the utilities. These customers are Municipal voters. Public hearings are now required by Code to be held by both the new Authority Board and the Municipal Assembly on all rate matters. The public hearings are non-adversarial and are much more customer friendly. I ask for the Committee's support of SB 155. Self regulation has worked effectively across the nation, in other Alaskan communities, and in Anchorage. Anchorage has regulated its own public utilities for many more years than have state regulators. The Municipality of Anchorage has a proven track record of effectively regulating the Port of Anchorage, Merrill Field and Solid Waste Services. All are financially strong, highly reputable enterprises that provide excellent customer service. For nearly 20 years, rate payers have benefited as AWWU has reduced staff positions and labor expenses by leveraging technology and improving business processes while at the same time increasing spending on system repairs and rehabilitation. In 1987, AWWU employed 339 people on staff for 84,000 customer accounts (water and sewer). Today, we serve over 110,000 accounts with a staff of 266 individuals. This has all been done without direction and assistance (or value added) from the RCA. Over the years, the municipal assembly has made sound decisions in their oversight of AWWU and other municipally owned utilities, including such decisions as the creation of the AWWU Authority Board to specifically address governance of the utility with focused, local expertise and consumer interests in mind. In conclusion, the passage of SB 155 provides for local regulation of municipal water and wastewater utilities and facilitates the proper local-regulation of the AWWU Authority like other utilities across Alaska and the rest of the nation. It will also facilitate the most efficient and effective operation and management of the AWWU Authority. Thank you. 2:48:22 PM CALVIN WEST, Chairman, Anchorage Water and Wastewater Authority Board, supported SB 155 saying it will exempt the AWWU from economic regulation from the RCA. The following is a transcript of his testimony: This bill would exempt the Anchorage Water and Wastewater Utility, commonly referred to as AWWU, from economic regulation by the Regulatory Commission of Alaska. This action will allow AWWU to operate like every other municipally owned water and/or wastewater utility in Alaska, except the City of Pelican which voluntarily opted for economic regulation. Some history is necessary to understand why AWWU is economically regulated. Currently, AWWU is two separate utilities, both subject to economic and service area regulations by the RCA. The Water Utility, a former City of Anchorage utility, has been under economic regulation since inception of the APUC in 1970, because of competition with other local utilities. The Anchorage Sewer Utility, which was established by the Greater Anchorage Area Borough, and the Borough voluntarily submitted to the APUC for economic regulation in 1971 to facilitate the creation of the utility. In 1975, following unification of the Borough and City into the Municipality of Anchorage, the two utilities were organized into single operation forming AWWU. The current status today - In September 2005, the Municipal Assembly created the AWWU Authority with a seven member Board of Directors to provide governance and oversight of the utilities. This action transferred responsibility for guidance and direction of AWWU from the Mayors Office to the Authority Board. Board members are approved by the Assembly and serve 5-year overlapping terms. Five of the seven Board members must be customers of AWWU and four must be experts in the respective fields of engineering, business, public health and law. Since five of the seven Board Members must be AWWU customers, a strong level of consumer input is ensured in the decision- making process. Oversight of AWWU and the Authority Board is provided by the Municipal Assembly in three key areas: appointment of board members, approval of changes in the tariffs, including rates, and approval of debt. Through Municipal code the Board is empowered to recommend rates charged for utility services. The Municipal code requires that ratemaking follow standard industry practice. Public hearings before the Board are required for new proposed rates prior to Board approval. Board approved rates are then submitted to the Municipal Assembly and public hearings are again required prior to Assembly approval. Following Assembly approval the current practice is the filing of tariff adjustments with the RCA. We know of no other utility in the United States that has three tiers of public approval prior to establishment of new rates. It is important to note that the initiation of this legislation, allowing AWWU to become economically self-regulated, emanates from the Board and is endorsed by the Municipal Assembly. While Mayor Begich may also embrace the concept of self-regulation, he has not expressed his opinion to the Board. Some key points to consider regarding economic self- regulation for AWWU are: 1) No other municipally-owned utility in the United States has three tiers of public governance and oversight. 2) The seven-member AWWU Authority Board, comprised of at least five AWWU customers, is more responsive to the needs of the utilities and its customers than a state-wide board appointed to oversee a number of utilities throughout the state. 3) The Municipal Assembly, elected by the citizens of the Municipality, is more responsive to the citizens of the Municipality and the customers of AWWU than a board appointed by the state. 