HB 178-DEREGULATION OF GARBAGE UTILITIES CO-CHAIRMAN HARRIS announced that only order of business before the committee was HOUSE BILL NO. 178, "An Act relating to removing solid waste collection and disposal service from regulation by the Alaska Public Utilities Commission; requiring certain municipalities, and permitting other municipalities, to regulate solid waste collection and disposal service within the municipal boundaries; and providing for an effective date." PAT HARMAN, Legislative Administrative Assistant to Representative Kott, Alaska State Legislature, testified on behalf of the bill sponsor. Mr. Harman pointed out that the committee never formally adopted the proposed committee substitute (CS) at the April 15, 1999, meeting. There are two versions, a D and a G, for which Mr. Harman offered to discuss the differences. CO-CHAIRMAN HALCRO moved to adopt the proposed CS, Version LS0811\G, Cramer, 4/20/99, as the working document before the committee. There being no objection, it was so ordered. MR. HARMAN explained that the CS worked on by Representative Kott's office addressed the three concerns of the Alaska Public Utilities Commission (APUC) who had endorsed HB 178. Section 2, paragraphs (1)-(3) allows immediate competition in a service area if that is desired by the local governing body. In response to the APUC's concern that the definition of "fair market value" would create complications, that definition was deleted. With regard to the original bill's language requiring a fixed rate for five years, the APUC felt that there may be changes in technology or economies of scale that could suggest a decrease in rates. Therefore, there is an amendment which would address that concern. The amendment would cap the rates, but allow for the rates to be lowered. Number 0389 CO-CHAIRMAN HALCRO moved that the committee adopt Amendment 1: Page 3, line 14, after "customers" Delete "at" Insert "no more than" There being no objection, Amendment 1 was adopted. MR. HARMAN pointed out that a memo from Steve Mulder dated April 29, 1999 had been received from the Anchorage Solid Waste Commission which offered several suggested language changes. The sponsor does not object to any of those suggested changes, although there are no formal amendments addressing those concerns. CO-CHAIRMAN HARRIS reminded the committee that at the April 15, 1999, meeting HB 178 was turned over to a subcommittee consisting of Co-Chairman Halcro and Representative Joule. Therefore, he requested that Co-Chairman Halcro report what was accomplished in the subcommittee. CO-CHAIRMAN HALCRO commented that a substantial amount of work had occurred on HB 178 since the last meeting. A number of legal opinions regarding the antitrust situation were obtained. Furthermore, a number of municipalities' outside legal counsel's opinion of HB 178 were requested. Additionally, opinions were solicited from private independent contractors, refuse haulers. Number 0642 CO-CHAIRMAN HALCRO stated that HB 178 poses some large questions, the biggest being, why? The 3-ring binder prepared for the committee does not contain one letter of support from any consumer. The binder includes many letters opposing HB 178 from refusal haulers and from municipalities. He pointed out that the Anchorage Assembly passed a resolution in support of deregulation that would protect taxpayers and ratepayers, but not supporting HB 178 in particular. This franchise agreement would create problems, especially for the Municipality of Anchorage which is currently in the solid waste business. The Municipality of Anchorage has approximately a $20 million investment in solid waste services. Therefore, the purpose of HB 178 is in question because there has not been any consumer outcry. Although the APUC did not have any difficulty in letting go of refuse regulation, that only amounts to one to two percent of its workload. CO-CHAIRMAN HALCRO explained that upon review of the testimony from the April 15, 1999, hearing and the new information and legal opinions there are concerns. There are concerns regarding the manner in which franchise agreements are carried out and the way local governments would be burdened with the regulation of refuse. In Co-Chairman Halcro's opinion, HB 178 is a solution in search of a problem. Furthermore, at the April 15, 1999, hearing Waste Management's counsel referred to HB 178 as Waste Management's bill. He concluded by saying that this is the wrong time and place for this. CO-CHAIRMAN HARRIS asked if any time was spent with the sponsor to address the concerns. CO-CHAIRMAN HALCRO said that there was contact with the sponsor during the initial phases of drafting the CS which resulted from the recommendations from APUC. There was some brief follow-up. He pointed out that the subcommittee focused its attention on the effects of HB 178. Number 0962 JONATHON LACK, Legislative Assistant to Representative Halcro, Alaska State Legislature, stated that Representative Kott's staff has been very willing to work on HB 178. He noted that he was initially requested to review the constitutional and antitrust issues of HB 178. Outside counsel was sought to review those matters. Ron Zobel, Assistant Attorney General, forwarded a letter to Representative Halcro and Representative Kott regarding takings issues and antitrust issues; those are included in the committee packet. The Municipality of Anchorage contracted with Atkinson, Conway, & Gagnon, Inc., in order to address antitrust issues. A letter from Atkinson, Conway, & Gagnon, Inc., is also included in the committee packet. From conversations with Mary