HOUSE FINANCE COMMITTEE March 6, 1995 1:30 P.M. TAPE HFC 95-40, Side 2, #000 - end. TAPE HFC 95-41, Side 1, #000 - end. CALL TO ORDER Co-Chair Mark Hanley called the House Finance Committee meeting to order at 2:38 p.m. PRESENT Co-Chair Hanley Representative Martin Co-Chair Foster Representative Mulder Representative Brown Representative Navarre Representative Grussendorf Representative Parnell Representative Kelly Representative Therriault Representative Kohring ALSO PRESENT David Hutchens, Executive Director, Alaska Rural Electric Cooperative Association; Joshua Fink, Staff, Senator Kelly; Don Schoer, Commissioner, Alaska Public Utilities Commission. SUMMARY HB 21 An Act relating to revocation of a driver's license for illegal possession or use of a controlled substance or illegal possession or consumption of alcohol by a person at least 13 but not yet 21 years of age; and providing for an effective date. HB 108 An Act relating to claims on permanent fund dividends for defaulted public assistance overpayments. HB 108 was rescheduled to another time. SB 47 An Act relating to the extent to which the Alaska Public Utilities Commission may exercise its powers when regulating utilities; establishing a regulatory cost charge on public utilities and pipeline carriers; relating to the allocation of costs in hearings before the Alaska Public Utilities Commission; relating to the method by 1 which utilities are exempted from and made subject to regulation by the Alaska Public Utilities Commission; relating to the monetary threshold for regulation of certain kinds of utilities by the Alaska Public Utilities Commission; extending the Alaska Public Utilities Commission; relating to staggered terms for members of the Alaska Public Utilities Commission; and providing for an effective date. SB 47 (efd fld) was reported out of Committee with a "do pass" recommendation and with a fiscal impact note by the House Finance Committee for the Department of Commerce and Economic Development; and with two zero fiscal notes by the Department of Administration, dated 2/3/95; and the Department of Revenue, dated 2/1/95. HB 20 An Act relating to rights in certain tide and submerged land. HB 20 was rescheduled to another time. SENATE BILL NO. 47 "An Act relating to the extent to which the Alaska Public Utilities Commission may exercise its powers when regulating utilities; establishing a regulatory cost charge on public utilities and pipeline carriers; relating to the allocation of costs in hearings before the Alaska Public Utilities Commission; relating to the method by which utilities are exempted from and made subject to regulation by the Alaska Public Utilities Commission; relating to the monetary threshold for regulation of certain kinds of utilities by the Alaska Public Utilities Commission; extending the Alaska Public Utilities Commission; relating to staggered terms for members of the Alaska Public Utilities Commission; and providing for an effective date." JOSHUA FINK, STAFF, SENATOR KELLY testified in support of SB 47. He noted that SB 47 is the re-introduction of SB 213 from the 18th Legislature. He noted that the legislation accomplishes two primary objectives: * 1) It extends the Alaska Public Utilities Commission (APUC) which is currently winding down in its sunset year; and * 2) It re-enacts the Regulatory Cost Charge (RCC) which expired on December 31, 1994. Mr. Fink observed that the legislation was the product of 2 numerous committee hearings held during the last Legislature. He maintained that the legislation was introduced to prevent unknown but potentially serious ramifications of allowing the APUC to expire. He noted that the current legislation is nearly identical to the final version that would have reached the House floor last May 10th had that body not adjourned before it was taken up. He explained that the RCC has since expired and is re-enacted in SB 47. Mr. Fink noted that another bill has been introduced by the Senate Labor & Commerce Committee that will incorporate further amendments affecting the APUC and/or RCC. Mr. Fink referenced, throughout his statements, an audit which was performed by the Division of Legislative Audit. The audit report was submitted January 26, 1993, #081404-93 (copy on file). He reviewed the legislation by section: * Section 1: Replaces language granting the commission powers which shall be "liberally construed" with language allowing the commission to do "all things necessary or proper to carry out the purposes and exercise the powers expressly granted or reasonably implied". Mr. Fink stressed that electric utilities felt that "liberally construed" was too broad, and in questions where the commission did not have express authority to act, the legislature should make such policy calls. He asserted that the new language strikes an acceptable balance. * Sections 2 , 3, 10 and 11: Re-enacts the RCC for