CS FOR HOUSE BILL NO. 17(L&C) am An Act expanding the services that may be offered by an electric cooperative to include sewer and water and gas services when authorized by the Alaska Public Utilities Commission, and to include direct satellite television services; relating to officers of a telephone or electric cooperative; relating to amendment of the articles of incorporation of a telephone or electric cooperative; and providing for an effective date. Co-chairman Halford directed that CSHB 17 (L&C)am be brought on for consideration. JEFF LOGAN, aide to Representative Green, came before committee. He explained that the bill amends Title 10 in three categories: 1. Expansion of the scope of services that can be offered by electrical cooperatives to include water, sewer, natural gas, and direct satellite television. 2. Clarification of voting procedures for amendments to articles of incorporation for electrical cooperatives. New language clarifies how members may vote either at the annual meeting or by mail. 3. Provision of a local option in the titling of board members of electric cooperatives. Under current law, board members are required to be titled: president, vice-president, secretary, and treasurer. Common practice is for the presiding officer of a board to be called the chairman. Some cooperatives use other titles. Proposed changes allow them to select the titles they wish to use. Remaining sections, with the exception of the effective date, are conforming changes. Mr. Logan next directed attention to a draft SCS CSHB 17 and voiced support, on behalf of the sponsor, for amending language therein. Changes incorporated within the draft include: Page 2, line 1, removes inclusion of subsection (7) from the citation of AS 10,25.020 (6) since there is no need to include direct satellite television under APUC regulation. Page 2, line 25, subsection (6) utilizes Senate language which is cleaner. Page 2, line 28, subsection (7) makes clear where direct satellite television services may be offered and where they may not. It also provides a definition. Senator Randy Phillips voiced his understanding that the REA has changed to the RUS (Rural Utility Services) in order to obtain loans for provision of other utilities. Mr. Logan concurred. The Senator then asked if there was objection from gas, water, and sewer companies to expansion of rural electrical cooperatives to other utilities. Mr. Logan responded negatively. Co-chairman Halford voiced his understanding that water, sewer, and gas services are provided through a system but not certified or regulated by APUC. Co-chairman Frank voiced his understanding that it is not anticipated that rural electrical coop provision of water, sewer, or gas services would overlap areas where existing utilities provide these services. The proposed bill will only apply to areas where there in presently no such service. Mr. Logan agreed that it is not the intent that service areas overlap. DAVE HUTCHENS, Alaska Rural Electric Cooperative Association, next came before committee. As background information he explained that the proposed bill represents the first amendment to AS 10.25, the electric telephone cooperative act, since the 1988 code revision. It contains a collection of needed items due to a change in present circumstances or the fact that some items were overlooked when revision occurred. Speaking to concern raised by Senator Phillips questioning electric coop expertise in other utility areas, Mr. Hutchens explained that "this section does not confer the right on the electric cooperatives to go out and provide this service." It merely places provision of services within their corporate powers. It would then be legal for them to engage in this business, if authorized to do so by the APUC. Speaking to the change from REA to RUS, Mr. Hutchens referenced combination of all rural utility loan programs within the Dept. of Agriculture into one entity. The reason for the change was to allow electric cooperatives that have a good track record of management success to extend sewer and water in rural areas where needed. For loans to rural entities for small sewer and water systems that do not have a good management record, the proposed bill would allow rural electric coops to step in and provide management services, where necessary, to protect assets built with USDA loans. That is the national push behind the issue. In response to concern raised by Senator Phillips, asking if a rural cooperative could take over gas services. Mr. Hutchens replied, "Absolutely not." The rural coop would have to go before the APUC and make a case that they could do the job better than Enstar. He then voiced his understanding there is no chance they could do that. Senator Rieger asked if certificates of convenience and necessity are always exclusive. Mr. Hutchens answered, "In practice, it has been . . . for sewer, water, gas, and electric." Local telephone service has also been exclusive in practice. Responding to an additional question from Senator Phillips, Mr. Hutchens explained that RUS provides ready funding to rural electric coops for water and sewer projects. There is $900 million in the federal budget for this year. Senator Phillips again posed a question regarding expertise. Mr. Hutchens pointed to common practice in a number of states for the electric cooperative to also provide sewer and water service. The management system is in place. Specific expertise in sewer and water is then hired. Noting that the Dept. of Environmental Conservation is attempting to construct sewer and water projects in a number of areas, Co-chairman Frank asked if cooperatives were working with the department. He suggested that coops could provide both management and maintenance expertise that was lacking in the past. Senator Sharp suggested that for small water and sewer utilities that are now precluded from selling out to an existing electric cooperative if they chose to "get out of the business," the proposed bill offers an opportunity for improvement of service by an entity with greater financial capabilities. Mr. Hutchens stressed that in Alaska cooperative members are not "hungry after the idea of getting into sewer and water." Members feel it is good to have authority to do so if the right opportunity comes along, or it makes sense for the coop to do so. Mr. Hutchens acknowledged that the Alaska Village Electric Cooperative which services 50 villages in the western part of the state is willing to take on whatever services might be necessary to make their communities more viable. Naknek Electric is also interested in being able to provide sufficient natural gas for local service. Senator Sharp MOVED for adoption of SCS CSHB 17 (9-LS0096\W, Cramer, 4/26/95). Senator Rieger OBJECTED and inquired concerning the difference between Senate and House versions, specifically