HOUSE LABOR AND COMMERCE STANDING COMMITTEE February 12, 1999 3:18 p.m. MEMBERS PRESENT Representative Norman Rokeberg, Chairman (via teleconference) Representative Andrew Halcro, Vice Chairman Representative Jerry Sanders (via teleconference) Representative Lisa Murkowski (via teleconference) Representative John Harris (via teleconference) Representative Sharon Cissna MEMBERS ABSENT Representative Tom Brice COMMITTEE CALENDAR * HOUSE BILL NO. 82 "An Act relating to immunity for certain claims arising out of or in connection with the year 2000 date change; and providing for an effective date." - HEARD AND HELD (* First public hearing) PREVIOUS ACTION BILL: HB 82 SHORT TITLE: IMMUNITY:CLAIMS ARISING FROM Y2K PROBLEMS SPONSOR(S): REPRESENTATIVES(S) ROKEBERG, Dyson Jrn-Date Jrn-Page Action 2/05/99 144 (H) READ THE FIRST TIME - REFERRAL(S) 2/05/99 144 (H) L&C, JUDICIARY 2/12/99 (H) L&C AT 3:15 PM CAPITOL 17 WITNESS REGISTER BOB POE, Commissioner-designee Department of Administration P.O. Box 110200 Juneau, Alaska 99811-0200 Telephone: (907) 465-2200 POSITION STATEMENT: Testified on HB 82. BRAD THOMPSON, Director Division of Risk Management Department of Administration P.O. Box 110218 Juneau, Alaska 99811-0218 Telephone: (907) 465-5723 POSITION STATEMENT: Testified on HB 82. GREG BERBERICH, Vice President of Corporate Services Matanuska Telephone Association 1740 South Chugach Street Palmer, Alaska 99645 Telephone: (907) 761-2466 POSITION STATEMENT: Provided information on MTA's year 2000 preparedness, testified in support of HB 82. JAMES BORDEN, Y2K Real-Time Systems Committee Chairman Chugach Electric Association, Incorporated 5601 Minnesota Drive Anchorage, Alaska 99519 Telephone: (907) 762-4774 POSITION STATEMENT: Provided information on CEA's year 2000 preparedness. ROBERT DAY, Results Engineer Municipal Light and Power Municipality of Anchorage 1200 East First Avenue Anchorage, Alaska 99501 Telephone: (907) 263-5295 POSITION STATEMENT: Provided information on ML&P's year 2000 preparedness, testified in support of legislation like HB 82. TOM WALDOCK, Vice President of Administration ENSTAR Natural Gas Company 3000 Spenard Road Anchorage, Alaska 99503 Telephone: (907) 264-3660 POSITION STATEMENT: Provided information on ENSTAR's year 2000 preparedness, testified in support of HB 82. DAVID LAURENCE, Vice President and Chief Information Officer Alyeska Pipeline Service Company 1835 South Bragaw Street Anchorage, Alaska 99502 Telephone: (907) 787-8898 POSITION STATEMENT: Provided information on Alyeska's year 2000 preparedness, testified in support of HB 82. ALYA DONALSON, Y2K Project Coordinator General Communication Incorporated 2550 Denali Street Anchorage, Alaska 99503 Telephone: (907) 777-6836 POSITION STATEMENT: Provided information on GCI's year 2000 preparedness, testified in support of HB 82. MARK VASCONI, Director of Regulatory Affairs AT&T Alascom 210 East Bluff Drive Anchorage, Alaska 99515 Telephone: (907) 264-7308 POSITION STATEMENT: Provided information on AT&T Alascom's year 2000 preparedness, testified in support of HB 82. LIBBY RODERICK P.O. Box 203294 Anchorage, Alaska 99520-3294 Telephone: (907) 278-6817 POSITION STATEMENT: Testified on HB 82. ACTION NARRATIVE TAPE 99-7, SIDE A Number 0001 VICE-CHAIRMAN ANDREW HALCRO called the House Labor and Commerce Standing Committee meeting to order at 3:18 p.m. At the call to order, Representatives Halcro and Cissna were present in the committee chambers in Juneau. Representatives Rokeberg, Sanders, Murkowski and Harris were present at the call to order, participating from Anchorage via teleconference. Vice-Chairman Halcro introduced "Flat Stanley," a school project of Nicolas Martell, a second grade student at Government Hill Elementary School in Anchorage. The vice-chairman noted "Flat Stanley" was attending his first legislative committee hearing ["Flat Stanley" was a small, person-shaped paper cut-out spending the week at the Capitol in Juneau]. HB 82 - IMMUNITY:CLAIMS ARISING FROM Y2K PROBLEMS Number 0133 VICE-CHAIRMAN HALCRO indicated the committee's order of business was HB 82, "An Act relating to immunity for certain claims arising out of or in connection with the year 2000 date change; and providing for an effective date." Vice-Chairman Halcro stated he would turn the meeting over to Chairman Rokeberg in Anchorage as the prime sponsor of HB 82. Number 0144 CHAIRMAN ROKEBERG stated the purpose of today's meeting was to: 1) allow a number of businesses in Alaska, in particular those organizations that were vital to the community, an opportunity to speak to the issue of the year 2000 (Y2K) problem, the "millennium bug." He noted he was pleased that a number of utilities were represented. The purpose was to allow those businesses to "get the message out" to the communities on the status of their ability to come into compliance with the problems related to Y2K, and, additionally, hopefully this would allay some of the fears and concerns of Alaskans that might build toward the end of the year. 2) The committee was having an initial hearing on HB 82, which the chairman indicated was intended to provide blanket immunity, as the bill