HOUSE FINANCE COMMITTEE April 25, 1994 8:35 a.m. TAPE HFC 94-140, Side 2, #000 - end. TAPE HFC 94-141, Side 1, #000 - end. CALL TO ORDER Co-Chair Larson called the House Finance Committee to order at 8:35 a.m. PRESENT Co-Chair Larson Co-Chair MacLean Representative Martin Vice-Chair Hanley Representative Navarre Representative Brown Representative Parnell Representative Grussendorf Representative Therriault Representatives Foster and Hoffman were not present for the meeting. ALSO PRESENT Robert Lohr, Executive Director, Alaska Public Utilities Commission, Department of Commerce and Economic Development; Jim Rowe, Alaska Telephone Association; Jim Jackson, GCI; Gordon Parker, Anchorage Telephone Utility; Melphine Reynolds, Chief Financial Officer, Anchorage Telephone Utility; Jay Hogan, Contract Employee, House Finance Committee. SUMMARY INFORMATION HJR 65 Proposing amendments to the Constitution of the State of Alaska relating to the budget reserve fund. HJR 65 was HELD in Committee for further discussion. HB 539 "An Act extending the Alaska Public Utilities Commission; and relating to regulation of public utilities and to regulatory cost charges." HB 539 was HELD in Committee for further discussion. HOUSE JOINT RESOLUTION NO. 65 Proposing amendments to the Constitution of the State of Alaska relating to the budget reserve fund. Representative Martin stressed that the money received by the state through settlement should be deposited in the corpus of the Alaska Permanent Fund. He MOVED that "Budget Reserve Fund" be deleted and "the corpus of the Alaska Permanent Fund" be inserted on page 1, line 12. Representatives Grussendorf and MacLean OBJECTED. Representative Brown questioned if the amendment would be germane to the legislation. She pointed out that the amendment was not properly drafted. A roll call vote was taken on the motion to adopt AMENDMENT 1. IN FAVOR: Martin OPPOSED: Brown, Grussendorf, Navarre, Parnell, Therriault, Larson, MacLean Representatives Hoffman, Hanley and Foster were absent from the vote. The MOTION FAILED (1-7). Representative Brown interpreted that the legislation would not effect current pay back owed to the Constitutional Budget Reserve Fund. Co-Chair Larson agreed that the intent of the legislation is not to effect debts owed prior to the effective date. Discussion pursued regarding the addition of an effective date to clarify that the legislation is not retroactive. Co-Chair Larson noted that the intent of the legislation is to clarify there are no provisions for a simple majority vote and no pay back provision. Representative Brown asked what aspect of the pay back was unacceptable to Judge Green. Representative Martin observed that the Administration has the authority to pay back at the end of the calendar year any money available to lapse. JAY HOGAN, CONTRACT EMPLOYEE, HOUSE FINANCE COMMITTEE noted that pending senate legislation includes a provision to require the Governor to propose the amount for appropriation. The amount would be the general fund balance from the previous year. Representative Grussendorf suggested that language be inserted that states, "past debts owed to the Constitutional Budget Reserve Fund are not effected by the passage of this resolution." Members further discussed the adoption of a effective date. HJR 65 was HELD in Committee for further discussion. HOUSE BILL NO. 539 "An Act extending the Alaska Public Utilities Commission; and relating to regulation of public utilities and to regulatory cost charges." ROBERT LOHR, EXECUTIVE DIRECTOR, ALASKA PUBLIC UTILITIES COMMISSION testified in support of HB 539. He recommended that language be inserted after "may" to state, "do all things necessary or proper, to carry out the purposes and exercise the powers expressly granted or reasonably implied in this chapter including" on page 1, line 10; and delete "the powers of the commission shall be those specifically conferred by statute or necessarily implied by a statutory grant of authority. JIM ROWE, EXECUTIVE DIRECTOR, ALASKA TELEPHONE ASSOCIATION noted that the Association supports the change suggested by Mr. Lohr. He stressed that the Association supports the pursuit of competition on a federal level. Representative Brown referred to provisions to change the regulatory cost charge. Mr. Rowe noted concerns that the costs or commission service allocated should be allocated toward the utilities that are utilizing the time. He observed that a compromise was reached to prevent the cost of fuel for the electric would not be included in the regulatory cost charge. Representative Brown observed that the cost is being shifted from one utility bill to another. She maintained that the issue is how the total of the raised regulatory cost charge should be spread and passed through on utility bills. She did not feel that the change is necessary. Mr. Rowe clarified that the Association is not suggesting the change. Representative Grussendorf noted