HOUSE FINANCE COMMITTEE January 30, 2003 1:29 PM TAPE HFC 03 - 5, Side A TAPE HFC 03 - 5, Side B CALL TO ORDER Co-Chair Harris called the House Finance Committee meeting to order at 1:29 PM. MEMBERS PRESENT Representative John Harris, Co-Chair Representative Bill Williams, Co-Chair Representative Kevin Meyer, Vice-Chair Representative Eric Croft Representative Richard Foster Representative Mike Hawker Representative Reggie Joule Representative Carl Moses Representative Gary Stevens Representative Bill Stoltze Representative Jim Whitaker MEMBERS ABSENT None ALSO PRESENT Ernesta Ballard, Commissioner, Department of Environmental Conservation; Kurt Fredrickson, Acting Deputy Commissioner, Department of Environmental Conservation; Nan Thompson, Chair, Regulatory Commission of Alaska. PRESENT VIA TELECONFERENCE None GENERAL SUBJECT(S): DEPARTMENT OF ENVIRONMENTAL CONSERVATION (DDEC) REGULATORY COMMISSION OF ALASKA The following overview was taken in log note format. Tapes and handouts will be on file with the House Finance Committee through the 23rd Legislative Session, contact 465- 2156. After the 23rd Legislative Session they will be available through the Legislative Library at 465-3808.   LOG SPEAKER DISCUSSION    TAPE HFC 03 - 5  SIDE A  000 Co-Chair Harris Convened the meeting of the House Finance Committee at 1:29 p.m. Roll was called and a quorum established.  Co-Chair Harris Invited members to bring any outstanding business forward. Hearing none, he invited Ms. Ballard to come forward.  DEPARTMENT OF ENVIRONMENTAL CONSERVATION (DEC)  145 ERNESTA BALLARD, Introduced Mr. Fredrickson who would also COMMISSIONER, be available to answer questions. Ms. DEPARTMENT OF Ballard summarized her business ENVIRONMENTAL background, explaining that she had spent CONSERVATION half of her career in the private and half in the public sector. She mentioned her experience working for universities, the Federal Government, the Environmental Protection Agency (EPA) [administrating for a region which included Alaska], a bank, the Cape Fox Corporation in Saksman, and, most recently, her own consulting business. She noted that she had worked previously with members of DEC with her consulting firm, and expressed her pride in now serving as their leader. She emphasized her commitment to the Governor's priority of revitalizing resource industries, thereby supporting local economies. She noted that, as a resident of Ketchikan, she felt enthusiastic about the future of this community in view of projected capital returns.  531 Ms. Ballard Clarified her understanding of DEC's mission as derived from statues, and referred to the handout outlining these statutes (AS 46.03.010 and AS 44.46.020), listing the policies and duties of the department (copy on file.) She pointed out that DEC's primary mission, established over 30 years ago, was to further the statutory policy of the legislature to conserve, improve and protect the state's natural resources.  643 Ms. Ballard Summarized their duties as being to adopt and enforce protective standards for the prevention of pollution and for the protection of public health. (AS 44.46.020) She noted that those duties derived by a public interest identified  by the legislature, considered greater than individual interests. She referred to statute (AS 46.03.010) identifying the State as the trustee of the environment for present and future generations. She expressed her personal belief in the legislatures' proposal of balance between the public interest for environmental protection and the private right of citizens to be left alone. She observed the responsibility of DEC to do no more in the job than intended by legislature, but no less than necessary to protect public interest. She referred to Administrative Order 202, in which departments are charged with a performance audit to determine statutory and regulatory compliance.  929 Ms. Ballard Explained that, in the process of this internal audit, she would investigate what she termed as mission creep - the natural tendency to allow agendas to effect policies and compliance. She noted her commitment to understanding the regulatory framework, and places where the department may have over stepped statutory intent. She emphasized her commitment to ensure that environmental and public health standards were fact based, and that systems were in place to implement those standards, with logical permits and accompanying regulations.  1038 Ms. Ballard Concluded by stating her priority to cut costs through efficiency and effectiveness. Specifically she noted her own goals and measurements: regulatory proposals which are easy to understand and well coordinated with other state departments and federal agencies; using regulatory discretion to tailor actions to match Alaskan circumstances; web pages which are searchable and interactive; permit programs which are self implementing; increased field presence; enforcement as a predictable consequence of deceit and equivocation; opportunity for public comment at convenient times and places.  1209 Ms. Ballard Proposed that confidence in her Department could be achieved when its performance was timely, predictable, rational, and fact based. She thanked the Committee Members for this  opportunity and concluded her presentation.  1308 Ms. Ballard Affirmed a statement by Co Chair Harris that her philosophy, and that of the Administration, was to support natural resource development in an environmentally sound manner and to comply with environmental regulations in the process.  