utilities and pipelines without the sunset. This language is identical to the former law with the following exception: There are no sunset provisions for the Regulatory Cost Charges. Mr. Fink observed that this provision was proposed by the Auditor and supported by the APUC. He stressed that both asserted that the Commission's sunset review is adequate to address any issues that arise with the Regulatory Cost Charge. * Page 3, lines 11- 13: Adjusts the allocation of the Regulatory Cost Charge for electric utilities by subtracting the cost of power from their gross revenues. Mr. Fink explained that the Auditor recommended the APUC periodically adjust the RCC allocation among utility types to reflect workload on an industry by industry basis 3 utilizing a time-keeping system. However, the commission argued such a change would be complicated and costly. He stated that according to the Auditor electric utilities overpaid approximately $190.0 thousand dollars in FY 93 and telephone utilities underpaid $800.0 thousand dollars based on APUC case time. * Page 2, line 27 and Page 6, line 4: Increases the Regulatory Cost Charge ceiling for public utilities and pipeline carriers from .61 percent to .8 percent. Mr. Fink explained that this change was added to offset the subtraction of the cost of power from electric utilities' gross revenues before application of the RCC. The RCC rate would need to be increased roughly 30 percent to maintain the same amount of revenue for the Commission's operating costs. He emphasized that almost all RCC charges are passed on through to consumer's utility bills. He stated that the additional amount reflected on consumer's monthly bills will be approximately $0.20 to $0.35 cents. * Page 3, lines 20-24, and Page 6, lines 15-19: Requires the Department of Administration to earmark Regulatory Cost Charges over-collected for possible appropriation by the Legislature for the commission's next fiscal year. Mr. Fink noted that this section implements recommendations by the Auditor. * Sections 4, 8 and 9: Provides that subscribers of small utilities or utilities otherwise exempt from regulation can petition for an election to place the utility under regulation under the same procedures the subscribers of a regulated utility can petition for an election to remove the utility from regulation. Mr. Fink noted that this provision implements recommendations made by the Auditor and supported by the commission. The Auditor recommended the procedures for subscribers to opt-in or opt-out of economic regulation should be easier. These sections provide that opt-in and opt-out procedures are identical. * Sections 5, 6, and 7: Gives more consumers the option to deregulate by raising maximum amount of gross revenues a utility may receive under which the consumers may elect for deregulation. Mr. Fink observed that no existing utilities would be affected. These provisions were recommended by the Auditor and supported by the commission. He maintained that they 4 increase the consumer's options to deregulate. * Section 12: Extends the sunset date of the APUC to June 30, 1999. Mr. Fink stressed that the Auditor recommended an extension to the year 2003. It was felt a four year extension was ample. * Section 13: Staggers the terms of the members of the commission. Mr. Fink explained that the terms of the consumer seat and the engineering seat currently expire at the same time. This provision would stagger the terms. It would not affect the terms of any of the current commissioners. * Section 14 and 15: Provides that the change in the commission's powers as amended in section 1 apply only to proceedings begun on or after the effective date of section 1, which is set in section 15 as July 1, 1996. Mr. Fink noted that the effective date failed in the Senate. DAVID HUTCHENS, EXECUTIVE DIRECTOR, ALASKA RURAL ELECTRIC COOPERATIVE ASSOCIATION testified in support of SB 47 (efd fld). He urged the continuation of the APUC. He observed that border wars between adjacent utilities existed before the creation of the APUC. He stressed that SB 47 (efd fld) is a good compromise. He expressed support for section 1. He maintained that "liberally construed" is too broad. He suggested that the new language is adequate for the Commission. He maintained that the new language instructs the court that any decision to broaden the Commission's powers should be made by the Legislature. Mr. Hutchens spoke in support of changes made on page 3, lines 13 - 15. He observed that electric utilities would be allowed to deduct the cost of power from their revenues before deducting the RCC. He observed that the prior formula was based on the retail revenues of all utilities. He asserted that the prior method was not a good measure of the regulatory responsibilities of the Commission. He acknowledged that there is a "rough" correlation between the number of consumers and