Hughes, Municipal Attorney, Municipality of Anchorage, Mr. Lack understood that the municipality is willing to work on achieving a means to deregulate refuse. However, due to the municipal revenue sharing issue the municipality has not been able to address the refuse issue since the last meeting. There are others on line from the municipality who can speak to the resolution it passed. CO-CHAIRMAN HARRIS asked if any one issue stands out as a problem for those objecting to HB 178. MR. LACK identified two basic questions. First, there is the antitrust issue. Currently, one who is granted a certificate from the APUC is exempt from antitrust regulation. Under the new system, those granted a franchise would be exempt from antitrust regulation if the local government chose to regulate the refuse industry. Mr. Zobel's correspondence includes concerns for smaller communities that may not be able to regulate. Therefore, Mr. Zobel would be more qualified to answer that question. MR. LACK identified the second issue as the potential exposure of local governments. He directed the committee to the language on page 3, paragraph (3) of the CS which is of concern in that it may result in great financial exposure to local governments, if required to purchase the facilities and equipment of a current APUC refuse certificate. He indicated that Ms. Hughes and Mr. Gagnon could address that concern. MR. LACK noted that the committee addressed one other issue at the last hearing which is addressed in the letter from Kevin Ritchie of the Alaska Municipal League (AML). The issue is the potential for a company, during the initial bidding for a franchise agreement, to finance a low bid. Then there would only be one player left after five years and no one would be left to bid on a contract. Therefore, competition which is the tenet of HB 178 would not exist as the regulating factor. Number 1310 REPRESENTATIVE DYSON inquired as to whether Alaska's antitrust laws are sufficient to protect small refuse providers from predatory pricing. MR. LACK deferred that question to Mr. Zobel or Mr. Gagnon. CO-CHAIRMAN HALCRO requested that Mr. Lack address a situation in which under the HB 178 market place, one of three competitors for a franchise agreement purposely bids high with the understanding that he/she will not receive the bid. Therefore, the municipality would have to purchase his/her equipment and certificate. MR. LACK said that two scenarios could be problematic for the Municipality of Anchorage. If HB 178 passes and the municipality allows contracts for the non solid waste service area and if Anchorage Refuse Service did not obtain the contract, the municipality would give the contract to a third party. In that case, the municipality would potentially be liable to buy the certificate, facilities and equipment of Anchorage Refuse Service even if there is no need for them. In another case, if the municipality decides to discontinue Anchorage Refuse Service's certificate and the municipality decides to provide the service itself, the municipality would also be liable to purchase the certificate, facilities and equipment of Anchorage Refuse Service. Mr. Lack informed the committee that the reasoning behind those scenarios comes from the two electric utilities cases discussed in the committee packet. In those cases, the local government took control of the electric utilities and the local government needed to utilize the facilities and equipment of the present electrical utility. Since there is basically one electric utility line going to a house, the city was taking control of the line. However, in the refuse industry there is no guarantee that the Municipality of Anchorage would need the equipment and facilities of the private company. So, this may force the municipality to purchase the private company's facilities and equipment when there may not be a taking requirement to do so. There is no question that the taking requirement would require the municipality to purchase the certificate and the remaining value, but there is question with regard to whether the municipality would have to purchase the facilities and the equipment. REPRESENTATIVE MURKOWSKI commented that many of the letters in the committee packet speak to the legal issues surrounding HB 178. If this committee decides that HB 178 should move forward, there should also be a recommendation that the bill goes before the House Judiciary Standing Committee in addition to those already assigned. MR. LACK said that the possibility of a Judiciary referral was discussed, but since there is no such referral Co-Chairman Halcro requested review of these issues. CO-CHAIRMAN HALCRO pointed out that the judiciary issues affect local communities. Number 1702 REPRESENTATIVE DYSON acknowledged that there are several ways to view this issue. One view is, as presented, to not change it if it is not a problem. Such a view does not examine the status quo in search of a better way. Representative Dyson pointed out that in the last 20 years there has been a progression of deregulation in North America. In general, deregulation has worked. He said, "The question we need to ask: if government ever needed to be involved in, state government, in regulating garbage collection; does it need to continue?" All of government's functions should be viewed from that vantage. "Is the garbage industry one that has to be regulated?" Representative Dyson stated that he did not begin with the philosophy that if people are not clamoring for a change, then it should not be reviewed. Furthermore, this is not an issue which most people would