HOUSE BILL NO. 234 "An Act extending the termination date of the Regulatory Commission of Alaska; and providing for an effective date." 1:41:12 PM REPRESENTATIVE MIKE HAWKER, SPONSOR, presented HB 234, which extended the termination date of the Regulatory Commission of Alaska (RCA). He explained that the bill extended the Regulatory Commission of Alaska for a period of eight years, which was allowable under statute. The request was consistent with recommendations made by the state auditor. He noted that the auditor's requirements were to determine a public need for the continued existence of the commission and whether it operated in an efficient and effective manner. The auditors found that the commission met all of the requirements of the extension. He pointed out that issues existed in the past but were resolved. He stressed the difference between the public disagreeing with a ruling from the RCA versus the functionality of the commission. He reiterated that the audit demonstrated that the commission was functioning well and in accordance with statute. Representative Hawker pointed to the appendices of the audit (copy on file) on pages 23 to 30. He detailed that the audit appendices were a survey of the users of the agencies. The surveys showed how the agencies were serving its stake holders and were an integral part of the reauthorization audits. He understood that the Regulatory Commission of Alaska was often disliked because individuals disagreed with its rulings. He noted that the appendices and details in the summary on page 18 of the audit reported favorable comments and statistics in their ratings. As many as 70 percent of the respondents gave a good or very good rating for the RCA, with only 8 percent issuing unfavorable ratings. He thought that the 70 percent rating was remarkable considering that the RCA dealt with controversial issues. He referenced Appendix C, page 31 of the audit, which indicated that "the current structure of regulatory cost charges were sufficient and adequate for the organization to function." He emphasized that the commission was operating "in the black" in addition to meeting its statutory obligations for quality regulation and protection of the public welfare. Representative Hawker discussed the two issues noted in the audit. Item one was a perennial issue that indicated that the commission needed to undertake better documentation of its review process. He pointed out that the documentation process was an internal process within the agency and was different than issues about the outcome of the commission's regulatory process. The issue was a matter of "improving its paperwork handling." He read the recommendation, "RCA's chair should improve and enforce written procedures to ensure case management." He summarized that the recommendation was not a criticism of the commission's work performance or regulatory activities. Representative Hawker discussed the second recommendations which dealt with regulatory dockets. He defined regulatory dockets as "having a question asked and answered" as part of the regulatory process. He read from the Second recommendation: "The legislature should consider clarifying AS 42.05.175(e) to ensure RCA fulfills legislative intent when processing regulatory dockets." He maintained that the RCA believed it was in compliance with the statute and thought the issue was "a management debate." He alluded to the historical problems which lead to the creation of the Regulatory Commission of Alaska and described its beginnings as a "bumpy road." 1:50:40 PM Representative Hawker acknowledged it was a long road to develop the commission into what it was today. He asked the committee to consider the commission as it operated currently and asked the committee to help the RCA improve and address the issues identified in the audit. He argued that the agency had matured and merited the eight year extension. He believed that the extension enhanced the stability of the agency instead of operating under the burden of uncertainty under one year extensions. He strongly advocated for setting the agency free to function with trust for the next eight years. Vice-Chair Neuman asked about the smaller independent companies that operated in the Cook Inlet region gaining access to gaslines and with contractual obligations with utility companies. He wondered whether some of the issues were resolved. Representative Hawker directed the question to the RCA. He asked the committee members to consider the operations and functioning of the commission whether or not individuals agreed or disagreed with a ruling of the commission. He added that the approval of long term gas supply contracts in Cook Inlet had been problematic for him in his role as a legislator. He reminded the committee that the Cook Inlet Recovery Act [HB 280Natural Gas: Storage/ Tax Credits Adopted 2010] removed the block that prevented the commission from approving long term gas supply contracts. The provision mandated that the RCA not only consider the least expensive option, but examine how its decision impacted the community. The cited statute was included in many contract approvals published by the