was currently drafted, to small businesses and to provide a level of immunity from unnecessary and vexatious lawsuits related to the Y2K issue to businesses that performed due diligence and made good faith efforts to come into compliance. Number 0303 CHAIRMAN ROKEBERG noted he thought there were a significant number of things that needed to be done to change the legislation, particularly in the area of exceptions to the immunity grant, commenting he would briefly review a list of items this committee and further committees should examine to modify the legislation. First was the issue of actual damages or "caps" on any damages that would come forward from a cause of action, unless, for example, fraud was involved which could possibly open up the area of non-economic or punitive damages. He stated recommendations had also been made at the state chamber of commerce level whether they should restrict or bar class action suits, or if they were "allowed (indisc.) have a cap on the amount of damages." He commented that another issue was the limitation on damages and immunities. He noted this was very important because it was the problem of a chain of transactions; there could be a domino effect from the one vendor to another. Additionally, there was the possibility that a fully compliant business organization could be could be reinfected by an outside vendor or third-party supplier. Chairman Rokeberg indicated they also needed to face the potential "of contractual or situations where the attempted enforcement of a force majeure clause in a contractual relationship may come into play against a downstream supplier ...." Further, in this entire chain of transactions, there was the question of what they were to do about unknown embedded chips or microprocessors, things that were very difficult to deal with at this stage. The chairman said the third element was, in terms of a mandate, perhaps looking at mediation rather than litigation. He next indicated that although the legislation's current drafting created a blanket immunity, he thought it was clear they shouldn't grant a blanket immunity to hardware and software companies, and possibly suppliers and consultants involved contractually in Y2K remediation. Number 0520 CHAIRMAN ROKEBERG stated the committee also had Alaska's insurance laws under its purview, noting the possibility of an insurance-related hearing on the legislation. Testimony might be received from the Division of Insurance on Alaska law relating to directors and officers of corporation insurance (D&O insurance) and whether the Alaska laws needed modification, or whether this should be taken up in HB 82. He indicated it was important to make sure that those companies, and their directors and officers, could stand the challenge suits from shareholder or other types of officers if they've done their due diligence in good faith. The chairman said he thought there was current significant debate in the insurance industry about whether or not this particular issue would trigger a "business interruption type policy or other types of issues, so it's rather involved area with just insurance alone that we need to take a look at." From examining and studying the information, Chairman Rokeberg said he thought it was clear that any grant of immunity should not undermine the privy of contract that had been entered into between various businesses and the buyer, and in no way should the legislature impede the general commerce by granting immunities in cases where this would overcome a contractual obligation to, for example, a vendor or "vendee." In addition, the Alaska State Chamber of Commerce had suggested limiting the whole area of immunity to contracting parties or limits there. He indicated they would need to sort that out. Chairman Rokeberg stated he would end his presentation on the bill itself with that, indicating there were a number of people who wished to testify on their business' or organization's actions and activities in the area of Y2K preparedness. The chairman noted it was a very complex issue, commenting the committee wanted ensure they crafted a good piece of legislation before the bill was sent on to the House Judiciary Standing Committee, which would give it a thorough hearing. Chairman Rokeberg stated he would returned the gavel to Vice-Chairman Halcro for the first witness in Juneau. [The sponsor statement read: House Bill 82 calls for immunity for Alaskan businesses for certain claims arising out of or in connection with the year 2000 date change. The Year 2000 date change (commonly referred to as "Y2K" or "Millennium Bug") could have a tremendous impact on businesses in Alaska. Currently, some states have adopted laws that provide immunity to governmental entities for claims arising out of Y2K situations. Governor Knowles has introduced legislation for consideration by the Alaska Legislature to provide immunity for state and local governments. Other states are considering such measures, as well as measures protecting businesses. House Bill 82 would provide similar immunity for Alaskan businesses. Across the United States and the world, businesses are facing exposure to lawsuits