have problems with. REPRESENTATIVE DYSON said he believed that the question as to whether this is a legitimate government function should be asked. If this is a legitimate government function, then what level of government should perform this function. Representative Dyson informed the committee of his philosophy, "When in doubt, if you can, decentralize." With the refuse industry, he believed that most of the larger communities could handle whatever level of regulation the industry needs. He acknowledged that there are many smaller communities that would struggle with that. He indicated the need for HB 178 to include a provision for the APUC to help the smaller communities that will have difficulty. Representative Dyson announced that he would vote to move this bill. Number 2092 KEVIN RITCHIE, Executive Director, Alaska Municipal League (AML), informed the committee that AML's Transportation and Utilities Committee reviewed HB 178. The committee packet includes a letter from AML regarding HB 178. He interpreted HB 178 as shifting refuse regulation to local governments. The question is who can best provide refuse service. Mr. Ritchie felt that shift would be burdensome for small communities and potentially for all communities. To keep the type of expertise on staff to deal with refuse services could not be done therefore, some of the work would have to be contracted out. He suggested that all the cities in Alaska could join together to create something similar to the APUC in order to take advantage of retaining people with this expertise. Mr. Ritchie understood that on the state level, the fees charged for this service cover the cost of the service. Therefore, there is not a state cost savings. REPRESENTATIVE JOULE inquired as to the process that would be involved with a community creating its own regulations for refuse service, if HB 178 was passed. MR. RITCHIE understood the bill to lock in a process for the first five years. He informed the committee that, as a former City Manager for Juneau, he had become involved with the APUC over a rate issue with the local refuse utility. Mr. Ritchie believed this to be a very complex area of law with many cases and precedents across the U.S. In his opinion, it would be difficult for each municipality to develop its own regulations. REPRESENTATIVE JOULE asked whether there would be costs associated with bringing people on board with this specific expertise. MR. RITCHIE replied yes. He recalled that the legislation calls for between a half percent and two and a half percent add on to the local customers in order to pay for this. In larger communities, it may be possible to hire the necessary expertise while in smaller communities Mr. Ritchie doubted that amount would cover the cost. REPRESENTATIVE JOULE inquired as to whether someone could speak to this possibility of shifting the cost to communities, in terms of drafting the regulations. Number 2389 REPRESENTATIVE DYSON guessed that there would be firms with model legislation from many jurisdictions. Furthermore, he suggested that a subcommittee of AML would be able to develop model regulations with a variety of options for local communities. Representative Dyson stated that he has watched many rural communities get involved in areas that they knew nothing about and eventually learn to do the activity well. If communities are going to be involved in any utilities, the refuse utility is the least sophisticated to work with. REPRESENTATIVE JOULE reiterated that the question is "At what cost?" REPRESENTATIVE DYSON acknowledged that someone always pays. More importantly, is the refuse industry one that needs to be regulated and who is best in a position to make the decisions. He hoped that most communities wanted to make decisions close to home. REPRESENTATIVE JOULE pointed out that aid to municipalities is being reduced by as much as one third which he interpreted as the elimination of aid to municipalities in three years. Yet, there are costs associated with establishing an infrastructure. Once again, the cost is shifted to Alaska residents. "First, they are going to make up the difference, if they don't dissolve if they have the ability through some sort of taxing scheme. Then we add something like this which if it's going to, in fact, cost money. And I wish I could get a handle on what it would cost to initiate these kinds of things." He agreed that there are probably models available, but at what cost. CO-CHAIRMAN HALCRO posed a scenario in which HB 178 passes out of committee. "Under the guise of giving local communities the ability to regulate, we give them the ability to incur more costs in contracting with law firms to develop special regulations that fit their needs in their local communities. For what purpose?" As an advocate of free enterprise, Co-Chairman Halcro agreed that the APUC should move away from those industries that it should not have. However, the refuse industry is only one to two percent of the APUC's workload. Furthermore, smaller communities will incur legal representation costs and regulation administration costs. He indicated that this would place communities in a position of incurring costs that would not otherwise be incurred. REPRESENTATIVE DYSON commented that if one likes centralization, then do not change the refuse industry. On the other hand if one prefers decentralization, then the refuse industry is worth review. Representative Dyson pointed out that there is an amendment for a new Section 11 which would allow municipalities with a population of 5,000 or less to continue to have the APUC regulate their