CS FOR HOUSE BILL NO. 209(JUD) "An Act relating to the chair of the Regulatory Commission of Alaska and amending the timeline requirements for a final order of the commission; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. AT EASE 2:07:12 PM /2:07:30 PM Senator Elton moved to adopt committee substitute, Version 25- LS0717\O, Kane, dated May 11, 2007, as the working document. Without objection, the Version "O" committee substitute was ADOPTED as the working document. Co-Chair Stedman pointed out that the bill's title is changed by the adoption of the Version "O" committee substitute. Therefore, a Senate concurrent resolution would accompany the bill when it reports from Committee. 2:08:01 PM REPRESENTATIVE KURT OLSON, Chair, House Labor & Commerce (L&C) Committee, the bill's sponsor, addressed the changes in the committee substitute. The majority of the revisions result from the decision to present time references in terms of days rather than months. For example, the deadline specified in Section 1 subsection (a) page 1 line 5 now reads "180 days" rather than the former reference to "six months". Representative Olson communicated that Version "O" also eliminated contentious language included in earlier bill versions. For instance, during its hearings in the House, there was disagreement over a section that specified that the governor would select the chair of the Alaska Regulatory Commission (RCA). The issue of whether the RCA chair should be appointed by the governor or the RCA Board could be argued from either side. The omission of this section from the bill is acceptable to the sponsors. 2:09:23 PM Representative Olson also concurred with increasing the timeframe in which the Commission must issue its final order, as specified in Section 3 subsection (c) page 2 line 4, from 270 days to 450 days. Representative Olson concluded his remarks by affirming that the changes in the Version "O" committee substitute were reasonable and therefore acceptable to the House L&C Committee. 2:09:57 PM Senator Thomas directed attention to new subsection (k), page 2 line 31 through page 3 line 1, added to AS 42.05.075 by Section 7, and the reference to (k) in new subsection (l), page 3 line 6, also added by Section 7. The question was whether AS 42.05.075(k) and (l) would limit the extension provision amended in AS 42.05.175(f), page 2 line 20, by Section 6, to those matters specified in subsection (k) that were advanced only by the Commission. 2:11:25 PM Representative Olson understood that the extension would apply to matters presented by either the Commission or other parties. Senator Thomas had also inferred that to be the intent. He was simply seeking affirmation. 2:11:54 PM DAN GAVORA, President and Chief Executive Officer, Utility Services of Alaska (USA) operating as College Utilities Corporation and Golden Heart Utilities, testified via teleconference from an offnet location. USA is the second largest water and waste water company in the State and serves more than 8,500 accounts and 50,000 people in the Greater Fairbanks area. Mr. Gavora communicated that his company has experienced "the consequences of the regulatory lag that allows excessively long statutory periods to resolve rate case filings. The rate adjustment process is cumbersome" and thereby often expensive. Filing expenses are disproportionate to the return the utility and its customers receive. USA is a strong proponent of the bill before the Committee, particularly the provision that would reduce the statutory time period for rate cases from 15 months to nine months. To that point, Mr. Gavora noted that numerous states have determined that a lengthy hearing and review process does not serve the interests of a utility's customers. For example, oftentimes, by the time the RCA has ruled on a rate case, the company has been forced to file a second rate adjustment case due to escalating costs. This significantly "increases the complexity" of the filings. Mr. Gavora avowed that "reasonable actions and guidelines" by the RCA should provide a utility "some assurance of a response within a reasonable time after a filing takes place." USA believes that "a reasonable time for a resolution of a rate case is nine months." 2:14:15 PM Mr. Gavora characterized rate case filings as "historical in nature" in that a utility filing for the rate adjustment provides backup information including the history of "increased costs that have been in effect for at least one year before the rate adjustment is presented" to the RCA. Mr. Gavora reiterated that several states have "recognized the benefit of more immediate action on rate adjustments and have implemented statutory or voluntary timelines of nine months or less." A study conducted by Michigan's public utility commission "analyzed rate case filings from 1990 through 2003" and found that 27 states provide determinations on such filings in nine months or less. Alaska should "follow suit." Mr. Gavora noted that were a mistake made either in favor or against the utility, a prompt re-filing could be made by the utility or required by the RCA. This process protects both the public interest and the viability of the utility. Rates need to be in effect during the computed timeframe, not one to two years later." 