resulting from possible Y2K claims. Businesses in Alaska are no exception. There have been estimates that it will cost small businesses as much as $450-600 per affected computer program to address the Y2K problem. Many businesses are making good faith efforts to address the problem but may not be able to fully solve the problem. The immunity described in House Bill 82 does not apply to businesses with 11 or more employees if a person bringing the civil action shows by a preponderance of evidence that the business failed to use due diligence or good faith efforts to avoid the damages claimed in the civil act. By offering this immunity, HB 82 will assist in encouraging small businesses to continue or begin to address the Y2K situation faced by that particular business. Your support would be appreciated.] Number 0727 VICE-CHAIRMAN HALCRO indicated both the Anchorage and Matanuska-Susitna (Mat-Su) Legislative Information Offices (LIOs) were on teleconference. He invited Commissioner-designee Poe to the table. Number 0760 BOB POE, Commissioner-designee, Department of Administration, came forward to testify, introducing Brad Thompson, Director, Division of Risk Management, who joined Commissioner-designee Poe at the table. Number 0777 COMMISSIONER-DESIGNEE POE stated they were there to suggest improvements that might be made or other considerations that might be included in the debate and discussion on the legislation. He recognized many of the points Chairman Rokeberg had just raised. Commissioner-designee Poe noted they would provide a handout that was a survey of all the other states' efforts, as well as the two federal statutory efforts, in this regard. He commented that the current bill relied on business size in determining immunity, noting there were a lot of other considerations which should be and Chairman Rokeberg had listed several. Secondly, Commissioner-designee Poe stated he would ask Brad Thompson to speak about the distinction between immunity and limitation of liability, indicating they think that the sponsor and affected parties were looking more toward limitation of liability than immunity. Commissioner-designee Poe said other states had tended to address three basic areas in their legislation that this bill did not. 1) Limitations on the plaintiff group: size of the class action suits, kinds of folks involved, et cetera. Commissioner-designee Poe noted Chairman Rokeberg had mentioned some of the chains of events that could lead to a possible litigation, stating those kinds of events brought or did not bring a suit, like "vicarious liability," needed to be limited and described more fully. 2) Standard of proof: what actually had to happen in order to have a limitation of liability. 3) Limitation of remedy. Commissioner-designee Poe said many of the states' legislation and the federal legislation dealt with this area. He described, "Alright, so there was some damage related to your computer system that affected another business - should you be allowing punitive damages or suits years and years after the fact, or should they be more restricted to things that deal with the actual damage that occurred?" Number 0946 COMMISSIONER-DESIGNEE POE stated they knew of 32 state and local public immunity bills. Of these, 27 of these were in process, and 5 had passed. There were 12 active state bills and 2 active federal bills dealing with the private sector. None of the bills dealing with the private sector had been passed yet. He indicated one of the most difficult aspects of the private sector issue was interstate commerce, noting, "If you have any kind of business that does business in more than one state, you're gonna have a problem dealing with that business with state legislation. It'll be federal legislation that'll be much more effective in protecting those businesses. That's why the federal bill that's outlined in this summary may be something you want to look at closely and consider whether this may also do the job." With that, Commissioner-designee Poe asked Mr. Thompson to speak on immunity and limitation of liability issues, suggesting that Mr. Thompson might also want to talk about some of the general issues at the federal bill level, and some of the more pertinent state bills. Number 1061 BRAD THOMPSON, Director, Division of Risk Management, Department of Administration, noted there were five states which had enacted legislation to protect both the state and local municipal entity from Y2K liability, and 27 states were actively considering bills. Regarding actions filed against state and local governments, he said they needed to remember it was a privity, or right, of each state to set or waive its preexisting rights of sovereign immunity to allow actions to be filed against it. A couple [of states] still retained full immunity, most restricted the nature and type of tort claims they allowed to be filed against them, and some set specific statutory caps or limits on the type of remedy to each claimant or per occurrence. He indicated Alaska did not have a cap, but did have in AS 09.50.250, and also at the municipal level, the allowing of claims to be filed against the state