solid waste. Number 2775 REPRESENTATIVE JOULE indicated that he would support the amendment in this committee, but wondered how long the language would remain. He pondered how the split service would be handled. REPRESENTATIVE DYSON pointed out that since Alaska is so varied, the split service is already done with Rural Electric Associations (REA). Also how airports are handled is different in the rural and urban areas. REPRESENTATIVE MURKOWSKI inquired as to how one could truly make the distinction of deregulation when it occurs in some communities and not others. Therefore, she indicated the need for more review of the amendment. Representative Murkowski asked Mr. Ritchie what input AML has received from communities on this issue. MR. RITCHIE stated that AML has not received any input from any community that was in favor of this, although there may be some "shades of gray" with regards to the appropriateness of deregulation. Mr. Ritchie understood HB 178 to be mandated local regulation not deregulation. He believed that all of the major, large municipalities as well as some small municipalities were involved in AML's Transportation and Utilities Committee meetings on this issue. TAPE 99-30, SIDE B REPRESENTATIVE JOULE inquired as to AML's opinion of the amendment which would allow municipalities with a population of 5,000 or less to request APUC to continue its current status in refuse. MR. RITCHIE said that if HB 178 were to pass, it would be good to get as many municipalities out of this situation. Mr. Ritchie had not seen the amendment. Number 2913 BOBBY COX, Vice President, Alaska Division of Waste Management, turned to Co-Chairman Halcro's comments regarding why this legislation exists. At the first hearing, the APUC testified that refuse regulation does not fit the model of other utilities which is a concern being addressed. The attempt is to find a better model that will work for everyone. Mr. Cox indicated that there is a lack of understanding of what is trying to be accomplished with HB 178. From his perspective, the goal is to try to move the regulation to the local level in order for people to be able to deal with the issues. The refuse industry is very different than the electric utility industry. In the refuse industry, there is a low barrier to entry. MR. COX informed the committee that there are a total of about 52 certificated refuse utilities in Alaska of which 13 are controlled by Waste Management. Therefore, Waste Management only has about 25 percent of the refuse utilities certificated in Alaska. Of the 52 certificated refuse utilities in Alaska, 26 are certificated to municipalities. Under HB 178, that would not change; the municipalities would continue to control those certificated areas. Mr. Cox saw HB 178 as continuing to allow the municipalities to control their service areas. Those small communities with certificated operation through a small local entity could continue. MR. COX expressed, as an industry representative, the desire to move to a model that makes sense for everyone and that is fair to the consumers. Currently, other industry participants claim they are able to compete which is not really true. In many cases, there is unregulated competition. For example, in the Mat-Su Valley there is a competitor with a rate that is significantly lower than Waste Management, but Waste Management is not allowed to adjust its rate without a massive rate case. Number 2780 REPRESENTATIVE JOULE turned to Mr. Cox's statement that the APUC testified that it had difficulty with the refuse utility. He commented that he agreed with that statement and "would just a[s] soon get rid of it." He noted that those who are regulated by APUC may complain that the APUC process takes longer, but he had not spoken to anyone who wanted to leave the APUC regime. MR. COX used Anchorage with its multiple competitors as an example. Many of those competitors can price effectively below the market and continue to operate with the protection of the APUC. Those competitors are not subject to antitrust or other issues. Mr. Cox emphasized that if there is going to be competition, it should be a fair playing field for everyone. However, if there is going to be a regulated market, it must make sense. He stated that the difficulty with the APUC is that companies such as Waste Management do not receive much attention due to the commission's larger issues. Furthermore, when the APUC does deal with refuse cases it is difficult because the APUC is not accustomed to dealing with the industry. He said, "We end up kind of getting the short end of the stick with the regulatory process." He highlighted the lengthiness of refuse cases. For example, Waste Management has had certification proceedings go two to three years which is not appropriate in a competitive business environment. CO-CHAIR HALCRO pointed out that if it is difficult for the APUC to regulate refuse, how will local governments with no experience in establishing rules and regulations handle this. MR. COX identified the following three key aspects to HB 178. First, the bill attempts to create a franchise system that would allow a contractual relationship with a service provider. Competitive bidding and utilization of the contract process would accomplish such. The second option would be to open the market to competition. Then non exclusive franchises could be granted for people to compete. Under the bill's current language, if there are competing franchise those people would be able to compete at the same level. If this bill passed, all those currently holding certificates in Anchorage