1358 Representative Noted Ms. Ballard's personal goal for a Whitaker self-implementing permit process.  1427 Ms. Ballard Elaborated by explaining that, by identifying activities with common characteristics and likelihood for a common effluence, it was possible to write a permit to describe circumstances, and to file a notice of intent under that general permit. She mentioned that this was a commonly used regulatory tool, allowing more time for staff on protective standards and in the field understanding circumstances. She conceded that there were circumstances that did not fit general permits, when an individual permit was necessary.  1552 Representative Asked how DEC interacted with seafood Stevens industry, as with seafood inspection and laboratory work paralytic shellfish.  1617 Ms. Ballard Responded that the seafood industry, as a processor, produced discharges in water. She emphasized that those discharges must meet water quality standards. DEC, in conjunction with the EPA, has a program in which the EPA is the lead agency. She noted that the Palmer laboratory facility must be vacated by the end of 2003 and a that a modern lab would be built near Anchorage to ensure that fisheries can be supported with a quick turnaround for shellfish poisoning testing.  1801 Ms. Ballard Responded to a question from Representative Stevens and stated that the lab design had been funded at over $1 million, but had not yet been built.  1813 Representative Meyer Asked for clarification on when the dept became involved with local issues. He noted an instance regarding a subdivision in Anchorage. He inquired whether Ms. Ballard preferred that local government handle issues, and when she thought DEC should become involved.  1900 Ms. Ballard Responded that DEC would always prefer for issues pertaining to land use and  development be addressed by local government. She also noted that public water systems were the responsibility of DEC. The agency determines drinking water standards for resultant water. Ms. Ballard explained that, if a subdivision was to be created near a water source, which might, because of the disturbance of the land, become impacted, lines might become blurred. However, she reiterated that it was still DEC's preference to have engineering and analysis completed by the local planning authority. She noted that with reluctance DEC used expertise to give general advise. She pointed out that DEC had no decision- making or permitting authority with regard to local subdivisions.  2031 Representative Meyer Asked whether there were plans for the agency in the way of changes, mergers or consolidations. He referred to tattooing and body piercing as listed as under DEC's purview in regard to public safety.  205 Ms. Ballard Stated that the only plans for organizational changes would occur around vacancies or opportunities. She confirmed that body piercing was DEC's responsibility under statute.  2124 Co-Chair Williams Noted that Ms. Ballard was a friend and expressed his pride in her development since he was a part of her original job in Alaska. He asked about the administration of water primacy.  2150 Ms. Ballard Spoke to her viewpoint, being as yet unaware of the Governor's stance on this issue. She explained that the national environmental laws at this moment had been delegated to states in the majority of cases. At state level, with statutory authority, permit writers can use all regulatory tools available. She exemplified that when a discharge occurred in water, if the point of compliance must be at point of discharge, then a great deal of treatment would be needed upstream. If, however, a mixing zone accommodated the point of compliance, there would be an opportunity to engineer the discharge at a lower cost and higher efficiency. She pointed out that this type of regulatory discretion was used by nearly every state in administrating programs. However, the  Federal Government on behalf of states did not use that level of discretion. The noted that the Fed Government took a conservative point to administer a permit program in a state. States can use discretion to write permits that achieve protection while allowing engineering. She further assured the Committee that current regulatory language, which allowed regulatory discretion to DEC, was similar to that used by other programs around the country, according to a recent comparison conducted by State of Alaska regulatory specialists.  2500 Ms. Ballard Also responded that primacy of the NPDES (National Pollutant Discharge Elimination Systems) Program, allowing permits to be written by the State of Alaska, DEC would use the same discretion in all other permitting programs, similar to programs in many other states. She expressed her belief that this kind of discretion would not violate standards or harm water quality.  2526 Representative Joule Asked Ms. Ballard to elaborate on budget reductions.  2542 Ms. Ballard Responded that where vacancies occurred, she would investigate consolidating and internal streamlining. She also mentioned the area of some federal grants that were better suited to larger cities. She noted a current review of grant funding, to determine federal funds that might be passed up in order to reduce general fund spending in that area.  2707 Representative Joule Observed that these ideas for budget reductions did not seem to impact statutory obligations.  2737 Ms. Ballard Confirmed that she was committed to statutory responsibilities, but that she may propose to release federally funded programs that were not consistent with DEC's central mission.  