and local governments. Mr. Thompson commented that was the distinguishment between a public entity and the private enterprise. He noted, as Commissioner-designee Poe had mentioned, that there were 12 states currently considering restricting the type of claims in a Y2K litigation that may be filed. Some were restricting it to financial service providers, banking institutions; some were referring and limiting to lawsuits involving class actions only to those which each member had damages in excess of $50,000; there were burdens of proof; there were affirmative defenses being considered to be applied; however, none of these state bills had been passed. MR. THOMPSON said it was a very important matter to the general commerce and industry amongst the states. He indicated at the federal level it was S.96 [Senate Bill 96, short title: "Y2K Act"] that provided the most comprehensive and involved protection to general commerce and industry, referring to the materials they had provided with a synopsis of S.96. Mr. Thompson noted that legislation contained a specific provision for a limited state law preemption. He said, "The federal Act will supersede the state law regarding recovery of harm caused by a Y2K failure to the extent that the federal law establishes a rule of law applicable to any recovery which is inconsistent with state law." Commenting he was not a lawyer, he stated, "But the ability and the authority to pass a federal bill that preempts and the diversity of jurisdiction arguments -- the legal arguments from a business that is domiciled in Alaska may be affected by this bill but not affecting a non-Alaskan business." He said the present definition of business proposed in HB 82 did not address location. He commented it was a complicated issue, and a far-reaching and difficult challenge. The previous fall the federal government had enacted the Year 2000 Information and Readiness Disclosure Act [S.2392 RS]. Mr. Thompson indicated that was to enable both public and private business to exchange information as to their Y2K preparedness, which they had been reluctant to do until that point in case others might later rely on that information and use it in the form of an additional claim or an argument of liability. Mr. Thompson noted the federal law addressed that and currently there was a much more real and complete exchange of information at the national level, not at the state. Number 1307 COMMISSIONER-DESIGNEE POE commented it was a very complicated, difficult issue. It was complicated because, on one hand, it could be seen that there were businesses that might be tied to some lawsuit related to Y2K through no fault of their own and who would certainly be better of if this could be somehow prevented. On the other hand, defining who, under what circumstances, how, and across state jurisdictions, became a very challenging issue because the state of Alaska, as a sovereign entity, could define what it was going to be immune from. However, because Alaska is also part of the United States and the United States Constitution, rules relating to interstate commerce exist that make this much more difficult to do. Commissioner-designee Poe suggested that was why a federal bill might be better, but noted that was for this committee and future committees to consider. VICE-CHAIRMAN HALCRO asked if there were any questions for either Commissioner-designee Poe or Mr. Thompson. Number 1381 CHAIRMAN ROKEBERG asked Mr. Thompson if the Year 2000 Information Readiness and Disclosure Act of 1998 was commonly known as the "Good Samaritan Law." The chairman also asked if S.96 which Mr. Thompson had also referred to had been introduced by Senator McCain, and Senator Gorton of Washington. He noted that bill must have been very recently introduced. COMMISSIONER-DESIGNEE POE answered in the affirmative to both questions, noting S.96 had been introduced on January 19. [Note S.96 was sponsored by Senator John McCain of Arizona and co-sponsored by Senator Bill Frist of Tennessee.] Number 1425 VICE-CHAIRMAN HALCRO asked Commissioner-designee Poe if S.96 limited the size of exempt companies, noting HB 82's Y2K immunity only applied to companies with 11 or fewer employees. MR. THOMPSON replied that he did not believe it was done by size, and he did not think another state did it by the size of the entity, stating, "It does it more by the act and creating limitations on either the argument or the remedy available." VICE-CHAIRMAN HALCRO indicated he felt it might be unfair to limit it by company size, commenting that what was to say a company with 11 or fewer employees would have more of an incentive to address Y2K compliance than a company with 111. Number 1476 COMMISSIONER-DESIGNEE POE agreed and said, "If you think about its impact on the economy -- when we look at why Alaska's economy is diversified today, I think it's largely small and medium-sized businesses." He questioned whether that was 10, 40 or 200 [employees], noting that became an issue. Additionally, he commented that it would not take much of an amendment on the "floor" to change the bill's character remarkably. VICE-CHAIRMAN HALCRO asked Commissioner-designee