the regulatory responsibility of the Commission. He maintained that revenues vary dramatically from one kind of utility to another. He stated that telephone utilities' local service charges, subject to the RCC, amount to less than $10 dollars a month per customer. Electric utilities' average residential revenue is approximately $70 dollars a month. He stressed that electric utilities must generate the power that is then 5 provided. Representative Brown asked if the change in section 1 addresses a specific case or problem. Mr. Hutchens stated that the Healy Clean Coal Project presented a difference of opinion among the Commission in regards to the scope of their authority. Representative Brown pointed out that the Commission did not do anything to expand their powers. Mr. Hutchens maintained that the "liberally construed" standard has allowed the Commission to do things that were not expressly granted or reasonably implied in statute. Representative Brown suggested that the change in section 1 is likely to result in additional litigation. Mr. Hutchens doubted that litigation would be significant. Representative Brown recalled that Mr. Lohr, Executive Director, Alaska Public Utilities Commission (APUC) did not agree with the Auditor's assessment on which the changes in the RCC were based. She noted that Mr. Lohr estimated that the reduction in Regulatory Cost Charge payments by electric utilities would be approximately 45 percent. Mr. Hutchens stated that the Auditor's report indicated that the APUC workload for electric utilities had declined to less than 30 percent. He maintained that the cost of the RCC to electric utilities has steadily increased each year. He asserted that electric utilities are paying 45 percent of the total cost of operating the Commission. Mr. Hutchens clarified that 45 percent of present revenues earned by electric utilities would be deducted before the RCC is calculated. The net change would be a reduction for the electric utilities of 31 percent. The portion of the RCC that electric utilities would pay is also 31 percent. Representative Brown asked the rationale for establishing different thresholds for different utilities. She asked if the electric cooperatives would support a higher threshold for exemptions of $500.0 or less unless petitioned. Mr. Hutchens explained that the rationale for opt-out provisions for the electric cooperatives is not a matter of size, but is a matter of governance. The rationale is that the consumers own the cooperatives and elect the board of directors. Therefore, they have a direct say in the policies pursued by the utilities. He stated that they would oppose any amendment which would deprive telephone and electric cooperatives of the right to have a vote if their consumers decide if they should be regulated. 6 Representative Brown did not feel her amendment would deprive the electric utilities. She noted that electric cooperatives under $50.0 thousand dollars are exempt. Mr. Hutchens clarified that electric utilities whose retail revenue is less than $50.0 thousand dollars a year do not need a certificate to serve. He noted that there are no electric cooperatives that small. Mr. Hutchens noted that the certification requirement was adopted in the early 1980's. He noted that an inflation adjustment may be warranted. He stated that they would oppose any major increase in the threshold for regulation. Representative Brown provided members with Amendment 1 (Attachment 1). Amendment 1 would delete the new language "all things necessary or proper to carry out the purposes and exercise the powers expressly granted or reasonably implied" and retain the current language, "liberally construed" in section 1. She maintained that there are no specific examples illustrating why the change should be made. She suggested that the new language will cause legal problems. Co-Chair Hanley disclosed that his mother is on the Alaska Public Utilities Commission. Co-Chair Hanley stated his objection to Amendment 1. He stressed that it is appropriate for the legislature to make policy decisions. Representative Brown MOVED to adopt Amendment 1. A roll call vote was taken on the MOTION. IN FAVOR: Brown OPPOSED: Grussendorf, Kelly, Kohring, Martin, Mulder, Parnell, Therriault, Foster, Hanley Representative Navarre was absent for the vote. Representative Brown MOVED to adopt Amendment 2 (Attachment 2). Representative Mulder OBJECTED. She noted that Amendment 2 would delete (3), page 3, line 11, and insert ".61" and delete ".8" on page 2, line 27 and page 6, line 8. She explained that the amendment would return the RCC to .61 percent and delete the adjustment for the cost of power for electric utilities. She asserted that the bill, unamended, would shift the tax burden to the oil industry. She observed that the Auditor's findings have been contradicted by Mr. Lohr in his previous testimony. During