that the legislation states: "If the legislature does so, the commission shall reduce the total regulatory cost charge collected for that fiscal year by a comparable amount." He suggested that the state is subsidizing the utilities to give breaks to consumers. Mr. Rowe noted that the regulatory cost charge supports the regulation of the APUC. He acknowledged that there is a reallocation of cost. Representative Brown maintained that competitive services should not be charged against the regulated rate base. Mr. Rowe discussed the possible effect of proposed federal legislation. DAVE HUTCHENS, EXECUTIVE DIRECTOR, ALASKA RURAL ELECTRIC COOPERATIVE ASSOCIATION (ARECA) testified in support of HB 539. He expressed support for the language proposed by Mr. Lohr. He referred to section 5. He noted that the APUC must estimate how much money needs to be collected by the regulatory cost charge. He explained that section 5 would provide that any excess funds charged to the utilities by the APUC would be carried over toward the regulatory cost charge of the following year. Mr. Hutchens discussed the regulatory cost charge allocation. He maintained that the legislative auditor found that more money was charged to the electric than could be justified based on the workload. He noted that the current proposal would subtract from the electric revenues the cost of power. He clarified that the cost of power is approximately 40 to 50 percent of total electric revenues. Representative Brown provided members with AMENDMENT 1 (copy on file). She MOVED to ADOPT AMENDMENT 1. She noted that amendment 1 would delete sections 3, 4 and 12. The amendment would delete sections that change the regulatory cost charge. She spoke in support of retaining the status quo in regards to the regulatory cost charge. She asserted that the legislation does not address the regulatory cost charge of oil or gas. She suggested that a complete cost accounting would be preferable to the change contained in the legislation. She asked why only one utility sector would be allowed to adjust for cost of power. Co-Chair MacLean OBJECTED to the adoption of Amendment 1. Mr. Hutchens reiterated that the legislative auditor found that more money was charged to the electric than could be justified based on the workload. He noted that the legislative auditor recommended a record keeping system as the means to reallocate costs. The Commission objected to his recommendation. The proposal to allow adjustment for the cost of power was a compromise position. A roll call vote was taken on the motion to adopt AMENDMENT 1. IN FAVOR: Grussendorf, Navarre, Brown OPPOSED: Hanley, Martin, Parnell, Therriault, MacLean, Larson Representatives Hoffman and Foster were absent from the vote. The MOTION FAILED (3-6). (Tape Change, HFC 94-141, Side 1) Representative Brown referred to "liberally construed." Mr. Lohr noted that the language proposed for page 1, line 10 may be broader than current liberally construed language. He reexpressed concern that the issuance of temporary operating authority to utilities or interim refundability of rates may be called into question as to whether they are in the scope of the powers or duties of the Commission. He noted that page 5, line 16 provides an effective date of 1995. The Commission recommends that the effective date be changed to July 1, 1996, to allow the Commission two years to propose specific language to address any errors created by virtue of the new language. Mr. Lohr noted that the Commission has submitted a fiscal impact note of $60.7 thousand dollars a year, beginning in FY 96. Mr. Lohr clarified that the new language may be broader in some respects. He stressed that it is not clear what problems the new language is solving. He emphasized that the Commission not lose flexibility to address changes in industry structure. Representative Brown MOVED to ADOPT AMENDMENT 2. She noted that the Amendment would delete the change to "liberally construed" language. She emphasized that it is not clear that a problem exists. Representative Hanley recounted the concerns of industry in regards to the "liberally construed" language. He stressed that the APUC within the ~liberally construed" language, can in regulation do things that they are not authorized by statute to do. He noted that there is a potential to go way beyond what is authorized in statute. Representative Hanley noted that his mother is on the APUC. Representative Brown noted the statute states that the power of the Commission shall be liberally construed "to accomplish it's stated purposes." She stressed that the "stated purposes" limits the Commission's scope of activities. Mr. Hutchens observed that there has been occasions when "liberally construed" was the standard used to address other issues. He discussed a vote taken by the Commission regarding environmental issues in regards to the feasibility of the Healy Clean Coal Project's license to operate. He