SB 190-REGULATORY COMMISSION AK/REFUSE UTILITIES  4:56:32 PM CO-CHAIR FIELDS announced that the next order of business would be CS FOR SENATE BILL NO. 190(FIN), "An Act extending the termination date of the Regulatory Commission of Alaska; relating to Regulatory Commission of Alaska regulations regarding refuse utilities; relating to the powers and duties of the legislative audit division; and providing for an effective date." CO-CHAIR FIELDS moved to adopt Amendment 1 to CSSB 190(FIN), labeled 32-LS1525\W.2, Radford/Ambrose, 4/28/22, which read: Page 1, line 3, following "division;": Insert "relating to the privatization of refuse  utilities;" Page 2, following line 8: Insert a new bill section to read:  "* Sec. 3. AS 42.05.641 is amended by adding a new subsection to read: (b) A municipality that seeks to privatize a municipal refuse utility that is subject to the provisions of this chapter shall submit a proposal to the commission for review. The commission may approve the proposal if the commission finds that privatization will not result in higher rates for consumers and that privatization is in the public interest. A privatization proposal must include (1) a business plan that lists the prospective vendors; (2) the projected cost of private operation compared to continued municipal operation for a ten- year period; (3) disclosure of any potential conflicts of interest on the part of municipal officials; and (4) proposed methods (A) for periodically evaluating the utility's performance to avoid diminished service quality, interruption, or stoppage of work by the contractor; (B) to encourage competition and productivity; (C) for monitoring a contract in order to detect any contractor defaults, monitor penalties, and prepare for contract renewals or renegotiations and inflation; and (D) to address municipal employee displacement." Renumber the following bill sections accordingly. CO-CHAIR SPOHNHOLZ objected for purposes of explanation. CO-CHAIR FIELDS recalled that including refuse utilities in the Regulatory Commission of Alaska (RCA) was discussed at the previous bill hearing. He said a consolidated review process makes a lot of sense, and given the underlying bill looks at refuse utilities it also makes sense to add some consumer safeguards; for example, a municipality decides to change governance of the refuse utility. These proposed changes were suggested by the Alaska Public Interest Research Group, he continued, so Amendment 1 does not prohibit or require, nor encourage or discourage privatization, but it does say that if a municipality is going to privatizes a refuse utility there needs to be an RCA review to ensure the proposed privatization will not raise cost for consumers beyond those which would be incurred under the existing governance structure. 4:58:24 PM REPRESENTATIVE KAUFMAN expressed concern that Amendment 1 would preempt. He said that if the utility has been part of the municipality it may not represent good allocation of the operation, maintenance, and other costs. So, he continued, regarding the clause that it will not result in higher rates for consumers, the rates that were being charged were maybe not realistic. Putting a lid on it, he argued, would make it nearly impossible to determine the market value of the services. CO-CHAIR FIELDS replied that it is not his intent to arbitrarily cap rates at a point in time. He said his assumption is that in doing this analysis the RCA could analyze the actual costs incurred by a municipality and what the costs would be over a reasonable time horizon versus what the costs would be under a proposed privatization. He requested an RCA representative to address whether the RCA would have the ability to look at what price escalation would be under an existing municipal structure versus potential price escalation under a proposed privatized structure. 4:59:57 PM ROBERT "BOB" PICKETT, Chair, Regulatory Commission of Alaska (RCA), responded that the amendment raised some legal questions concerning the rest of Alaska's statutes when he saw it for the first time this morning, so he immediately asked Stuart Goering, Assistant Attorney General, to read the amendment. Mr. Pickett stated that it would be very difficult for a non-regulated municipal utility to do that because there is a wide variation in how municipalities handle their accounting practices. He further stated that if a municipality is subsidizing the refuse service, it gets into intergovernmental cost charges, which different entities handle differently. He clarified that he isn't saying it's impossible, but that there would be some challenges in trying to project a regulatory framework onto an entity that isn't regulated to do this analysis and determine whether it is ultimately going to be in the benefit of the rate payers. CO-CHAIR FIELDS asked what would prevent the RCA from asking a municipality what the costs are of providing a refuse collection service and what the municipality anticipates those costs will be over a 10-year period, as provided in the amendment. MR. PICKETT answered that when going through rate cases and the schedules that are required to make those assessments, it gets into the nature of the municipality and how the municipality handles its accounting practices. Plus, he added, there are some legal issues involved with that too. CO-CHAIR FIELDS invited Mr. Goering to address the legal concerns. 