Poe if he felt, with all his work on Y2K, it would be more beneficial to remove the 11 or fewer provision from HB 82. Number 1523 COMMISSIONER-DESIGNEE POE responded that it was probably not the best criteria to use, indicating other items that had been mentioned like limiting the size or type of group that was allowed to sue over this, limiting the kinds of damages which could be sought, having a very clear standard of proof, et cetera, might be better. Commissioner-designee Poe offered to go through the six of seven bulleted items related to S.96 so the committee could understand that bill's intent. CHAIRMAN ROKEBERG commented there were a number of witnesses wishing to testify. VICE-CHAIRMAN HALCRO stated the committee would save Commissioner-designee Poe's input for the next public hearing. Number 1567 REPRESENTATIVE CISSNA asked if the committee members could obtain copies of S.96 for their information. COMMISSIONER-DESIGNEE POE gave a copy of the federal legislation to the committee aide, indicating the bulleted items were on the second to the last page. Number 1598 REPRESENTATIVE HARRIS confirmed it would be possible to get copies of the other states' bills. CHAIRMAN ROKEBERG noted the committee would obtain copies, commenting they had a copy of the California legislation which they were doing some research on. He indicated that legislation might not be very applicable. Number 1616 VICE-CHAIRMAN HALCRO announced the committee would hear testimony from the Mat-Su LIO, noting there was one witness there. Number 1627 GREG BERBERICH, Vice President of Corporate Services, Matanuska Telephone Association (MTA), testified next via teleconference from the Mat-Su LIO in support of HB 82. He thanked the chairman and vice chairman for inviting him to speak to the committee. Reading from a prepared statement, he said: "MTA is a member-owned telephone cooperative that provides local exchange service for over 32,000 member owners from Eagle River to Clear/Anderson. MTA's service area encompasses approximately 10,000 square miles. "I'm speaking in favor of House Bill 82. I'd like to start with a brief overview of what MTA has done in preparation for the year 2000 bug, then briefly address the wisdom of the proposed legislation. "For legal considerations, I want to note that the following is a Y2K readiness disclosure for MTA. "MTA has been aware and has been preparing for the Y2K issue for several years. We established a formal committee to work on this issue over a year ago at MTA. To augment our own efforts, we also engaged a Y2K consultant to provide advice and direction on our approach to the problem. We began the process by preparing an overall plan for our Y2K efforts. Since then, we have done an inventory of our systems, established compliance requirements on new purchases, and assessed where and to what extent we were at risk, and gone ... on to implement upgrades and replacements as required. This year we'll be focused on conducting testing and establishing contingency plans for those areas where it may be necessary. We've also worked with our suppliers and business partners to insure that there'll be no Y2K failures in our supply process. "From the industry standpoint, MTA has participated in a number of surveys and information requests from the FCC [Federal Communication Commission], APUC [Alaska Public Utilities Commission] and Rural Utility Service [RUS]. We're also involved with industry trade associations such as USTA - United States Telephone Association, NTCA - National Telephone Cooperative Association, and ATA - the Alaska Telephone Association, in discussing the Y2K problem and in sharing solutions and concerns. "We feel we're as prepared as possible for the next millennium and have exercised due diligence in addressing the Y2K date problem. Nonetheless, we recognize that the Y2K date changes are a multifaceted challenge, and even with sincere efforts and considerable expense there may still be problems. MTA appreciates Chairman Rokeberg's submission of House Bill 82. We believe this will provide the safety net for companies in the private sector, like MTA, who are working diligently to avoid any disruption due to the year 2000 date change. With the passage of this bill, business will be allowed to focus on eliminating the source of Y2K failures without fear of frivolous litigation. "This concludes my testimony to ... House Bill 82. I'd like to thank the chairman and the committee members for this opportunity to explain MTA's efforts in addressing the Y2K problem and to comment on the positive effect we anticipate House Bill 82 will have on the business community." Number 1780 REPRESENTATIVE MURKOWSKI commented it sounded like MTA had certainly done the due diligence one would be looking for, noting MTA had spent a couple of years on this. She said she was curious to know what the contingency plan was if, in fact, "everything went to hell in a hand basket." Number 1801 MR. BERBERICH noted the contingency planning, as such was currently going on this year. However, in MTA's case they had met with most of their vendor-suppliers, had identified those issues and software, and felt