testimony given to the House Finance Committee meeting on 2/2/95, Mr. Lohr stated that he did not believe that there had been an 7 overpayment by the electric utilities that justified the tax shift. Representative Brown quoted from the 1993 audit report: "In the absence of verifiable data such as utility or industry codings on payroll sheets, we were forced to approximate the workload by using rough estimates, which were provided on an unofficial basis by commission staff." She stressed the lack of substantiation of overpayment by electric utilities. Co-Chair Hanley suggested that testimony by Mr. Lohr indicated that the electric utilities overpaid. Representative Brown noted that the Auditor did not recommend statute changes. He recommended that the Commission institute a time-keeping system. She suggested that the simple cut of gross revenues is a reasonably fair way to access the tax. (Tape Change, HFC 95-41, Side 1) DON SCHOER, CHAIRMAN, ALASKA PUBLIC UTILITIES COMMISSION responded to questions by Representative Brown. He estimated that the percentage of time the Commission spends on cases pertaining to the electric utilities is the same now as when the audit was completed in 1993. He could not say if electric utilities were over or under paying. He maintained that all the costs are passed through to the consumer. He estimated that there would be a 31 percent shift between utilities. He stated that the Commission is neutral in regards to the shift in RCC funding. A roll call vote was taken on the MOTION to adopt Amendment 2. IN FAVOR: Brown OPPOSED: Grussendorf, Kelly, Kohring, Martin, Mulder, Therriault, Foster, Hanley Representatives Parnell and Navarre were absent for the vote. The MOTION FAILED (1-8). Representative Brown MOVED to adopt Amendment 3 (Attachment 3). She explained that Amendment 3 would raise the threshold for those exempt from regulation. The amendment would deregulate the smaller utilities. The amendment would also provide the same level between utility sectors. Utilities with under $500.0 thousand dollars in gross revenues would be exempt, unless the subscribers petitioned under AS 42.05.712. 8 In response to a question by Representative Brown, Mr. Schoer did not think that any utilities would be affected by the changes made in section 4. He explained that section 4 allows smaller utilities to opt out if they want to, based on their gross revenues. Representative Brown referred to section 5. Mr. Schoer stated that very few utilities would be affected by section 5. He clarified that all utilities with over ten customers that are being paid monthly must be certified. Representative Brown asked how the opt-out procedures differ. Mr. Schoer noted that 25 percent of the rate payers must sign a petition to opt-in. He could not elaborate on the different procedures for opting-out. Representative Brown asked Mr. Schoer to respond to the proposal to raise the threshold for regulation from $50.0 thousand dollars to $500.0 for electric and telephone utilities. He stated that the Commission supports the higher threshold to allow smaller utilities to opt-out. He had no comment on raising the next category from $500.0 thousand dollars to $1.0 million dollars. He stressed that it is expensive for small utilities to appear before the Commission. He could not comment on the reason for establishing different thresholds for different utilities. Representative Brown WITHDREW Amendment 3. She stressed that more consideration of the issue is warranted. She asked for more information regarding who would be affected by the bill. She suggested that it makes sense to have the same rule apply across the board to all utilities. Representative Martin expressed concern with the fiscal note accompanying the legislation. He asserted that the fiscal note is accelerated beyond the population of the state. He noted that there is a $1.4 million dollar increase for operation of the Commission over a five year period. He referred to the use of software to reduce the Commission's time-keeping costs. He stressed that there should be some kind of monitoring when there is a monopoly utility. Representative Brown MOVED to adopt Amendment 4 (Attachment 4). She noted that the legislation would set up a procedure that would require a majority of those voting to approve regulation, instead of allowing regulation upon request of 25 percent of the subscribers, as is in current law. She noted that garbage utilities are treated differently in the legislation. She observed that the largest subscribers are being given total control through their ability to change their status, on line 24, page 5. She questioned why garbage utilities are being treated differently. She also 9 asked why a shift is being instituted to give subscribers controlling gross revenues as opposed to all subscribers, the authority to make the change. Mr. Fink noted that the language in