2:15:29 PM Mr. Gavora stressed that "the current statutory timeline does not serve the best interests of our rate payers," as they typically end up absorbing the expense of "legal consulting and other direct expenses over these many months". Mr. Gavora urged the Committee to support this legislation as presented. It would assist in "repairing a system in dire need of repair. Shortening the statutory timeline is one of the first steps in this process." 2:15:58 PM DAVE DENGEL, Chief Executive Officer, Copper Valley Telephone Cooperative, testified via teleconference from Valdez. The cooperative is a member-owned company with approximately 3,000 members serving approximately 9,000 residents in an area of approximately 9,600 square miles. Even thought he did not object to the bill, Mr. Dengel cautioned that, without the addition of more RCA staff, the timelines might be too short. Therefore, he urged that the legislation be accompanied by a fiscal note reflecting a staffing increase to ensure that thorough analyses could be conducted. Mr. Dengel specified that the RCA's responsibilities are vast. Furthermore, each of its telecommunications, pipeline, and other utility work obligations are complicated. Additional staff is necessary in order to allow the RCA "to continue to provide the service to companies like Copper Valley". 2:17:44 PM DENNIS NIEDERMEYER, Representative, Bristol Bay Telephone Cooperative, testified via teleconference from Anchorage. His testimony has been shortened due to the fact that the committee substitute eliminated the section of the previous bill that specified that the governor would designate the RCA chair. Mr. Neidermeyer remarked that the cooperative does not take issue with any of the timelines proposed in the bill. He echoed Mr. Dengel's remarks about the good service provided by the Commission and that, in order to support the shortened timelines proposed in this bill, the RCA must be appropriately staffed. 2:19:40 PM TED MONINSKI, Director, Regulatory Affairs, Alaska Communications Systems (ACS), testified via teleconference from Anchorage and informed the Committee that his remarks would be in terms of statutory references rather than specific sections of the bill because the Version "O" committee substitute was not available to those testifying in the Anchorage Legislative Information Office (LIO). Mr. Moninski questioned whether private settlements and contracts language that had been included in an earlier version of the bill was included in the Version "O" committee substitute. 2:20:47 PM Representative Olson advised Mr. Moninski that the language in question was not included in Version "O". Mr. Moninski thus advised the Committee that he would address the affect of eliminating that language. First, however, he wanted the Committee to know that ACS, which has closely followed this legislation, advocates for one principle: that being that a timeline should be specified for every matter coming before the RCA. Mr. Moninski then advised that eliminating the language pertaining to private settlements and contracts would serve "to create one category of settlements and contracts" that would have no timeline. "And that would be disappointing. Instead, I believe the concerns about the language that was in the earlier version of the bill, could be resolved rather easily by eliminating the word 'private'" and adding the words "within the Commission's jurisdiction" after "settlements and contracts". Mr. Moninski stated that proceeding in that manner "would continue to provide a timeline for all categories of cases that come before the Commission and at the same time recognizes that all of the normal procedures and legal standards that would be applied to contracts and settlements that the Commission would normally review anyway would be in no way affected by applying a timeline in this provision." Mr. Moninski urged the Committee to consider this course of action as opposed to eliminating the language in its entirety. 2:22:33 PM DEAN THOMPSON, Legal Representative, Municipal Light & Power (ML&P), testified via teleconference from Anchorage. ML&P, which is owned and operated by the Municipality of Anchorage, "provides retail electric service" to the area via its own generation system and transmission and distribution facilities. ML&P participated in the regulatory hearings held by the RCA regarding potential changes to AS 42.05, and, while not opposed to the bill, ML&P was disappointed that adequate funding for staff had not been addressed in the bill. There is concern whether existing staffing levels could accommodate the shortened timelines being proposed. Mr. Thompson shared that ML&P was "impressed with the work of the current Commission and the improvements that have been made over the past several years." ML&P also commended the work of RCA chair Kate Giard. While ML&P does not always agree with RCA's rulings, it has witnessed a "marked improvement in docket management and the overall timeliness of dockets". Mr. Thompson stated that ML&P was pleased that Version "O" does not further previous language that would have terminated the current panel of commissioners. 