HOUSE BILL NO. 24 "An Act extending the termination date of the Regulatory Commission of Alaska; and providing for an effective date." 2:29:02 PM Co-Chair Stoltze explained that the proposal to extend the Regulatory Commission of Alaska (RCA) had been previously included in another bill, and had been separated out into HB 24 in order to simplify the issue. KONRAD JACKSON, STAFF, REPRESENTATIVE KURT OLSON, explained that HB 24 would extend the RCA's sunset date to June 30, 2019. He pointed to the summary and the Legislative Audit recommendation for an eight-year extension. Legislative Audit had noted that the RCA had taken steps to address issues raised in the 2006 audit, even though everything was not completely resolved. Co-Chair Stoltze noted that the proposed eight-year extension was an indication that there were still problems. He wondered whether it would be fair to say that the state would continue to have a regulatory commission. Mr. Jackson responded in the affirmative. He added that the intent was an eight-year extension. He believed Legislative Audit was comfortable with the process, since they had recommended the extension. Vice-chair Fairclough stated that she held the RCA responsible for the energy shortage in Southcentral Alaska. She stated her intent to file an amendment to make the proposed extension much shorter. She wanted to have an extensive conversation about the shortfalls and to hear the challenges faced by those who had to go to the RCA. She supported having a consumer protection agency, but she was concerned about brownouts and blackouts in the Anchorage area. 2:34:12 PM Co-Chair Stoltze pointed out that there were people absent from the hearing. PAT DAVIDSON, LEGISLATIVE AUDITOR, DIVISION OF LEGISLATIVE AUDIT, explained that during the audit, the agency had made a recommendation for an eight-year extension; inherent in the recommendation was the continuing every-two-year audit requirement in place to review whether the RCA was meeting its statutory timelines with regard to the cases in dockets. Additionally, information included in the annual report was in the missions and measures, and any other performance objectives that management decided to adopt. The every-two-year audit was one of the reasons the recommendation was for an eight-year extension. Representative Edgmon noted that he had served on the House Special Committee on Energy and appreciated the work of the RCA. He recalled seeing the organizational chart listing the accounting and finance staff; he thought the lineup was inadequate. He asked whether the number of staff had been an issue. Ms. Davidson replied that the audit noted that the RCA was experiencing staff turnover; however, the audit did not specifically evaluate the adequacy of the number of staff. Representative Edgmon questioned whether the staffing issue was important to focus on, given all that the RCA had to oversee. He asked whether Legislative Audit had been directed to consider staffing. Ms. Davidson replied that the audit looked more at the outcomes and found that the commission was meeting its statutory timelines. She added that some of the surveys done with some of the utilities and customers had been generally supportive of the statutory timelines, although some of the timelines were seen to be more generous than some might have wanted. 2:39:17 PM Co-Chair Stoltze queried audit findings related to staff and operational or continuity issues that the length of the sunset would have bearing on. Ms. Davidson responded that no new recommendations had been made in the audit report. However, it was noted that the RCA was still working on implementing one of the prior audit's recommendations related to developing regulations to establish standards for certain aspects of discovery. Co-Chair Stoltze recalled past six-month extensions. Representative Costello pointed to timelines intended to elicit results in an expedient manner and questioned the reason for stop-the-clock activities. BOB PICKETT, CHAIRMAN, REGULATORY COMMISSION OF ALASKA (via teleconference), was not aware of "stop-the-clock" actions. He referred to a provision in statute for extensions; a docket could be extended by agreement of all the parties to that docket, or the commission could extend up to a period of 90 days (one time) on its own motion, for good cause. Vice-chair Fairclough queried the timing of the previous audit's recommendation for the implementation of regulations. Ms. Davidson replied that the recommendations had been made in the audit that was released at the end of 2006. Vice-chair Fairclough pointed out that the agency had had at least four full years to implement the recommendations. Co-Chair Stoltze invited the RCA chairman to make statements. Mr. Pickett reported that the RCA had been supportive of the Legislative Audit's recommendations for the eight-year extension primarily identified for stability. He added that four years prior, there had been a joint executive- and