RCA since the law was enacted. He believed that the commission played a large role in the recent success of resource development and gas supply in Cook Inlet. Representative Gara viewed the bill as a non-controversial agency extension issue. KRIS CURTIS, LEGISLATIVE AUDITOR, ALASKA DIVISION OF LEGISLATIVE AUDIT discussed the RCA sunset audit, dated July 2013. She concurred that Legislative Audit concluded that the RCA served the public's interest and recommended the maximum 8 year extension allowed in statute. She restated the two audit recommendations. The auditor discovered high error rates in the commission's data and recommended improvement. Secondly, Legislative Audit made a recommendation to the legislature concerning clarification regarding regulatory dockets. She delineated that RCA recorded its activity in dockets. Statutes required the RCA to issue final orders in a rule making docket within 730 days plus one 90 day extension. Statutes prohibited the commission from "terminating a proceeding in a docket and opening a proceeding in another docket on substantially the same matter." The audit discovered instances where the RCA split the rulemaking proceedings into two dockets: · One docket considered the need for regulations. Once public testimony was completed the docket was closed · The second docket considered the adoption of regulations. This process allowed the Regulatory Commission of Alaska to take up to four and one half years to complete proceedings. Ms. Curtis added that "RCA management believes that including clear intent language in a regulatory docket's initiating order makes the process transparent and complies with Alaska Statutes." Legislative Audit acknowledged that the commissions dockets included clear intent language and was transparent in that regard. She felt that the practice evaded the statutory timelines and it appeared not to serve the regulatory community or public's interest. The legislature should consider clarifying the statute to ensure RCA fulfills legislative intent when processing regulatory dockets. 1:59:38 PM TW PATCH, CHAIRMAN, REGULATORY COMMISSION OF ALASKA, thanked the sponsors for advancing HB 234. He reported that he was elected Chairman of the commission for 3 terms. He felt that the agency had earned the legislator's trust and requested the extension of the 8 year statutory maximum. He appreciated the auditor and believed the audit was "rigorous and thorough." He believed the commission earned the entire 8 year extension. He understood the reason for the previously shorter extensions. He relayed that the legislature requested a report by the commission on how to improve its process. The RCA filed the report on January 16, 2012 which included its goals and had complied with all of them. In addition, the RCA filed a report on January 21, 2014. The report detailed the commission's completion of four regulations dockets and how it worked cooperatively with parties to early identify the complex issues in order to achieve a shorter timeline for the rulings. The commission continued to design and develop regulatory practices that enabled generally shorter timelines but still allowed "compilation of a sound statistical record." Mr. Patch continued that the initial report demonstrated that the utility dockets were managed according to the statutorily prescribed timelines and completed within approximately 450 days. He reported that over the last three years the process was greatly improved and the current year's utility dockets were completed in 311 days; a reduction of nearly six months. Co-Chair Stoltze asked if utility dockets were rate adjustment dockets. Mr. Patch replied that the utility docket was when "a revenue requirement was established or a rate design was established." Utility dockets created the most anxiety among the commissions "constituency." He related that the regulated utility companies acknowledged that the process was greatly improved and appreciated. The company's credit ratings were enhanced by the shorter timeframe, which created faster "regulatory and rate of return certainty." The RCA improved its process without requested additional funding or staff, enabling legislation, and without adverse impacts to industry or companies. Mr. Patch stated that the improvements were aided in part by the Regulatory Affairs and Public Advocacy Sections of the Department of Law and the utility companies. He applauded the administration's commissioners and the RCA staff for the majority of the effort. In addition the RCA routinely assisted the legislature and other state agencies on a number of important policy matters. Legislators regularly consulted with the RCA on legislation related to regulatory issues without addressing the "substance" of the bills. He indicated that the commission had consulted on HB 280 [Natural Gas: Storage/ Tax Credits Adopted 2010], HB 4 [Alaska Gasline Development Corp; Regulatory Commission of Alaska Adopted 2013], HB 9 [In-State Gasline Development Corp 2012], and was currently consulting on SB 196/HB 340 RCA: Railbelt Electric Utility Report. Mr. Patch listed the agencies the Regulatory Commission of Alaska routinely assisted: The Alaska Oil and Gas Conservation Commission, Department of Environmental Conservation (DEC) on capacity development and public health issues and procured funding from the rural utility service; Department of Natural Resources (DNR), Oil and Gas Division, and oversaw the state's pipelines regarding safety conditions. The RCA assisted the AGDC with the development of its tariff. Mr. Patch strongly disagreed with the second recommendation of the audit that the legislature should clarify the timeline statute. He referenced a letter he wrote dated September 4, 2013 stating the reasons he disagreed with the finding. 