2759 Representative Croft Asked for clarification on the major areas of in which the State maintained primacy.  2818 KURT FREDRICKSON, Confirmed that, of twenty possible areas, ACTING DEPUTY Alaska had primacy in air and drinking COMMISSIONER, water primarily. Ms. Ballard offered to DEPARTMENT OF provide a list of these areas to the ENVIRONMENTAL Committee.  CONSERVATION 2903 Representative Croft Clarified that the issue previously discussed was that of water discharge, noting that this issue had been a costly one to solve in past experience.  2920 Ms. Ballard Concurred that the Committee had previously directed the DEC to design a program, and report the projected costs and statutory changes it required. She stated that personnel had been hired recently in this regard, and that a report would be forthcoming by the end of 2003.  2945 Representative Croft Expressed his preference to have Alaskan permit writers with more regulatory discretion, rather than federal employees.  3013 Ms. Ballard Stressed that, even when using such regulatory discretion, that water quality standards did not change. She noted that the goal was to make site-specific determinations, which would be inappropriate for the EPA.  3108 Representative Croft Reiterated that having primacy also meant expending funds, and that he hoped Alaska could afford to do it.  3118 Representative Observed that Alaska's inability to test Stevens seafood products kept us out of the market, especially in terms of shellfish. He asked about a solution to this problem.  3152 Ms. Ballard Explained that to sell fresh product from waters that might have been contaminated by PSP (paralytic shellfish poisoning), the primary challenge was to find assurances. She stated that the vehicle for this was through controlled laboratories. The agent used is highly toxic, and should not be distributed to local complexes. By moving the lab closer to Anchorage, and by maintaining professionalism and adequate budget, the State has been able to support fisheries. She expressed the need to find a harmless test, but that one did not exist at this time.  3325 Representative Referred to a study in the past regarding Stevens tests to be used on a beach.  3352 Ms. Ballard Responded that tests were underway around the world, and that DEC was following their development.  3410 Representative Pointed out that Palmer did have an Stoltze airport and might be able to support a laboratory.  3430 Ms. Ballard Noted that the new lab in Anchorage performed all of the functions of the previous lab, including agricultural functions, however in a modern setting.  3441 Co-Chair Harris Asked whether Ms. Ballard was prepared to tell the Committee whether she had adequate personnel to fulfill their mission.  3516 Ms. Ballard Said she would do the best she could with the resources available.  3530 Co-Chair Harris Observed Ms. Ballard's intent for DEC to perform those duties which statutes required, and that perhaps DEC currently fulfilled duties that were not required. He asked whether, during a time of limited resources, the department would request more employees.  3628 Ms. Ballard Stated that she would balance the turnaround time and duties in accordance with the resources available. She further explained that, within a spectrum of duties, that time frame would vary according to funding. She stated a goal to move with deliberation to resolve uncertainty surrounding projects. She admitted that turnaround time has been an issue in the past.  3740 Representative Croft Asked about implications of the Governor's request for a five or ten percent reduction to her department.  3808 Ms. Ballard Could not reveal detail and once again referred to statutory guidelines, which would receive top priority in preparing a budget.  3844 Representative Croft Asked for a frank response to his question independent of confidentiality with the Governor's office.  3912 Ms. Ballard Responded that she had not had adequate time to select items for budgetary cuts.  3940 Co-Chair Harris Pointed out that budgetary information would become available in a month.  3952 Representative Expressed his confidence that clean air Stoltze and water and public health were priorities of the agency.  4031 Co-Chair Harris Concluded the discussion on this topic.   REGULATORY COMMISSION OF ALASKA  4109 NAN THOMPSON, Introduced herself as current Chair of COMMISSIONER, the Regulatory Commission of Alaska. She REGULATORY explained that the agency's mission was COMMISSION OF ALASKA to regulate public utilities and intrastate pipeline carriers. Their mission is to provide oversight of  monopoly providers, and promote competition where appropriate. She pointed out that, last year, the legislature gave Regulatory Commission of Alaska the additional responsibility to develop small (under five megawatt) hydroelectric projects. She noted that the Regulatory Commission of Alaska came into existence in July of 1999 when the legislature abolished its predecessor due to the amount of backlogged cases. She reported that backlog of cases had dissipated and that they been meeting legislative deadlines.  4257 Ms. Thompson Referred to chart illustrating the consistent decrease of backlog cases. She noted that the agency had 62 employees who served the State. She recognized that they were directed by statute. She noted that the five commissioners were appointed by the Governor to six-year terms. She pointed out that the Governor had appointed two new Commissioners: Dave Harbor? And Mark Johnson. She also noted that a new Chair would then be elected for the next year.  4452 Ms. Thompson Explained that commissioners worked in a variety of ways. As a panel of three in ad judicatory dockets, they resolved complaint filed with the Agency. She stated that commissioners participated in a public meeting process. Commissioners also participate with other states in a less formal policy making process.  