legislative-branch task force on the RCA; at that time, clear issues relating to the ability to attract and retain personnel were identified. He wished he could report that substantial progress had been made on the issues, but he could not. Mr. Picket continued that since a Department of Administrative (DOA) effort and study made in August of 2010, the RCA had experienced 100 percent turnover in its tariff department, and decades of experience had left the agency to take positions at utilities and higher-paid employment in other sectors. The turnover came at the time the agency was preparing for the Trans-Alaska Pipeline (TAPS) rate cases. He noted a "challenging situation" in the finance department, but added that there had been some progress in the last 60 days with the new administration at DOA. He pointed out that starting in the fall of 2011, there would be eight weeks of hearings with the Federal Energy Regulatory Commission related to strategic refiguration cases. He maintained that the activity would put a burden on the RCA. 2:44:40 PM Mr. Pickett did not want to lose additional staff because of uncertainty about the timing of the extension. He said that he shared frustrations related to the Cook Inlet gas issues. He noted that he had been on the commission for three years and was astounded that things had gotten to the point they were at. Mr. Pickett acknowledged that the RCA had made decisions in 2006 that he would change, given the chance. He pointed out that in the past couple of years, the RCA had approved five natural-gas supply contracts, natural-gas storage through the new utility, and was confronted with an excess of approximately $1 billion of capital expenditures on which the commission would be making decisions in the next few years. He maintained that all of the activities required competent staff, commitment, and some level of stability. Mr. Picket explained that the RCA dealt with contentious issues and that everybody involved was rarely happy. He stated that he had worked to ensure that anyone who came before the commission was treated fairly and evaluated properly. Vice-chair Fairclough acknowledged the complexity of the work. She asked why the 2006 audit recommendations had not been completed. Mr. Pickett responded that it had been a matter of prioritization. The commission had started a process of soliciting input from the industry and the impacted parties, and had worked with Legislative Audit when it was at the commission during the fall of 2010. He maintained that there was currently a higher level of emphasis on the issue. Mr. Pickett stressed that the issue was not easy, as there were so many different perspectives; expediting the process from any one party's perspective would impede the rights of another party. He believed progress could be made in the near future. Vice-chair Fairclough asked whether salary issues made it hard to retain staff, or whether there were other reasons. 2:48:14 PM Mr. Pickett responded that all possible reasons were considered. He stated that the working environment was very stressful. He noted that the tariff division was being restaffed and that he was comfortable with the people hired. Vice-chair Fairclough questioned whether staff reported directly to him. Mr. Pickett responded that there was middle management, including an advisory section chief, a commission section chief, and a chief administrative law judge. In response to a question by Vice-chair Fairclough, Mr. Pickett replied that the tariff department was the most extreme example. Representative Costello questioned how many of the commissioners were assigned to the TAPS rate case. Mr. Pickett replied that all five commissioners were assigned to the case. Representative Costello asked what would happen to the workload not related to the case. She wondered whether other work would be put on hold. Mr. Pickett replied that with statutory deadlines, the RCA did not have the option to put work on hold. He noted that past rate cases had required all five commissioners, especially when the judicial branch came into the process and there were remands. He believed all the commissioners were needed for the TAPS case. Representative Costello clarified that it was not a statutory requirement to assign all five commissioners, but a management decision. Co-Chair Stoltze OPENED and CLOSED public testimony. 2:51:48 PM AT EASE 2:56:38 PM RECONVENED Vice-chair Fairclough MOVED Conceptual Amendment 1: Line 5, change "2019" to "2015" Representative Doogan OBJECTED. Mr. Jackson stated that the sponsor felt that the year 2015 was a step in the right direction. He did not think two years was sufficient. Mr. Pickett stated that he had no comment on the amendment. Co-Chair Stoltze asked whether he thought four years was better than two, but still worse than eight years. Mr. Pickett agreed that the assessment was correct. Representative Gara asked whether a four-year extension made any difference to the operation of the agency. Mr. Pickett responded that the situation would depend on the individual assessments of employees at the RCA and the commissioners. Co-Chair Stoltze believed Mr. Pickett was supportive of the eight-year extension. Mr. Pickett agreed. 