2:10:12 PM Mr. Patch cited docket R-10-002 from a regulatory proceeding, and recounted that the subject matter considered the need for regulations involving discovery. In a subsequent docket, the subject matter was a proposal of specific discovery regulations. He stressed that the RCA and Department of Law (DOL) considered the subject matter "two distinctly different questions." He assured the committee that the commission had not evaded the legislature's requirements. Both dockets were resolved in a timely manner. He explained that the RCA had not developed a process to gather preliminary information in order to make a decision. The commission changed the process before the audit and instituted a new docket called an "I docket" or "information docket." The information dockets were now regularly employed for preliminary scoping and decisions and subsequently preceded to a regulations docket for the adoption of regulations. He concluded that he disagreed there was a need for legislative action. NORMAN ROKEBERG, COMMISSIONER, REGULATORY COMMISSION OF ALASKA, echoed the testimony of the Chairman Patch and the sponsor. He believed that the operational progress under the leadership of the chairman earned the legislature's confidence in the ability of the commission to carry out its work. He offered that the commission was able to carry out its statutory mandates and the policy calls of the legislature. He urged for adoption of the audits recommendation to grant the 8 year extension. Co-Chair Stoltze asserted that he did not always agree with every decision the RCA made but had much confidence in the commission's competence and decision making process. Vice-Chair Neuman noted the mission of the RCA was to oversee regulation of public utilities and pipeline carriers. He questioned whether the commission addressed issues of pipeline access by smaller utility companies. Mr. Patch replied that access to pipelines was carried out in a non-discriminatory manner. He assured the committee that there was no difficulty in terms of accessing pipelines. He shared that the commission was considering a matter regarding the consolidation of the ownership, management, and rate structure of Cook Inlet pipelines. He did not know of any difficulty with small exploratory companies accessing pipelines for the use of transporting its product. He thought that the question asked was about small producer's access to markets, which was different than pipeline access. He shared that the RCA received comments from small producers regarding the access to markets. In addition, the commission was considering another open docket in a preliminary stage, with the same companies that expressed dissatisfaction with lack of market access. He suggested that the legislators examine "texts", pronouncements by commissioners on their view of market access in RCA rulings. He offered to provide a link for the open docket case to examine public materials. He was unable to comment further on the open docket cases. 2:20:02 PM Vice-Chair Neuman asked about the relationship with the Division of Oil and Gas and small companies in Cook Inlet. He had heard of unfair treatment and wondered whether the commission was familiar with the issue. Mr. Patch clarified that he was unaware of complaints against the RCA or the Division of Oil and Gas. Mr. Rokeberg followed up on the question related to gas supply contracts in Cook Inlet. He expounded that the RCA role was to approve or disapprove of the contracts. The commission was prohibited to comment on issues related to an active docket. He offered to provide members with copies of his concurrence on issues related to tariff filings on sales of gas by Hilcorp to Enstar, and Chugach Electric, and a recent docket filing related to the issues of independent exploration, development, and sales of gas in Cook Inlet. The concurrence included a 20 year history of the legislature's involvement to incent Cook Inlet gas development. He noted the concurrence included multiple comments regarding open access to the gasline between one carrier and another. He informed the committee that Chairman Patch alluded to the outstanding docket on an Enstar tariff filing that concerned smaller independents access. He expressed concern over the lack of opportunity for small gas producers to sell into the market place. He expressed additional concern about a "floor" for gas prices to rate payers in Cook Inlet that was part of a recent contract between a number of utilities and Hilcorp. Representative Gara wondered