5:02:09 PM STUART GOERING, Assistant Attorney General, Commercial, Fair Business and Child Support Section, Civil Division (Anchorage), Department of Law, responded that there are several different issues from a regulatory perspective. He explained that to his knowledge there are no economically regulated municipal refuse utilities in Alaska right now. All municipalities that have certificates, he said, are exempt under either AS 42.05.711(b), which is the exception for political subdivisions of the state, or AS 42.05.711(d), which is the Municipality of Anchorage Solid Waste Services. He stated this means that the RCA does not specify any of the economic conditions of a municipality's operations, which includes that the RCA doesn't tell a municipality how to do accounting, there is no uniform system of accounts, there is no uniform depreciation schedule, and there is no cost allocation manual for the other governmental operations to share costs with the utility. As a result, Mr. Goering continued, the RCA has no previous knowledge of the economics of any of the municipal waste collection utilities [in Alaska]. That is the background, he noted, for Mr. Pickett's response that it would be extremely difficult because without that information the RCA would be doing that from scratch. MR. GOERING stated that even with a regulated utility that has been keeping its books and records in the proper form for an economically regulated utility, and with a long history of economic regulation, rate cases often take multiple years. The timeline for those is 540 days, he said, and can sometimes go longer with extensions that the parties ask for because of the complications with the cases. So, he continued, it isn't a simple matter to step into the middle of something which has been operating for potentially since statehood in some cases and try to figure out the economics of the operation without any background at all, and that is where some of the difficulty would come in for the RCA. He said he can address the legal issues if the committee wishes. CO-CHAIR FIELDS said he understands that the RCA would be requesting new information since the bill brings in some new responsibilities and that is why Amendment 1 was introduced. 5:05:12 PM REPRESENTATIVE SCHRAGE noted that the bill adds refuse utilities under the RCA regulations without this amendment passing. He asked whether there are legal concerns with bringing in refuse utilities under the RCA and/or hurdles in drafting and creating regulations related to refuse utilities given the lack of experience regulating such utilities. MR. GOERING answered that the bill does not bring refuse in as a regulated utility for the first time; refuse has been a regulated utility class for a long time. He said Amendment 1 is different from the rest of the bill in that it addresses municipal refuse utilities; the rest of the bill relates to economically regulated refuse utilities that are privately owned and must follow the RCA's regulations on uniform system of accounts and must file periodic rate cases. He explained that the other part of the bill, which is being referred to, modifies AS 42.05.381 to change the way that those rates are made, not assign responsibility for making those rates in the first place. So, Mr. Goering continued, that part of the bill would simplify the process rather than making it more complicated, but it would not remove any of the background information that the RCA currently gets in the form of annual reports, which municipals don't file, and periodic rate cases, which municipals don't file. So, he stated, they really are two separate issues - the RCA is already regulating refuse utilities, but not municipal refuse utilities. 5:07:01 PM REPRESENTATIVE NELSON said he is always hesitant to add policy to a simple extension of the termination date of a regulatory commission. He asked whether the bill sponsor has taken a position on Amendment 1. SENATOR ROBERT MYERS, Alaska State Legislature, prime sponsor of CSSB 190(FIN), answered that he received the amendment on [4/29/22] and is still figuring out what Amendment 1 entails. He said he isn't sure one way or the other and was planning to defer to the RCA's expertise. CO-CHAIR FIELDS offered his appreciation for the perspective of the RCA and Department of Law, as well as his appreciation for Senator Myers trying to address refuse utilities. The RCA is very capable and able to analyze complex information, he said, and the information from refuse utilities is less complex than that of electric utilities which the RCA deals with. CO-CHAIR SPOHNHOLZ removed her objection to Amendment 1. She said that while it would require work on the part of the RCA to clearly define and measure cost centers, one of the RCA's jobs is to ensure there aren't unnecessary rate increases to Alaskans. The RCA is capable of incredibly complex oversight and analysis, she added. 5:08:44 PM REPRESENTATIVE KAUFMAN objected to Amendment 1. 5:08:54 PM A roll call vote was taken. Representatives Fields, Spohnholz, and Snyder voted in favor of Amendment 1 to CSSB 190(FIN). Representatives Kaufman, Schrage, McCarty, and Nelson voted against it. Therefore, Amendment 1 to CSSB 190(FIN) failed to be adopted by a vote of 3-4. [CSSB 190(FIN) was held over.]