comfortable that they had addressed all MTA's major items. He indicated they would be developing the contingency plan during the year's third and fourth quarter, after testing and identifying the location of problems, and whether or not there were solutions. Mr. Berberich indicated it was somewhat difficult to find out whether problems existed and what could be done about such problems until much of the testing and such had been completed. He said that MTA was fairly confident at this point that they were not going to have any big problems, but he commented that, as the committee well knew, no one was making any guarantees anywhere. REPRESENTATIVE MURKOWSKI said she was curious about the "what happens if" scenarios, asking if MTA was prepared to have all of its employees there on January 2 [2000] with its field people ready to go. Number 1898 MR. BERBERICH answered in the affirmative, indicating that they were all going to be on the job in case something went wrong, but it was their expectation there would be no problems. CHAIRMAN ROKEBERG commented Mr. Berberich had mentioned MTA was hoping to test its third-party links. He asked if MTA didn't have contractual obligations or understandings with the people tied into MTA's system that MTA would be testing. Number 1936 MR. BERBERICH indicated the answer was yes, noting they were finding it was more of a legal issue in terms of whether he had guarantees from everyone. He said what they were finding and what they were sending out is that everyone was doing due diligence but no one was going to give a guarantee. Mr. Berberich stated they were giving what they believed were maybe highly confident letters. CHAIRMAN ROKEBERG confirmed that Mr. Berberich was 99 percent sure MTA would be able to deliver service to its customer base on January 1, 2000, but couldn't give a complete assurance. Number 1991 VICE-CHAIRMAN HALCRO confirmed there were no further questions for Mr. Berberich. He stated he would turn the gavel back to Chairman Rokeberg because there were approximately six witnesses waiting in Anchorage. CHAIRMAN ROKEBERG called James Borden forward, indicating a ten minute limit had been given for each witnesses' testimony but brevity would be appreciated. Number 2021 JAMES BORDEN, Y2K Real-Time Systems Committee Chairman, Chugach Electric Association, Incorporated (CEA or Chugach), testified next via teleconference from Anchorage. He stated it was Chugach's intent that the December 31 [1999] date change be business as usual. Mr. Borden said it was particularly their intent that all of their three Y2K projects were done by the summer, that no Chugach customers lost power for any time due to Y2K problems. He noted they had three major projects underway and had been involved with these projects since 1992. He stated the projects were in the area of generation and generation control, substations and transmission and distribution lines, and in business systems. Mr. Borden stated their business systems were substantially complete. The automated controls in the transmission and substation areas would be complete by midsummer; he noted that was the project begun in 1992. The testing and remediation program in the generation area was underway. Testing had been completed on their major generating units and they were moving on to what they considered their smaller peaking units. Mr. Borden stated they would be moving on to contingency planning at the completion of their testing and remediation program, "and then particularly plan as it relates to how they were going to operate on December 31." He stated this was dealing with such issues as what personnel they would have on duty, what materials and resources would be available to them if there was a problem. Mr. Borden noted that concluded his overview of Chugach's Y2K activities. Number 2108 CHAIRMAN ROKEBERG thanked Mr. Borden for his brevity. The chairman commented that the survival and conduct of daily life for Alaskans and the state's commerce was founded on the delivery of reliable electrical energy. He said that clearly the electrical utilities were being looked at for their ability to conform under this situation. Noting he knew a 100 percent guarantee was an impossibility, he asked Mr. Borden what his comfort was, and how Chugach's board and management felt about the utility's ability to be done [with the company's Y2K preparedness]. He asked if there was a very high level of confidence or what Mr. Borden could say that would reassure the public. Number 2151 MR. BORDEN said, putting it into personal terms, that he didn't plan on buying a generator or stockpiling food. In terms of Chugach's management and board of directors, he said their mission was to do whatever it took to make the system Y2K-ready, with providing service to their customers being the primary concern, not manpower and budgets. CHAIRMAN ROKEBERG commented that Chugach was the "almost monopolized" generator of power on a wholesale basis on the Railbelt. MR. BORDEN said they were the largest supplier of wholesale and retail power in the state. CHAIRMAN ROKEBERG asked, given that and Chugach's major place in terms of utilization and