whether the commission's shorter time period for final rulings harmed the interest of the consumer. Mr. Patch responded that the primary mandate of the RCA was rate regulation. The commission considered consumer interests when determining rates. He explained that a primary consumer interest was low rates and the other was dependable, quality utility delivery. He understood that most people would prefer lower utility bills. He sought a balance between "a just and reasonable rate." He measured the needs of the utility company and the needs and quality of service for the consumer. He thought that the RCA did a good job with rate regulation. Representative Gara thanked the RCA commissioners for their hard work. 2:30:09 PM Mr. Patch returned the compliment and thanked the members for their hard work. Co-Chair Stoltze asked about oversight of water utility regulation. He remarked that often mayors of municipalities tried to force individual's participation in municipal water systems. He viewed the RCA as a force for consumer protection to avoid "being force fed utility participation." He asked for the commissioner's view on the issue as a former legislator. 2:32:14 PM AT EASE 2:32:22 PM RECONVENED Mr. Rokeberg replied that his former district as well as Representative Costello's had 3,000 to 5,000 residents served by water wells or small water systems that were not part of the municipal utility. The situation was common throughout the state. He related the difficulty for the RCA to assist small utilities. He felt that further policy was needed related to rate regulation of smaller utilities. Rate regulation by the RCA was burdensome and could be expensive for a small group. He suggested that the legislature may want to address the issue and to give the commission the ability to create a tier system. He detailed that many small water utilities wanted to qualify for the federal Safe Drinking Water Act funding, which mandated regulation by the commission to qualify. The desire to provide safe drinking water drove the utility into regulation that they may not want or could afford. He thought that many of the legislators were familiar with the situation. Co-Chair Stoltze asked whether the commission could address the issue within the commission structure and was not seeking an "outside solution." Mr. Patch answered that the commission had adopted some measures to address smaller water utilities water and wastewater concerns. The RCA offered a provisional certification that was available for rural areas. There were certain things the commission could do, but the commission lacked the statutory authority to "revise the state drinking water act or to federal funding." He vowed to discuss the issue with members of the rural utility service Division of the United States Department of Agriculture and DEC. Co-Chair Stoltze reiterated his belief that the RCA played a major role in the consumer protection against consolidation of municipal water utilities. Representative Guttenberg asked how the RCA came to the IGU [Interior Gas Utility] ruling. Mr. Patch suggested that the discussion take place at a later time in a different forum after both parties read the RCA's final order. Vice-Chair Neuman discussed that Talkeetna received federal funds for safe water and sewer, but struggled with continued financing for the water and sewer utility. He wondered what role the commission played in assisting communities with similar issues. Mr. Patch restated that consumer protection was one of the commission's major concern. He was not prepared to address the issue at present but would respond by letter shortly. 2:43:52 PM Co-Chair Stoltze OPENED public testimony. Co-Chair Stoltze CLOSED public testimony. Representative Costello discussed the fiscal note, FN1 (CED) for the extension of the agency. In FY 15 the expenditure was $9.430.8 million for 58 full time positions and 4 temporary positions. In FY 16 the expenditure was $9294.5 million for 58 full time positions and 3 temporary positions. The fiscal impact repeated itself for the fiscal years through 2020. In response to a question by Representative Gara, Mr. Patch indicated that the RCA was funded by a regulatory cost charge, and not by the general fund. He explained that a small component charge was added to each utility bill collected by the utilities and forwarded to the Department of Revenue for the commission's expenditures. In addition, the commission may charge uncertificated utilities for the commission's actual time. He stated that the charge was not placed on the rate payers. Representative Costello noted that the commission had a surplus. She questioned whether the surplus funds were expended by the RCA. Mr. Patch replied that the surplus was rebated to ratepayers as part of the RCC calculation for the subsequent year. 2:50:17 PM Vice-Chair Neuman MOVED to REPORT HB 234 out of committee with individual recommendations and the accompanying fiscal note. There being NO OBJECTION, it was so ordered. HB 234 was REPORTED out of committee with a "do pass" recommendation and with one previously published fiscal impact note: FN1 (CED). 2:51:52 PM AT EASE 2:53:38 PM RECONVENED