would continue to hold certificates, but they would not be exclusive. The city would not be forced to buy out those certificates. Mr. Cox moved on to the third option which is regulation at the local level. The Municipality of Anchorage would have the capability to do so. Mr. Cox said he supported the amendment addressing small communities however, he did not think the amendment is necessary under the bill's current language because a local community with a certificated provider could continue to use that certificated provider by granting it a franchise. CO-CHAIRMAN HARRIS commented that the amendment provides some feeling of protection for those communities that are unorganized. MR. COX recognized that as a difficult situation. Number 2519 RON ZOBEL, Assistant Attorney General, Fair Business Practices Section, Civil Division, Department of Law, testified via teleconference from Anchorage. Mr. Zobel noted that he had no comments regarding whether it is a good idea to shift refuse regulation to the municipality. The Department of Law is concerned that Section 8 would grant an exemption to antitrust laws for all conduct by an exclusive franchisee without assurance that the conduct would be reviewed or regulated by a municipality. That would result in eliminating the state's ability to review for antitrust concerns where conduct by an entity with an exclusive franchise would result in any anti-competitive effects. Furthermore, the absence of any guarantees that the municipality or other regulatory body would conduct such a review is the elimination of the state's antitrust review authority. MR. ZOBEL explained that the distinction being made here is the difference between an exemption for an entity versus an exemption for conduct that has been reviewed and approved by a regulatory body. Mr. Zobel quoted Mr. Gretsky(ph), who was an official for the Antitrust Division of the U.S. Department of Justice when the following statement was made. Mr. Zobel quoted Mr. Gretsky(ph) as saying: As we think about increasing competition and deregulating, we do not want to end up with the worst of all worlds which I would describe as deregulated monopoly. Simply deregulating monopoly is not the same as facilitating competition. Where there is no consumer choice, consumers should not be left at the mercy of the deregulated monopoly. MR. ZOBEL expressed concern with the present language in Section 8. The concern is that a municipality could grant an exclusive franchise and, for whatever reason, not regulate specific conduct such as rates or other conditions of service. He did not believe an exemption should be given unless specific review of a rate or conduct has occurred. Such review would provide assurances to the public that there is not a deregulated monopoly. The current provision grants an exemption where there is an exclusive franchise and furthermore, a municipality could allow nominal PERA filings. Such an exemption should not be granted. There should be some antitrust review where rates or conduct have not been regulated. MR. ZOBEL informed the committee that at the federal level there is a requirement that there be a state policy which is included in HB 178. The federal level also requires active supervision of the particular act or conduct that is immunized. This provision, Section 8, could be modified to achieve such with the following language: "the conduct or act of such a solid waste collection or disposal carrier that's actively supervised and approved by a municipality where there is such an exclusive franchise." Such language would remedy the problem noted in a letter to Representative Kott. REPRESENTATIVE DYSON inquired as to how much antitrust provisions would protect against predatory pricing in a deregulated environment. MR. ZOBEL pointed out that if the antitrust laws apply to the particular act or conduct, there is a body of law that controls predatory pricing. He explained that predatory pricing is a price that falls below cost in order to drive others out of the market. As stated earlier, when the refuse industry is no longer a utility then it does not have an exemption under the state antitrust laws. Therefore, he believed the rules against predatory pricing would apply to places where there is not an exclusive franchise. He was concerned with the application of the antitrust laws in places where there has been an exclusive franchise granted, but particular prices, conduct, and actions are not reviewed by the municipality. Mr. Zobel believed that where there is a "competitive" market, the antitrust laws regarding predatory pricing would apply under HB 178. Number 2154 REPRESENTATIVE DYSON asked, franchising aside, how practical it would be for small contractors to go against the large contractors on antitrust and predatory pricing. MR. ZOBEL commented that any antitrust case is difficult. The Department of Law's capability to initiate antitrust cases is limited. Antitrust cases are a more complicated type of case. Under HB 178, entities or competitors or consumers who thought they were being harmed could bring an antitrust suit, but it would be difficult. Furthermore, an antitrust suit is not what a consumer or small competitor would do. Due to the expense, antitrust suits are the last resort. In further response to Representative Dyson, Mr. Zobel agreed that antitrust cases are lengthy and often result in a settlement following much discovery. Only a few cases continue to a full court battle. REPRESENTATIVE DYSON said that Mr. Zobel's comments confirmed his suspicion that the smaller entities would starve waiting for an