section 7 is a re- enactment of current statute, which was requested by the Revisor. He stated that the statute was adopted in response to the refuge situation on the North Slope. He noted that some of the oil companies represent over 50 percent of the gross revenues but only have one vote in the case of a deregulation election. Mr. Fink noted that currently 10 percent of the first 5,000 subscribers of a regulated utility and 3 percent of the remaining subscribers may petition for an election to remove a utility within certain revenue parameters from regulation. However, for subscribers to petition for an election to place an unregulated utility under regulation they must gather the signatures of 25 percent of the subscribers. He stated that the legislation would apply the provisions of AS 42.05.712 which allows for a deregulation election with 10 percent of the subscribers. He maintained that the legislation would make the process for deregulation and regulating the same. Mr. Fink reiterated that the legislation states that "unless the subscribers petition the Commission for regulation under AS 42.05.712(h)." He observed that AS 42.05.712(h) allows for 10 percent of the first 5,000 subscribers of a regulated utility and 3 percent of the remaining subscribers to petition for an election. He stressed that the Auditor recommended the change. Representative Martin questioned if one group that has at least 25 percent of the use of the utility could petition for an election. Mr. Fink restated that there are two ways that a call for an election can be made. The second method allows a subscriber that represents 25 percent of the gross revenue to call for an election. The first method is under AS 42.05.712. He reiterated that the second method is current law. Co-Chair Hanley clarified that this portion of the legislation was based on the Auditor's Recommendation Number 2, page 9. Discussion ensued in regards to the drafting language contained on page 5, lines 22 -26. Mr. Fink observed that the Auditor did not recommend the deletion of the provision to allow an entity with 25 percent of the utility's gross revenues to petition for an election. Representative Brown pointed out that previously 25 percent 10 of the subscribers could opt for regulation. A petition of 25 percent of the subscribers would result in regulation. Under the provisions of SB 47 (efd fld) 10 percent of the subscribers would be needed for a petition, which would then require an election in which 50 percent would need to approve. She maintained that SB 47 (efd fld) would make it more difficult to opt in. Representative Martin restated his concern with the accompanying fiscal note. He maintained that the cost of the Commission can be decreased through the use of time- keeping technology. Mr. Schoer observed that the fiscal note is based on projections for increases in population by the Department of Commerce and Economic Development. He pointed out that the Commission's tariffs have increased 74 percent and dockets 64 percent over five years while the Commission's budget has been decreased by $250.0 thousand dollars. Representative Brown emphasized that the legislation changes the requirement for regulation from 25 percent of the subscribers to a majority of the subscribers. Mr. Schoer agreed that current law allows a petition of 25 percent of the subscribers to opt for regulation without an election. Representative Brown noted that the fiscal note estimates that $60.7 thousand dollars will be needed to pay the Department of Law to handle legal analysis and increased litigation concerning the new powers and duties language in section 1 of the bill. In response to concerns by Representative Martin, Co-Chair Hanley noted that the fiscal note could be amended to delete increases due to population. Representative Brown MOVED to adopt Amendment 4. A roll call vote was taken on the MOTION. IN FAVOR: Martin, Brown OPPOSED: Kelly, Kohring, Mulder, Parnell, Therriault, Hanley Representative Foster, Grussendorf and Navarre were absent for the vote. The MOTION FAILED (2-6). Representative Mulder MOVED to report SB 47 (efd fld) out of Committee with individual recommendations and with an 11 amended fiscal note for the Department of Commerce and Economic Development, reflecting a flatline of $3.789.7 for FY 96 - 2001; and the other accompanying zero fiscal notes. Co-Chair Hanley explained that funding in the amended fiscal note will be at the same level for FY 96 - FY 2001. There being NO OBJECTION, it was so ordered. SB 47 (efd fld) was reported out of Committee with a "do pass" recommendation and with a fiscal impact note by the House Finance Committee for the Department of Commerce and Economic Development; and with two zero fiscal notes by the Department of Administration, dated 2/3/95; and the Department of Revenue, dated 2/1/95. ADJOURNMENT The meeting adjourned at 4:17 p.m. 12