2:24:43 PM Mr. Thompson advised of another issue that ML&P would support being included in the bill. That being language allowing the governor or the administration to set the salaries of the RCA commissioners. While supportive of cost containment, ML&P believes that "you get what you pay for." The regulation of utility rates is becoming an increasingly specialized and technical field that requires knowledgeable individuals. Reasonable compensation is required. ML&P would support "a modest increase in the Regulatory Cost Charge (RCC) rate to support adequate salary funding. 2:25:47 PM Mr. Thompson expressed that ML&P agreed with the effort to address rate change filings in an expedient manner; however, while a nine month period might be "adequate" for most rate change cases, complex or multi-party cases would require additional time. Mr. Thompson concluded his remarks by emphasized that ML&P is very supportive of the Commission and its chair person. To that point, ML&P encouraged consideration of increasing the Commission's salaries. 2:26:45 PM VIRGINIA RUSCH, Representative, AARP, testified via teleconference from Anchorage. AARP is interested in utility rate legislation due to the potential impact on its members and other rate payers. AARP asked her to follow this legislation because of her extensive experience with the RCA and its predecessor agency since she had served either as the public advocacy attorney assigned to the Commission or as the attorney for the Commission during 14 of her 23 years as a State assistant attorney general. She has represented AARP in rate cases, consumer hearings, and appeals since retiring from State employment. Ms. Rusch was very familiar with Commission processes and problems and would be happy to answer any Committee questions on the subject. Ms. Rusch, noting that a copy of the Version "O" committee substitute has now been provided to the testifiers in the Anchorage LIO, stated that AARP is happy with some of the changes made in the committee substitute, specifically that the deadline in Section 3(c), page 2 lines 2 through 6, "had been restored" to specify that the Commission must issue a final order in 450 days. Ms. Rusch agreed with Mr. Thompson that a reasonable amount of time must be provided to address complex issues and issues concerning large utilities. 2:28:47 PM Ms. Rusch addressed Mr. Gavora's remarks in support of "shortened timelines." During her career with the State, she had participated in several rate cases, including one involving Mr. Gavora's companies. One of her duties at the time was to schedule conferences. Her experience then in "divvying up" the 15 month period amongst the participants in the case was that "everybody wanted more time". Based on those experiences, she did not foresee that the timeframe could be shortened. Ms. Rusch detailed the mechanics of a rate case, including the requirement that the utility submit information justifying its rate adjustment request and the responsibility of the Commission and attorney general assigned to it to determine whether the costs argued by the utility justify a rate increase. "By shortening the time period to nine months as Mr. Gavora suggests, you are harming the ability of the Commission to protect ratepayers." Ms. Rusch noted that the investigation of requested rate increase filings has been conducted by the Attorney General's Office for the past several years. This is the result of an Executive Order a few years prior that moved the investigatory responsibility in a rate case into that Office. 2:30:26 PM Ms. Rusch noted that the Attorney General Office's is short- staffed and has often had to delay rate investigations for months in order to address other matters before them. Added to the timing issue is the fact that in recent years, utilities themselves have requested more time to file "reply testimony." In one recent case, the Commission required four months to issue an order once the other processes allowed it to come before them. A timeline of nine months is unrealistic. Ms. Rusch spoke against reducing the timeframe to nine months until the issue of adequate staffing is addressed. 2:31:49 PM JIM ROWE, Executive Director, Alaska Telephone Association, testified via teleconference from Anchorage. The Association, which is comprised of 15 companies serving rural Alaska, supports many of the changes made in Version "O". Mr. Rowe advised the Committee that he was also concerned about the private settlement and contract language discussed earlier. The suggestion offered by Mr. Moninski would be acceptable as it would address his concerns. Mr. Rowe voiced approval of the timelines specified in Version "O". However, reducing the length of time in which an issue must be addressed would increase pressure on staff. Unfortunately, this issue has not been addressed in the bill. 2:32:57 PM Mr. Rowe announced therefore that the Association supports increased staffing levels. Thus, the proposal to increase the RCC rate to support increased staff levels as well as to support an increase in commissioners' salaries is also acceptable. Commissioners should be adequately compensated for the demands of the job. Mr. Rowe declared that, like others, the Association is not always happy with the rulings made by the Commission; however, they are "satisfied with the effort and the integrity of the people who are sitting on that commission today." Their compensation should be addressed in the bill. 2:34:24 PM Representative Olson clarified that the salary issue was removed from the bill at the request of the RCA and Governor Sarah Palin. Separate legislation regarding establishing a RCA task force was introduced in response to a request from the Governor that the Legislature be the body making the determination on commissioners' salaries. 