generation into the transmission system, "Do you have plans or is there a feasible way you can test their compliance in the entire Railbelt transmission and intertie system?" Number 2200 MR. BORDEN replied that Chugach was not in place to do that independently of the other utilities. He said the Railbelt had a number of forums, organizations, through which interconnected utility projects went forward. Mr. Borden noted he had not been involved in those forums and could not speak to them directly. He said their work had been internal to Chugach's system. CHAIRMAN ROKEBERG confirmed Mr. Borden could not answer about the interface with the others. Number 2226 REPRESENTATIVE HARRIS commented that the bill appeared to almost not apply to Chugach's business at all. MR. BORDEN commented he would agree also. REPRESENTATIVE HARRIS asked if Chugach, and larger businesses like Chugach, with more than just a few employees, wished for some sort of immunity or worried about lawsuits involving the Y2K problem. Number 2245 MR. BORDEN said they were concerned about two nontechnical areas: 1) the legal issues, particularly issues relating to the potential for lawsuits or claims relating to Y2K problems with the system; 2) public reaction to the Y2K in total. He said they believed they might be faced with litigation because of the scope of their system if there were problems. Therefore they were taking a due diligence perspective: preparing documentation that would allow them to show what activities they had done, how they'd met their time lines and budget commitments, and ultimately been able to proactively deal with Y2K. He stated he was not prepared to speak directly to whether or not Chugach was looking for immunity, but he indicated they recognized those legal problems that could arise and were taking action to mitigate them. Number 2289 CHAIRMAN ROKEBERG indicated he thought some misunderstanding existed about HB 82's meaning. He stated the bill provided a blanket immunity for small businesses with 11 or fewer employers, and also provided immunity for those other companies that had performed due diligence and had acted in good faith. The chairman indicated the legislation did, in fact, provide immunity and was intended to impact larger businesses. He further indicated the current bill was really too broad, noting they needed to put "substantial (indisc.) on it ...." Number 2329 REPRESENTATIVE MURKOWSKI asked about Chugach's contingency plans if the testing showed no problems but there were actually problems when the date changed, noting Chairman Rokeberg's comments and Chugach's large market share. She stated it would be January and cold. Number 2349 MR. BORDEN said they shared her concern and had a contingency plan that was philosophically based on thinking the unthinkable. He stated that regardless of the outcomes of their testing program, they intended in their contingency planning to identify what could cause them not to operate and sort those things by their probability [and] impact. Regarding their testing program, they expected as systems were tested and found not to be compliant, to be able to deal with those issues. He noted they had identified some of the key contingencies. Mr. Borden stated, "For those that have particularly high impact, in fact areas of our concern would be (indisc.) particularly the area of telecommunications (indisc.) it's one area of infrastructure that can have a very serious impact, to have plans in place, back-ups in place to be able to deal and operate the system on (indisc.), or in fact for that - for the next quarter." Regarding their testing program, he said they expected, as systems were tested and found not to be compliant, to be able to deal with those issues. He also noted they had identified some of the key contingencies. CHAIRMAN ROKEBERG stated, "I think you're trying answer my question in terms of the generation transmission, but you have relationships with a number of other utilities in the state because you're also in contracts and those types of things, and you also even sell power to ML&P [Municipal Light and Power] sometimes." He asked if Chugach had looked at the interface - the compatibility - between itself and Municipal Light and Power, Matanuska Electric Association (MEA), et cetera, or if that was again out of Chugach's purview. Number 2413 MR. BORDEN said the purview of Chugach's committee was its internal systems. He stated he was not aware of direct communications but he said they worked collaboratively to "test (indisc.) crossed (indisc.) systems." As the Chugach's committee chairman, he said it would be their anticipation that they would operate the system such that there be a loop put on the system so there would not be interchanges with that period. He said they'd leave the transmission lines in place but they wouldn't transfer energy. CHAIRMAN ROKEBERG interjected that it was very cold in Fairbanks and Golden Valley Electric Association (GVEA or Golden Valley) might really need Chugach's power next January. He indicated this subject concerned him. Number 2445 REPRESENTATIVE SANDERS asked if Mr. Borden could give him as a consumer any real