antitrust decision. MR. ZOBEL interjected that he did not want to devalue the deterrent value of having antitrust laws. REPRESENTATIVE DYSON posed a situation in which a small company prevails against a large company after five years in an antitrust suit. Could that small company recover damages which take into account their lost business opportunity? MR. ZOBEL indicated that some damages for that could be collected if the small company could trace the damages to an antitrust violation. In further response to Representative Dyson, Mr. Zobel believed it fair to say that antitrust laws would attempt to make that small company whole from the damage caused by the violation. He noted that some compensation for attorney's fees could be obtained. REPRESENTATIVE MURKOWSKI informed Mr. Zobel of the amendment before the committee. She asked if he felt the amendment is practical and would it help the APUC. MR. ZOBEL said that the amendment is probably legally possible and could be done. He noted that he has dealt with many of the refuse cases for which an accountant, an engineer, and an attorney were needed. The smaller class of cases subject to APUC regulations, should allow APUC to do so in that smaller class. He indicated the need to discuss this with the APUC. Number 1747 BRUCE GAGNON, Attorney, Atkinson, Conway & Gagnon, testifying via teleconference from Anchorage, noted that he was requested by the Municipality of Anchorage to address HB 178. He indicated that the committee should have a copy of his letter in the committee packet. Mr. Gagnon had two concerns which remain even with the CS. He identified one concern as the option to grant an exclusive franchise which in the case of the Municipality of Anchorage such would be granted to Waste Management. However, it is unclear as to whether it would be an exclusive franchise just in the service area currently being serviced or throughout the entire municipality. Even with the addition of the language referring to competitive franchises, the exclusive franchise would most likely occur if this legislation passed. He predicted that under HB 178, the municipality's waste management services could not operate. Mr. Gagnon did not see what would be gained by giving Waste Management an exclusive franchise. Currently, Waste Management's certificate of public inconvenience and necessity exposes them to competition. Under this act, that would not happen due to the five year exclusive franchise period. MR. GAGNON identified the second concern as the compulsory buy out. He believed that there would be great exposure to the Municipality of Anchorage and other communities that sought to impose regulations which were viewed as a deprivation of rights. Number 1559 CO-CHAIRMAN HARRIS understood Mr. Gagnon to have said that this legislation would require or force municipalities to grant exclusive franchises. However, Co-Chairman Harris read the legislation to not only allow exclusive franchises, but also competing franchises. MR. GAGNON agreed that the legislation provides for exclusive franchises, competing franchises, or a buy out. He pointed out that the competitive franchise language, on page 3, has a trigger date of January 1, 2000. Currently, the municipality is not a competing franchise with Waste Management. Furthermore, it would be difficult for the municipality to place itself in a position of being a competing franchise by January 1, 2000. As a matter of policy, the municipality avoids getting into business in areas where private businesses provide services. "What it contemplates is that there will be someone who will be a competing or someone who will want to be a competing franchisee. If that doesn't happen, then this particular option will not be implemented and a municipality then would have to go back to the exclusive franchise regime contemplated by the first option." If there was a competing franchise, then there "shall be no price regulations" which is problematic from both an antitrust standpoint and a policy standpoint. This legislation has divested the municipality of having any power to regulate the prices and it creates an exposure to predatory pricing. MR. GAGNON pointed out that the franchise, under the competing franchise option, would last forever. There is also a provision retaining the buy out rights which hangs over the municipality. He said that whenever the franchisee felt threatened by potential regulation, the buy out provision would come forward as a possibility. MR. GAGNON, in response to Co-Chairman Halcro, said that he had just received the amendment and had not yet reviewed it. CO-CHAIRMAN HALCRO asked if the amendment would create problems under the equal protection provision of the Alaska Constitution. MR. GAGNON answered, "Probably not." CO-CHAIRMAN HALCRO referred to the last paragraph on page 4 of Mr. Gagnon's letter dated April 21, 1999. That paragraph says that Anchorage taxpaying residents, who are treated differently than Fairbanks taxpaying residents under HB 178, may have a case under the equal protection provision. MR. GAGNON explained that he was attempting to address cities that are in similar circumstances being treated differently when there is no apparent rational basis to do so. He did not believe that paragraph in his letter would address the special circumstances of smaller communities. Number 1092 DAVE VEAZEY, Member, Fairbanks North Star Borough Assembly, testified next via teleconference from Fairbanks in opposition to HB 178. Mr. Veazey stated that Fairbanks is not in a position to regulate a large company, or monopoly such as Waste Management. From