referencing new language at page 2, relating to direct satellite television. Mr. Logan explained that satellite television differs from cable in that programming is received by a satellite dish and relayed to users. The utility would not offer the service itself. Cooperatives would "service" the service. They would provide administrative and billing services. Mr. Hutchens added that the National Rural Telecommunications Cooperative is owned by a national collection of coops. NRTC has its own programming package put together in direct negotiations with programmers such as Disney. Senator Rieger next questioned inclusion of the following: to a location that is not part of an area certificated by the Alaska Public Utilities Commission to a cable television company on the effective date of this Act. Mr. Hutchens explained that areas cooperatives would like to serve with direct satellite television are "the scattered . . . housing areas in their electric service areas." As an example, he cited areas in the Matanuska Valley, Kenai Peninsula, Copper Valley, and rural areas outside of Fairbanks where it is not feasible to have a cable television system. The foregoing was added as a means of assuring cable television companies that electric coops will not be "poaching their territory." Coops would not be serving areas that have cable television. Mr. Hutchens acknowledged that the above does not forego direct satellite television service in competition with cable delivery. However, that would be done through "somebody like RCA- Hughes" rather than by an electric coop. End: SFC-95, #61, Side 2 Begin: SFC-95, #63, Side 1 In the course of further discussion of satellite television delivery, Mr. Hutchens explained that the consumer would own his or her own satellite dish. The coop would merely provide billing services. Language within the bill is intended to allow for provision of service "if and when the satellite actually has Alaska in its footprint . . . . Two years is the projection on that." Scattered housing would be the market area. The benefit of coop provision of this service rests in the value added service and negotiated rates on programming packages through NRTC. Responding to a question from Senator Rieger, Mr. Hutchens advised that homes located in an area certificated to a cable company, would fall outside the area that could be served through a coop. If the area is not served by cable when the proposed bill becomes law, it could be served by a cooperative. Senator Rieger inquired concerning the position of the sponsor on the proposed amendment. Jeff Logan voiced concern regarding passage of the legislation if the amendment is incorporated. He then expressed a preference for the draft SCS CSHB 17 as written. Senator Rieger said he would not proceed against the wishes of the sponsor but expressed concern over backing down because a regulated utility "doesn't want the competition." Senator Zharoff raised concern that in smaller communities, provision of television services is a private enterprise. He suggested that service by a utility would limit or prohibit service by the private sector. In response to a further question by Senator Rieger, Mr. Hutchens explained that the cable television industry was not convinced that language passed in the House bill would provide sufficient protection against competition from satellite service. New language contained within subsection (7) at page 2 was thus incorporated within the Senate committee substitute. Senator Rieger MOVED to withdraw his proposed amendment. Co-chairman Frank then MOVED for adoption, saying that competition should be allowed. Regulation should only be necessary where competition is not possible because of economic reasons. Senator Sharp voiced concern that competing services, regardless of technological advances, in a small service area may dilute the number of customers needed for the service to be viable. Senator Zharoff raised a question regarding reversal of services provided by a coop should a community or private enterprise seek to take over service provision. Co-chairman Frank clarified that the proposed amendment would not grant exclusivity to existing cable operators relative to direct satellite television program services. The change would merely open competition to electric utilities that choose to provide the service. Co-chairman Halford raised a question regarding certification of cable television services, and discussion of the issue followed. Senator Sharp expressed concern over possible unequal competition if one segment of the industry is certificated and regulated by the APUC while the other is provided authority by the legislature, through statutes, and bypasses the regulatory process. Co-chairman Frank said that the proposed amendment does not go as far as he would like. He voiced a preference for allowing technology to advance competition for the benefit of the consumer. In response to additional questions regarding regulation, Mr. Hutchens advised that cable television companies that serve ten or more customers are to be certificated by the APUC. None of the companies are regulated in terms of rates, unless consumers petition for economic regulation. The company in Juneau is the only regulated cable service provider in Alaska. Co-chairman Frank cautioned that it is not good policy to artificially restrict competition where technology is allowing it to happen. Senator Zharoff questioned allowing a utility to provide a service that is not governed by APUC in possible competition with service that has undergone the certification or regulatory process. Co-chairman Halford voiced his understanding that the proposed bill merely allows utilities to engage in a form of competition that is presently available to any other entity, since provision of television services is unregulated. The Co-chairman then called for objection to adoption of the proposed amendment. No objection having been raised, the amendment was ADOPTED. In response to a further question from Senator Zharoff, Mr. Hutchens explained that the bill would simply grant utility cooperatives authority to provide needed services not provided by another entity. Senator Sharp MOVED for passage of SCS CSHB 17 (Fin) with individual recommendations. Senator Zharoff OBJECTED and advised of need for additional review. Co-chairman Halford called for a show of hands. The motion carried on a vote of 4 to 2. SCS CSHB 17 (Fin) was REPORTED OUT of committee with zero fiscal notes from the Dept. of Commerce and Economic Development, one from the Division of Banking, Securities, and Corporations and the other from the Alaska Public Utilities Commission. Co-chairmen Halford and Frank and Senators Phillips, Rieger, and Sharp signed the committee report with a "do pass" recommendation. Senators Donley and Zharoff signed "no recommendation."