4) The reasons that brought economic regulation of the water and wastewater utilities are no longer valid. The water utility does not compete with other adjacent utilities and the wastewater utility is now well established and accepted by the community. 5) The current RCA regulation processes and procedures are slow and expensive: Annual cost to AWWU ratepayers for regulatory commission charges amount to more than $600,000 a year. The cost of staff, consultants and attorneys currently exceeds $700,000 per year for rate case filings. A typical tariff rate adjustment case takes a minimum of 15 months to complete. Current RCA regulations and procedures are non-responsive to local needs for municipally-owned utilities; it is designed to regulate privately-owned utilities. In conclusion, the passage of SB 155 provides for local regulation of Anchorage's water and wastewater utilities. It facilitates the proper local regulation of the AWWU Authority like other utilities across Alaska and the rest of the nation. It will also facilitate the most efficient and effective operation and management of the AWWU Authority. I ask for the Committee's support of SB 155. Thank you. 2:54:20 PM VIRGINIA RUSH, AARP, opposed SB 155 because it removes the AWWU from RCA oversight that provides consumer protections. She said that she served as an Assistant Attorney General in Alaska for 23 years, 14 of those years she was assigned to the RCA and so has a lot of experience with the RCA's expertise in utility rate-making and its processes. She said she wanted to respond today to the arguments they had just heard from Mr. Premo and Mr. West. They say that the Board that has been established and the Anchorage Assembly adequately do the job that the RCA does, but the RCA is an independent judicial-type agency that is given the responsibility of protecting consumers by assuring that the rates they pay are just and reasonable. They do that through a rate-making process which Mr. Premo has described as "adversarial and not consumer friendly." MS. RUSH responded further: But in fact let me tell you what that process is. It's that the utility files a rate case with the cost justification for the rates it wants and then a state- funded consumer organization, which is now in the Attorney General's Office, has a chance to audit and carefully examine the cost justification for those rates. It files a report and then to the extent there is a disagreement between the utility and the AG as consumer advocate, there is a hearing for the independent judicial body that the RCA represents to decide those issues. Now, AARP has also participated in a couple of rate cases because of its concern for consumer rates. Let me compare that with the process that AWWU proposes as I understand it. There are consumer hearings - they said - before the Board and I believe that means that any citizen can come in and talk for three or five minutes without the opportunity to audit or have professional expertise to look at those costs. The Board is not independent like the RCA. It is the Board; it's just like the Board of Enstar might be. It's the number of people who are in charge of running that utility. Do they take an independent consumer- protection look at the rates they themselves have proposed? Well. No. The Anchorage Assembly, we have talked to and they have been very helpful and I have nothing but admiration for people who spend so much time in the role of Assembly members, but their plates are stacked a foot high with numerous numerous issues that they have to decide. They do not have the time or the expertise to look at the data on cost justification that the RCA does. 2:58:48 PM As far as local control goes, the utility and its management along with its municipal budgeting have all kinds of authority. They decide if a new main line is needed through south Anchorage; they decide what facilities to repair - local needs like that are addressed exclusively by those bodies. But the RCA's area of authority is rate making and they do it independently. Now, there is a great need for it as illustrated by AWWU's four new requests for rate increases since the beginning of 2004 and a large percentage of that increase that the utility sought - and they are currently getting it - is to pay additional money right into the municipalities' coffers as a payment in lieu of taxes. And when the RCA was asked to look at the fairness of that, they rejected that. They said it doesn't follow our precedence; it doesn't follow good utility policy and currently that issue is on appeal. But look back and realize that AWWU's first effort to deregulate itself came just at the same time about three years ago that the City of Anchorage was attempting to put more money into its own pocket through this extra charge in the utility bills, which they don't come out and declare it to be tax. They don't call it a tax; it's well hidden in the utility base, but it is a tax. 3:00:47 PM CHAIR ELLIS apologized for interrupting and asked her to wrap up and said that he would hold this bill over for further testimony and consideration. MS. RUSH concluded that the RCA is more responsive to consumers and protects them in a way that is independent and has more expertise as opposed to two in-house layers that are not independent at all. SENATOR STEVENS asked if they could get some response from Pelican on whether it would want to be exempt as well. CHAIR ELLIS replied that Pelican would be contacted. He held SB 155 in committee.