2:35:14 PM Senator Thomas asked for clarification as to whether staffing levels of the RCA would be expanded. 2:35:56 PM KATE GIARD, Chair, Regulatory Commission of Alaska, testified via teleconference from an offnet location. The $505,000 FY 2008 funding increase reflected in the Department of Commerce, Community and Economic Development May 10, 2007 fiscal note would increase RCA "resources" to accommodate both the shortened timelines and the new requirement that a timeline be specified for every type of docket coming before the Commission. Ms. Giard noted, however, that the RCA is "challenged" because this funding request and the $1,300,000 funding being considered in the FY 2007 supplemental bill "will cause the RCA to exceed the statutory rate cap which is a limit on the amount of revenues that it can collect from regulated utilities." Ms. Giard elaborated on how testifiers' proposal to fund new positions and increased salaries for commissioners with an increased RCC rate would not mesh with the ability of the RCA to collect revenues from utilities under existing statutory restrictions or their ability to receive the supplemental funding. 2:37:27 PM Senator Elton asked why the funding amount requested in the May 10, 2007 fiscal note had not decreased as a result of some of the timeframes in Version "O" being lengthened. Ms. Giard clarified that the staffing level proposed in the $505,000 fiscal note was developed prior to the changes made in Version "O". It was noted that Version "O" shortened the entirety of timelines specified in Section 7 subsection (k), page 2 beginning on line 28 through page 3 line 5, from nine months to six months. The staffing levels in the fiscal note were deemed necessary in order for the Commission to comply with new and revised timeframes. Ms. Giard communicated that establishing in statute a timeline for every case coming before the RCA, as proposed in this bill, would be labor intensive, particularly as, 181 cases, or approximately 46 percent of the rate cases coming before the Commission in the last three years, had not previously been subject to any timeline. 2:39:01 PM In response to a question from Senator Thomas, Ms. Giard pointed out that, in addition to imposing a timeline on every rate case filed with the RCA, this legislation would impose a timeline on any jurisdictional matter presented to the RCA. She clarified that this "process was heavily supported by the RCA". Senator Thomas asked Ms. Giard whether the six month timeline only applied to adjudicated dockets. 2:39:46 PM Ms. Giard clarified that the six month timeline would apply "to all cases filed with the Commission". 2:40:05 PM Senator Olson advised the Committee that the May 10th $505,000 fiscal note was suspect. Not only had timelines in Section 3 AS 42.05.175(c) been extended from 270 days to 450 days, but the effective date of the section had been changed to July 1, 2008. 2:40:50 PM Senator Thomas moved to report the Version 25-LS0717\O committee substitute from Committee with individual recommendations and accompanying fiscal notes. 2:41:24 PM Senator Elton objected in order to request that the bill's fiscal note be recalculated. He agreed with Representative Olson that the fiscal note should be substantially lower than $505,000 because of the language revisions in Version "O". While he would not object to moving the bill from Committee, he would like an updated fiscal analysis of the Version "O" committee substitute before the bill came before the full Senate. Senator Elton removed his objection. Co-Chair Stedman announced that the RCA would provide the requested information. AT EASE 2:42:14 PM / 2:48:24 PM Ms. Giard clarified that "while the Legislature has seen fit in this CS" to alter the timelines for rate making, the RCA had also opened a docket on revising timelines. No action has been taken on that docket however, as the RCA was waiting on the Legislature to address policies under their jurisdiction. The RCA "fully intends to move forward on that docket" and "shorten the timelines as the public utilities and the public advocate recommend." The RCA considers reducing regulatory lag to be very important. Co-Chair Stedman noted that an updated fiscal note would be developed to accompany the bill. There being no further objection, SCS CS HB 209(FIN) REPORTED from Committee with Senate Concurrent Resolution, Version 25- LS0949\C and two new fiscal notes: a $229,400 fiscal note dated May 11, 2009 from the Department of Commerce, Community and Economic Development and an indeterminate fiscal note dated May 8, 2009 from the Department of Law. AT EASE 2:50:36 PM / 2:51:32 PM