the APUC home page, Mr. Veazey had obtained information reporting that Waste Management, Incorporated has recently acquired control of nine different companies serving 39 different communities. At present, he was not convinced that the deregulated free market environment exists in Fairbanks. Mr. Veazey expressed concern with Section 1(b)(4) and Section 2(e)(1) and (2) which he believed are in direct conflict with the interests of Fairbanks borough citizens. The borough has a hauling contract which is competitively bid. He illustrated that the competitive process has served the borough well; the price has decreased from about $60 per ton to $27 per ton. However, hauling prices appear to be increasing. At this point, Mr. Veazey said that the borough would have to hire Waste Management, a monopoly which would be noncompetitive, to do this work. If Waste Management is not chosen or Waste Management provides a poor service, for which he did not see any protection, the borough would be obligated to purchase them. Such prospects are unappealing and not acceptable. In conclusion, Mr. Veazey urged the committee to reject HB 178. CO-CHAIRMAN HARRIS inquired as to why Mr. Veazey would think the refuse industry should be regulated at all. MR. VEAZEY said that in the current situation in which the refuse industry is practically a monopoly, it is important for the refuse industry to be regulated for the interests of the citizens. He specified that it is important to maintain fair prices and ensure quality service. REPRESENTATIVE DYSON appreciated Mr. Veazey's comments, especially that often real competition does not exist in small areas. Number 0728 PAM KRIEBER, Part Owner, Valley Refuse, testified via teleconference from the Mat-Su Valley. Valley Refuse operates in competition with Waste Management in the Mat-Su Valley. She stressed that the issues have not changed since her testimony at the last hearing on HB 178. With regard to Mr. Cox's statement that Waste Management only owns 13 certificates, those 13 certificates have the market share of the business. If you review gross revenues, the belief that Waste Management owns 95 percent of the market is valid. She understood Mr. Cox to indicate that Waste Management has a real problem with its competitor, Valley Refuse, in the Mat-Su Valley. Reader's Digest basic theory on rate making states that higher expenses can justify higher rates. All regulated utilities are free to submit tariff advisements to the APUC in order to allow the APUC to review their tariffs for fairness and adjust them accordingly. Therefore, Waste Management is free to do so. Ms. Krieber stated that Valley Refuse has a low overhead and makes garbage disposal affordable for many in the Mat-Su Valley. CO-CHAIRMAN HARRIS asked Ms. Krieber if Valley Refuse has a special rate or a way that allows the rate to be lower. MR. KRIEBER emphasized that Valley Refuse is subject to the same rules as Waste Management. She explained that Valley Refuse offers multiple levels of weekly service which Waste Management could offer as well. Number 0450 SHARON DANIEL, Copper Basin Sanitation, testified via teleconference from Glennallen in opposition to the deregulation of refuse service. She stated that refuse collection statewide should be regulated whether by APUC or another entity. Refuse collection is tied to public health and therefore, should be regulated. There are unorganized areas in the state and those areas do not have refuse regulation if the APUC is to deregulate. She acknowledged that the amendment addresses that issue. She pointed out that small communities already have small companies that fall under the dollar limit for active oversight from the APUC. In other words, only the large problems go to APUC. The amendment to regulate in unorganized areas of the state and small municipalities effectively moves the large population areas into regulation by the municipalities which she did not care for. Number 0213 MARY HUGHES, Municipal Attorney, Municipality of Anchorage, testified via teleconference from Anchorage. She informed the committee that Mr. Harman misspoke because the APUC did not make any recommendations as to how HB 178 could be amended. However, the APUC indicated to the municipality that the APUC was opposed to HB 178. With regard to the discussion as to how municipalities could regulate the services now regulated by the APUC, HB 178 does not allow the municipality to regulate. The legislation says that the municipality "shall franchise." Ms. Hughes echoed her comments from the previous hearing that the Municipality of Anchorage could regulate refuse, but the cost to do so would be borne by the ratepayers. However, HB 178 does not allow such. Ms. Hughes stated that the Anchorage Assembly is not in support of HB 178. TAPE 99-31, SIDE A MR. HUGHES indicated that the Anchorage Assembly supported the Municipality's 1999 Legislative Policy. There are three provisions which must be included in any bill that the municipality supports. Those provisions are included in AR 99.102. Ms. Hughes pointed out that AS 29.35.050 (a) cannot be altered, although that would be the case under HB 178. She informed the committee of the need for provisions allowing the municipality to maintain its own refuse service in its certificated area. Furthermore, the Anchorage Assembly should be provided the option to provide regulation under 42.05. Therefore, some of the problems discussed by Mr. Zobel would be addressed through this regulation. FAY VON GEMMINGEN, Member, Anchorage Assembly, testified via teleconference from Anchorage. She explained