HB 114 - OPT-OUT CHARITABLE GIVING PROGRAM 1:34:30 PM CHAIR GATTO announced that the first order of business would be HOUSE BILL NO. 114, "An Act relating to an opt-out charitable giving program offered by an electric or telephone cooperative." [Before the committee was CSHB 114(L&C).] 1:35:13 PM REPRESENTATIVE THOMPSON, speaking as the sponsor, explained that the concept of HB 114 was brought to his attention by the Golden Valley Electric Association (GVEA), noting that such "opt-out" charitable giving programs have been around for many years, and that more than 250 electric cooperatives across the country have implemented similar programs - generally referred to as "round- up" programs. Such programs enable individuals to contribute small amounts of money to help build strong, local communities. The program proposed by HB 114 is consistent with one of the seven principles espoused by cooperatives, that being concern for the community, which involves working for the sustainable development of the community through policies approved by the membership. The proposed program would allow a cooperative to round up a member's monthly bill to the next dollar, so the member's monthly charitable contribution could be as low as $.01 or as high as $.99. Such contributions, though small, add up quickly, and funds collected are dispersed to qualified organizations and individuals within the cooperative's service district. These organizations and individuals are encouraged to compete and to submit written applications outlining their level of need and the possible benefits that could be obtained through receipt of such funding - for example, an exam table for a health clinic, new computers for a library, a microscope for an elementary school, a vehicle for a fire department, grants for a recreational center, et cetera. REPRESENTATIVE THOMPSON relayed that most cooperatives distribute such funds via the board of a separately-created 501(c)(3) nonprofit corporation; such boards represent a cross section of the membership, with each voting district being represented. Most of the more than 250 cooperatives with a charitable giving program have adopted an "opt-out" program rather than an "opt-in" program, because research indicates that opt-out programs have significantly higher member involvement, with [up to] 90 percent member participation. He relayed that under the bill, members can opt out of the program at any time - either in person, in writing, or via the telephone or Internet - and can request a refund of their donations for the prior three years. The changes proposed by HB 114 would clarify a potential conflict with AS 45.45.930, which pertains to opt-out marketing plans. The bill would require cooperatives to obtain membership approval before implementing an opt-out charitable giving program, and require that the amount added to the monthly bill be clearly identified on the monthly statement along with information on how to opt out of the program. He noted that CSHB 114(L&C) now contains language - in Section 2 - authorizing an electric cooperative to provide weatherization and energy efficiency products and services to members. CHAIR GATTO said he isn't in favor of opt-out programs because they can be easily abused, particularly with elderly customers, and indicated that he would be voting against the bill. He said he feels strongly that charitable giving programs shouldn't be an opt-out program, because a person may not be aware enough of the situation to opt out. Under the bill, he surmised, a member of a cooperative would have to take an additional action in order to prevent the cooperative from taking extra money from him/her to fund a charity of its own choosing. 1:42:26 PM JOE GALLAGHER, Public Relations Coordinator, Homer Electric Association, Inc. (HEA), referring to Section 2 of CSHB 114(L&C), noted that Alaska's Electric and Telephone Cooperative Act - AS 10.25 - currently allows cooperatives to finance the purchase of electrical and plumbing appliances, equipment, fixtures, and apparatus, and that the HEA has established a "line of credit" program that's been in place for at least 20 years, allowing members to finance the purchase of eligible items under the Act. Under the HEA's existing program, members can borrow up to $5,000, pay the same amount of interest that the HEA pays when it borrows money, have payments deducted directly from their bank account, and must purchase products from a vendor located within the HEA's service area and that is also a member of the HEA. MR. GALLAGHER relayed that over the last couple of years, the HEA has been very active with its membership in promoting energy efficiency, particularly given that 90 percent of the HEA's product is generated from natural gas and is therefore subject to rising fuel costs. As a result of increased electrical rates, many of the HEA's members have been taking steps to make weatherization and energy-efficiency improvements, and have been expressing interest in using the HEA's line of credit program to finance those improvements. Unfortunately, because of how the Electric and Telephone Cooperative Act is currently worded, the program cannot be used to finance weatherization and energy efficiency products and services. [Section 2's proposed change to AS 10.25.20(2)] would be very good for the HEA's members, he concluded. 