4604 Ms. Thompson Noted that their budget was funded entirely through the regulatory cost charge mechanism, and contained no general funds. Ms. Thompson went on to explain the role of the Regulatory Commission of Alaska, which is unique in state government. She explained that the budget was allocated depending on how much time was spent in each sector. She also stated that the amount collected was capped by statute at .8 percent of the total adjusted gross revenues of all utilities.    TAPE HFC 03 - 5,  Side B 4644 Ms. Thompson Explained that all public utilities that serve 10 or more customers for compensation must be certificated by the RCA; they are all subject to a public  convenience and necessity determination and a fitness, willingness, and ability requirement before they can begin operations. Certificated public utilities are subject to economic regulation (rate review) by the RCA if they are privately owned or do not otherwise meet the exemption criteria in AS 42.05.711.  4610 Ms. Thompson Generally, the statute exempts very small utilities, those owned by local governments and those whose customers have voted to for exemption from economic regulation. The Commission regulates pipelines and utilities to assure reasonable and just rates to the consumer with fair rates of return to the utilities. There are currently 163 telephone utilities, 97 electric utilities, 63 water utilities, 44 wastewater utilities, 48 refuse utilities, and 20 pipelines certificated by the Commission. There are a number of uncertified small rural water and wastewater utilities throughout the state. The Regulatory Commission of Alaska is developing regulations that will simplify the certification process for these utilities.  4455 Ms. Thompson Observed that the Regulatory Commission of Alaska opens an average of 160 new dockets a year. The current docket caseload is 214. Of these, 158 are utility cases, 42 are pipeline cases, and 14 are regulations cases. She pointed out that 214 was a significant improvement from 1999, when the Regulatory Commission of Alaska inherited more than twice that many dockets from their predecessor agency.  4434 Ms. Thompson Explained that the Regulatory Commission of Alaska also handles consumer complaints. In FY02, they received 664 consumer complaints about utility services. As noted in the 2002 Legislative Audit Report on the RCA, the number of consumer complaints increased by 13 percent since the 2001 Audit. Despite this increase, all complaints received in FY02, save one were closed by October 15, 2002.  4418 Ms. Thompson Clarified that each regulated utility and pipeline carrier is required to keep a current tariff on file with the  Commission. The tariff includes all the rules, rates, terms, and conditions of service under which the utility operates. Revisions to tariffs are formally submitted for public notice and comment and then Commission review and action. Of 536 tariff revision filings received during FY02, 455 were approved within 30- 45 days of receipt. Fifty filings were matters requiring hearings or more detailed investigation.  4342 Ms. Thompson Explained that a rate increase request is an example of a proposed tariff change that normally takes more than 45 days to process. These more complex filings are suspended for further investigation; a formal docket case is opened to build a record for decision. The Commission may reject tariff filings if they do not provide sufficient information to support the requested change.  4251 Ms. Thompson Observed that their major work product is written Orders. Commission orders describe our decision and the reasoning and record supporting it. Clearly written orders would provide a more stable environment within which utilities and pipelines can operate. The Regulatory Commission of Alaska produces an average of 608 substantive decisions each year.  4239 Ms. Thompson Emphasized that the RCA's approach to decision-making has been successful. Since July 1, 1999 when the RCA started, only 16 of nearly 2,000 substantive orders have been appealed. Federal and state courts have issued decisions in 13 of those cases, and the agency has not been reversed once. Two appeals were dismissed by stipulation. One case was remanded to the agency with a finding that the Regulatory Commission of Alaska erred by not holding a hearing before rendering a decision and an instruction to conduct one.  4142 Ms. Thompson Observed that there are 9 pending appeals from agency decisions. Reviewing courts have consistently held that they are correctly applying the law.  4115 Ms. Thompson Reviewed the U.S.D.A. Grant: During FY02, the agency submitted a successful application to the U.S. Department of Agriculture for a $7.5 million grant program to spread broadband Internet  access to Alaskan communities not yet connected to the Internet.  4054 Ms. Thompson Explained that the RCA will work with the Denali Commission, DCED/RUBA, and other agencies to implement this program during FY03.  