2:59:16 PM Representative Wilson queried the number of vacancies at the RCA and how long they had been vacant. Mr. Pickett responded that there were about eight vacancies. He offered to get more information. Vice-chair Fairclough recognized the difficulty of the RCA's job and commended the work of the chairman and commissioners. She argued that recommendations had been made and regulations had not been created in the four years allowed. She hoped to come back to the legislature to provide the correct incentives to adequately compensate staff. She felt recommendations were needed sooner than in eight years. Representative Gara requested an explanation of why the RCA had not adopted the regulations. Mr. Pickett replied that the rule-making process had never been instituted; once a rule-making process officially began at a public meeting, there was a two-year clock that began as well. Currently, the RCA was at the point of framing what the draft regulations might look like in order to begin moving forward. He believed that the process had not begun in 2006 and 2007 because there had been other priorities. 3:02:32 PM Representative Doogan WITHDREW his OBJECTION. Representative Gara OBJECTED to the amendment. He described history; when he had first come to the legislature, the RCA had been embroiled in fights between different companies and there had been a lot of pressure placed on the RCA. He thought a shorter extension would put more pressure on the RCA to cede independence that was already granted to cover consumer matters. He thought a longer extension would give the commission the green light to act as an independent agency. Vice-chair Fairclough concurred and stated that she would not have offered a conceptual amendment if previous audit recommendations from 2006 had been complied with. She felt the RCA had already been given four years to come into compliance; she wanted to hold commissions and boards accountable for audit recommendations. She noted that she did not choose a two-year extension in the amendment because she realized that the commission had a difficult job. Co-Chair Stoltze spoke to the issue of legislative involvement, pointing out that there had been no amendments of substance offered by anyone. He thought the extension was fairly simple, but believed it was possibly too long. 3:05:27 PM Representative Doogan spoke in support of the amendment. He had wanted to support the eight-year proposal, but found the argument by Vice-chair Fairclough to be compelling. He referred to agencies that had not complied with audits. He did not know whether shortening the time would force the RCA to comply, but he thought there had to be some kind of consequence for non-compliance. Representative Wilson spoke in support of the amendment. She wanted to send a message to the RCA about expectations of consistency and an effort towards correction in response to audits. She referred to other, similar legislation. Representative Guttenberg asked how long the TAPS tariff rate case would take. Mr. Pickett responded, "That is an open question." He said that there were a number of parties involved and the issue was contentious. Representative Guttenberg spoke in support of the amendment, but had concerns that the same problems would come up again in four years, and then the agency would be in the middle of a contentious issue. He thought big politics would be involved, and pressure would be put on the board. 3:09:05 PM Representative Doogan stated that he would support an eight-year extension if the RCA could fix what needed to be fixed by the following year, which would address concerns about having to get re-authorization in the middle of a contentious rate case. Vice-chair Fairclough stated for the record that no one had spoken to her other than Mr. Pickett about problems with the RCA. She stated that she was not involved in "phone wars" and did not want to be. However, she believed that recommendations made by auditors had to be complied with. Representative Gara MAINTAINED his OBJECTION to Conceptual Amendment 1. A roll call vote was taken on the motion. IN FAVOR: Gara OPPOSED: Joule, Wilson, Costello, Doogan, Fairclough, Guttenberg, Thomas, Stoltze Representative Neuman was absent from the vote. The MOTION PASSED (8/1). Conceptual Amendment 1 was adopted. 3:11:27 PM Vice-chair Fairclough MOVED to report CSHB 24(FIN) out of committee with individual recommendations and the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CSHB 24(FIN) was REPORTED out of committee with a "do pass" recommendation and with the attached new fiscal note by the House Finance Committee for the Department of Commerce, Community and Economic Development. 3:12:30 PM AT EASE 3:15:15 PM RECONVENED