1:49:36 PM CLYDE (ED) SNIFFEN, JR., Senior Assistant Attorney General, Commercial/Fair Business Section, Civil Division (Anchorage), Department of Law (DOL), in response to questions, explained that because provisions of AS 45.45 make it illegal to offer or engage in an opt-out marketing plan to sell goods or services, the question was raised regarding whether charitable donations would be considered a good or service that's prohibited under AS 45.45. [When asked by the GVEA,] the DOL issued an informal opinion indicating that such donations probably would be prohibited, and so the GVEA developed the concept of HB 114 - with help from the DOL regarding specific language - in order to resolve that potential conflict in favor of allowing opt-out charitable giving programs. MR. SNIFFEN said that although opt-out programs are generally considered bad things in terms of consumer protection, the type of program authorized by HB 114 is very different, containing none of the ills associated with traditional opt-out programs but providing fairly significant protections to consumers. For example, under HB 114, if a member finds out later that he/she has been giving money mistakenly, he/she can get a refund. In response to a question, he offered his hope that HB 114 wouldn't be seen as authorizing any other type of opt-out program, surmising that any such would have to be vetted by the legislature first. He went on to say that one of the problems with HB 114 is that although the GVEA has given this issue a lot of thought and is a responsible company and has a model plan in place that it intends to go forward with, a lot of the things that the GVEA would be doing under its plan aren't required under the bill, and the other cooperatives might not administer their programs in the same way, and so it could take a while to see whether those other cooperatives were trying to abuse the system via such programs. CHAIR GATTO expressed disfavor with authorizing any type of opt- out program. 1:56:07 PM GENE THERRIAULT, Vice President, Resource Development, Golden Valley Electric Association (GVEA), assured the committee that the program the GVEA's membership has approved is not an opt-out marketing plan. He relayed that the GVEA has spoken with the sponsor of the legislation that prohibited opt-out marketing plans selling goods or services, and the sponsor indicated that his legislation was not intended to also prohibit opt-out charitable giving programs. Mr. Therriault confirmed that the DOL had issued an opinion indicating that an opt-out charitable giving program might conflict with provisions of AS 45.45, and relayed that the GVEA, via HB 114, is simply asking for a clarification. He proffered that one of the things that differentiates the proposed program from an opt-out marketing program is that a round-up opt-out charitable giving program such as would be authorized by the bill could only be implemented after an affirmative response from a cooperative's membership. In the case of the GVEA, 70 percent of its membership voted in favor of starting a round-up opt-out charitable giving program. Furthermore, the bill only applies to electric or telephone cooperatives, which already have statutory standards in place for polling members. MR. THERRIAULT, in response to a question, indicated that the GVEA chose an opt-out program rather than an opt-in program because research indicated that the level of participation was greater with an opt-out program. CHAIR GATTO acknowledged that an opt-out program would be more successful at raising funds. MR. THERRIAULT, too, noted that the bill also requires a cooperative to clearly notify its members regarding how to opt out, and requires that a member's contributions for the prior three years be refunded if he/she requests. He offered his belief that the bill's requirements would ensure that only those charities that have broad support in a community would get chosen as a recipient by the board responsible for distributing the funds. CHAIR GATTO recounted how his mother, an elderly widow with some dementia living alone in New York City, was taken advantage of by a telephone utility through the use of an opt-out program. His concern, he relayed, is that people won't take the steps to opt out even though they don't want to be participating in a particular program. Opting in is the better approach, he opined, since even now utilities take advantage of their customers through the use of opt-out programs. MR. THERRIAULT offered his belief that the requirements of the bill would limit the types of abuse that could occur. For example, under the bill, people could either officially opt out or just choose not to pay the extra, rounded up amount listed on their monthly statements. In response to a question, he noted that the bill would only apply to cooperatives, which are controlled by their membership. CHAIR GATTO announced that [CSHB 114(L&C)] would be held over.