4032 Ms. Thompson Discussed the Small Water-Power Development Project Regulation: The 2002 Legislature enacted statutes, which require the RCA to establish a regulatory program for small waterpower development projects. She observed that FERC currently has jurisdiction over these projects. The approved program will require coordination with the Alaska Department of Natural Resources and the Department of Fish and Game.  3957 Ms. Thompson Reviewed Sustainable Rural Utilities: The RCA participates in a federal state working group that is trying to insure that the water and sewer systems being constructed in rural Alaska with federal grant monies will continue to offer affordable, reliable service in the future.  3901 Ms. Thompson Noted that Regulatory Commission of Alaska is looking at possible changes to PCE regulations in order to create incentives for efficiency in the program and insure that funds are distributed equitably. Utilities are an important infrastructure for the future of rural Alaska.  3858 Ms. Thompson Reviewed Improved Public Access: The agency is working to function better and faster. The Regulatory Commission of Alaska website has been redesigned to make processes and orders accessible to the public. They have instituted automatic email notification of orders, notices, and filings, saving time, paper, and postage. Internally they have cut down on paper processes by scanning filings and instituting electronic document retrieval. Electronic filing procedures are being developed for use by the utilities.  3808 Ms. Thompson Maintained that the RCA will play a vital role in the natural gas pipeline approval process; the continuing transition to communications competition; and the development of sustainable rural utilities - all matters of great  legislative interest as well.  3729 Representative Concern about backlog in decisions. Noted Stoltze that a request for a change within balloting has been delayed.  3710 Ms. Thompson Stated that she would like to identify the case in question.  3553 Representative Meyer Referred to consumer complaints. He observed that as new subdivisions are developed, property owners would like to have choice in companies. Unfortunately consumers are caught between competing companies and might go 30 - 60 days before their phones can be hooked up.  3410 Ms. Thompson Stated that the Regulatory Commission of Alaska opened a docket to discuss the issue in Anchorage to resolve the phone competition issue. The docket is still open and the Commission is still working on the issue. She emphasized that consumers need an advocate to protect them.  3253 Representative Croft Spoke to the competition issue in Anchorage. He questioned how it is possible to know when there is enough competition.  3208 Ms. Thompson Pointed out that there are no federal or state regulations to determine when competition is optimized. The Commission is examining all their competition markets to research the issue.  3107 Representative Croft Questioned the market share position in Anchorage.  3053 Ms. Thompson More than 40 percent of the local market has gone to the competitive carrier.  3031 Representative Croft Stressed that the issue is balance: too little or too much competition can create problems. He questioned if affects of too much competition through a slowing of expansion has been seen.  2939 Ms. Thompson The Commission has observed that there are many more opportunities for consumers. Investment and innovation has continued to come to the consumer. It is a market in transition. The entombment has made significant investments in broadband and wireless.  2758 Representative Croft Referred to unbundled networks.  2745 Ms. Thompson Explained that under the federal 1996 Telecommunications Act, incumbents are required to lease portions of their network to competitors. The FCC came up with a methodology that has been upheld  in the courts.  2609 Ms. Thompson Observed that the question is whether competitors will be allowed to come into a market without any infrastructure. The loop is currently being leased, which is not a big issue in Alaska.  2524 Representative Croft The question is whether the state of competition has been meet in Anchorage.  2454 Ms. Thompson Clarified that there is a maximum of two years to conclude review.  2431 Representative Croft Questioned if there is more competition in the Anchorage market than other areas in the nation.  2403 Ms. Thompson Acknowledged that Alaska is at the head of the curve because the state of Alaska did not start with a Bell company.  2340 Representative Referred to efficiencies in Power Cost Stevens Equalization.  2324 Ms. Thompson Noted that the Regulatory Commission of Alaska has statutory direction to make sure that compensations occur within guidelines. Efficiency criteria in Regulatory Commission of Alaska's regulation are being modified with public discussion. They are also working to make the administration of the program fair and more efficient. Efficiencies apply to fuel consumption. Utilities aren't paying for employees of other departments.  2057 Representative Joule Asked for further discussion on sustainable rural utilities.  2026 Ms. Thompson Explained that funding to build rural utilities is being reviewed.  1937 Ms. Thompson Rural utility subsidies may be needed if there is not enough economy to support them.  1844 Ms. Thompson In response to a question by Representative Joule, Ms. Thompson stated that the Commission had not been involved in the selection of the type of operating systems used by rural communities.  1749 Representative Discussed the Chugiak market.  Stoltze 1722 Ms. Thompson Explained that under the federal act, the district is considered rural. A finding would have to be made that competition is needed in the area.   ADJOURNMENT The meeting was adjourned at 2:59 PM