stressed that the Commission should "follow the law not make the law." He spoke in support of the legislation as drafted. He discussed the Commission's use of "liberally construed" to categorize lobbying expenses as campaign contributions. Representative Navarre spoke in support of keeping the current "liberally construed" language in statute. Mr. Lohr noted that other states contain similar or equally broad authorizing language. Representative Navarre noted that the Supreme Court stated in HEA versus City of Kenai that: "In sum, we have construed AS 42.05.141(a)(1) to mean that the actual areas in which the APUC may exercise its adjudicatory authority are quite narrow. Within those narrow areas, however, the APUC's powers to adjudicate are plenary, as broad as the specific provisions of the act permit..." Co-Chair MacLean spoke in support of language proposed by Mr. Lohr. A roll call vote was taken on the motion to adopt AMENDMENT 2. IN FAVOR: Brown, Grussendorf, Navarre, Larson OPPOSED: Hanley, Martin, Parnell, Therriault, MacLean Representatives Hoffman and Foster were absent from the vote. The MOTION FAILED (4-5). Representative Hanley MOVED to ADOPT AMENDMENT 3, after "may" insert "do all things necessary or proper, to carry out the purposes and exercise the powers expressly granted or reasonably implied in this chapter including" on page 1, line 10; and delete "the powers of the commission shall be those specifically conferred by statute or necessarily implied by a statutory grant of authority." Representative Brown stated that she supports the amendment because she does not think it changes the scope of power of the APUC. She stressed that it is not her intent to change anything. Representative Navarre agreed that the amendment would not change the scope of power of the APUC. There being NO OBJECTION, AMENDMENT 3 was adopted. Representative Martin MOVED to ADOPT AMENDMENT 4. Co-Chair MacLean OBJECTED. Representative Martin explained that a bonded indebtedness could result in the loss of the utility if there is default on the bond. The amendment would prevent the utility from being used as a collateral for the backing of the bond. Co-Chair MacLean spoke in opposition to the amendment. She asserted that it would inhibit competition and services. JIM JACKSON, GCI spoke in support of the amendment. He noted that the amendment is the result of the announcement of the Anchorage Telephone Utility (ATU) to invest millions of dollars in the long distance and video dial tone businesses. He noted that GCI is ATU's second biggest rate payer. Mr. Jackson explained that municipal owned utilities were given protection under AS 42.05.431. The statute states that the APUC must set rates to assure that the bond covenant of a municipally owned utility is never breached. He noted that cooperative utilities were granted similar projections with the check that new bond covenants must be approved by the Commission before they go into effect. He asserted that the provision would place rate payers as the guarantors of ATU's competitive ventures. If ATU can go to the APUC for a rate raise to cover its competitive losses. Mr. Jackson noted that the amendment adds to statute that: "Rates set by the commission must be adequate to meet those covenants. However, the commission is not required to set rates for services regulated by the commission to recover the allocated costs and coverage requirements of services that are not regulated by the commission. Bonds or other debt issued to finance unregulated, competitive ventures by a municipally owned utility may not be incurred in a manner that would permit a creditor, on default, to have recourse to the assets of the basic regulated utility business." Mr. Jackson maintained that the amendment does not prevent ATU from going into competition or issuing bonds. He noted that the amendment only applies to regulated municipal utilities. In response to a question by Representative Brown, Mr. Jackson discussed the effect of proposed federal legislation. MELPHINE EVANS REYNOLDS, CHIEF FINANCIAL OFFICER, ANCHORAGE TELEPHONE UTILITY testified in opposition to amendment 4. She gave a brief history of ATU's decision to enter into competitive operations. She emphasized that technologies are merging. She stressed that long distance companies are entering into local markets. She noted that ATU desires to participate in the information superhighway. Ms. Reynolds stated that the amendment will have serious consequences. She alleged that the amendment violates the constitutional prohibition against passing legislation aimed at a single entity. Mr. Reynolds provided members with a letter by Public Financial Management Incorporated regarding ATU's bond rating (copy on file). She observed that they were advised that ATU's bond rating could be reduced as a result of the amendment. HB 539 was HELD in Committee for further discussion. ADJOURNMENT The meeting adjourned at 10:10 a.m.