that the main concern and reason for the passage of the resolution was to ensure that the Anchorage ratepayers were protected from increased cost of service while being provided a safe and reliable service. There is also the need to protect the Anchorage taxpayers from the loss in value of that utility. She expressed concern that the municipality does not really have the ability to regulate refuse. Furthermore, there is great concern with the possibility of having to buy back a certificate and assets of one of the companies which would place the ratepayers and taxpayers at considerable risk. CO-CHAIRMAN HALCRO asked if Ms. Von Gemmingen received constituent complaints regarding poor refuse service. MS. VON GEMMINGEN replied no. Number 0333 REPRESENTATIVE KOTT, Sponsor, Alaska State Legislature, commented that complaints regarding utilities are not generally directed to assembly members. He indicated that the most appropriate place for complaints to be directed would be the APUC since that is the regulator. Furthermore, Representative Kott believed that much of the testimony has been based on a misunderstanding of HB 178. There is a provision in the legislation which allows a municipality to continue to provide the same level of refuse service it currently provides. With regard to franchise agreements, it would not be a provision that the municipality would have to purchase the certificate. REPRESENTATIVE KOTT stated that the antitrust issues should be addressed in the House Judiciary Standing Committee. Therefore, he hoped that the chairs of this committee would forward a letter to the Speaker requesting a House Judiciary Standing Committee referral. Representative Kott agreed with Representative Dyson's earlier comments regarding the need to determine if refuse service should be regulated and if so, at what level of government which he felt should be at the borough or municipal level. CO-CHAIRMAN HARRIS commented that he believed it would be the will of the majority of the committee members to request a House Judiciary Standing Committee referral. There being no further testimony, the public testimony portion of the hearing was closed. Number 0636 REPRESENTATIVE DYSON moved that the committee adopt Amendment 2: Page 7, line 20 Insert a new bill section to read: *Section. 11. AS 29.35.050 is amended by adding new subsections to read: (k) The Alaska Public Utilities Commission shall continue to have regulatory authority over the collection and disposal service of garbage, refuse, trash, or other waste material to the public for compensation to areas of the state that are not municipalities as defined under Section 3(j)(2) of this Act. Therefore, AS 42.05.431(f), 42.05.431(g), 42.05.711(m) and 42.05.990(4)(F) shall continue to apply to areas of the state that are not municipalities as defined under Section 2(j)(2) of this Act. (j) Municipalities with a population of 5,000 or under may request the Alaska Public Utilities Commission to regulate the collection and disposal service of garbage, refuse, trash, or other waste material to the public for compensation under AS 42.05.431(f), 42.05.431(g), 42.05.711(i), 42.05.711(m) and 42.05.990(4)(F). There being no objection, Amendment 2 was adopted. REPRESENTATIVE DYSON commented that Amendment 2 addresses a significant amount of his concern. The amendment gives the smaller communities that would struggle with competition and regulation an option. Representative Dyson informed the committee that if HB 178 is moved from this committee he would support that and sign amend on the report. Adoption of Amendment 2 addresses one of the responsibilities of this committee. With regard to the franchise portion of HB 178, he felt that the House Labor & Commerce Standing Committee is an appropriate place to deal with that issue. Number 0769 REPRESENTATIVE DYSON moved to report CSHB 178 out of committee with individual recommendations and the accompanying fiscal notes. CO-CHAIRMAN HALCRO objected. He expressed frustration with the work he has seen in which committees take a bad piece of legislation and move it to the next committee where it will somehow improve. This committee's purview is communities and not one community has come forward in support of this legislation. The communities have stated that they do not want this. Four letters have been received from communities in opposition to this. Co-Chairman Halcro maintained his objection to report HB 178 from committee. However, he offered to work with the sponsor on this over the interim. REPRESENTATIVE MURKOWSKI informed the committee that she was not comfortable with this legislation, but she would support reporting it from committee. That support is based on the fact that there are two more committees of referral. She emphasized the need for HB 178 to also be assigned to the House Judiciary Standing Committee. She indicated that this committee's job has been done with regard to its purview. CO-CHAIRMAN HARRIS agreed with Representative Murkowski. He announced that he would be making a request for HB 178 to be heard in the House Judiciary Standing Committee. REPRESENTATIVE DYSON commented that if Amendment 2 or language addressing the smaller communities is not maintained through the process, the committee should request return of the bill. Number 1245 Upon a roll call vote, Representatives Dyson, Murkowski, and Harris voted in favor of reporting CSHB 178 from committee and Representatives Morgan, Joule, and Halcro voted against reporting CSHB 178 from committee. Representative Kookesh was not present. Therefore, the motion failed with a vote of 3-3