assurance that Chugach's generation and distribution systems were going to be in as good shape as its billing system. Number 2458 MR. BORDEN replied it was Chugach's intent that they would be ready, that the date would roll over and it would be business as usual. He said the problem was so complex from the technical viewpoint that it was almost impossible to give a blanket guarantee. Mr. Borden indicated that the systems could be tested and they could be satisfied that they were ready, but there were so many opportunities for both internal and external problems that no guarantees could be given. CHAIRMAN ROKEBERG asked, "As chairman of your committee, have you looked at ... all your equipment and everything else..." [TESTIMONY INTERRUPTED BY TAPE CHANGE.] [Note: during the tape change the chairman mentioned "embedded chip with unknown microprocessor," taken from tape log notes] TAPE 99-7, SIDE B Number 0001 MR. BORDEN replied, "... readiness plan which is unfolding right (indisc.). The first step of that'd be the inventory, where you actually go to each facility, open up the device, inventory the equipments that you find there. As part of that inventory, you will have by manufacturer serial number a listing of all those components that have the potential to be a problem in the system. Using the number sources, and one of them is a database of compliance that's kept by ... a research institute, we do a preliminary check for problems with those particular devices. We then go through a process of testing those devices. If there is a problem with the testing ... we then determine what the remediation as it needs to do -- be, and then repair those." Mr. Borden said that so far their testing had not found anything they would call mission critical. He noted they had found some problems in terms of man/machine interfaces, for example, between a turbine control and the remote control room. However, he said there were no outages so far related to any of their testing efforts. CHAIRMAN ROKEBERG indicated Mr. Borden had said there were other groups and committees working on the transmission problem, noting he would appreciate it if Mr. Borden would look into that issue and provide the committee with his findings. MR. BORDEN provided some written testimony to the committee for the record. CHAIRMAN ROKEBERG indicated Mr. Burke of Representative Sanders' office was present and could take that information for the committee. Number 0099 ROBERT DAY, Results Engineer, Municipal Light and Power, Municipality of Anchorage, testified next via teleconference from Anchorage. He said he was acting in capacity similar to Mr. Borden's, as the Y2K leader at ML&P and he was present to report on their findings at ML&P and what they had been doing to remedy the situation. He noted his background in engineering, commenting how he always wanted to address how they made electricity by generators, and where they are, and how they interconnect them, and all of these questions that predicate the answers that come about: "Well, gee what parts of this will fail?" He mentioned a recent call from someone who believed all the transformers would fail. Mr. Day noted that was utterly false, there was nothing inside of the transformers that had any knowledge of date or time. He stated, "It's a tin can full of oil and a coil of wire, so there's nothing in that transformer to fail. So, basically we can look at that from an engineering standpoint and say that's not a problem and move on to other things." He noted ML&P had looked into all of the things they thought could possibly affect their ability to deliver power to the people of Anchorage. It had been mentioned that CEA [Chugach] sometimes sold power to ML&P; sometimes ML&P sold power to Chugach and to the other utilities connected to the Railbelt, that was the whole reason they had the intertie. He stated, "Because many hands in this pool help to make the work continue when one falters, and that's really the whole point of this Y2K contingency planning, Y2K mitigation." Mr. Day said they wanted to ensure that all of these things didn't fail at once because that would overwhelm their ability to solve these problems and "keep the lights on." That was what they did on a daily basis: solved problems, generated power with machinery, and delivered it with wires and cables. Mr. Day indicated things happened all the time, and one of the aspects of the electric company's job was to go out and solve these problems on a day-to-day basis. If Y2K did not bring a lot of new problems, then it would be business as usual. MR. DAY stated that, in terms of ML&P, approximately ten generation units were used to create the electricity and two of these were currently being replaced. There were a few more generation units out at the Eklutna power plant owned jointly with Chugach which were being replaced, and there were two others at ML&P's original "Plant One" that were also being replaced. He commented that the remaining two generators were already in compliance, noting they had some very, very firm letters of compliancy and, therefore, had no reason to believe those generators were not going to operate. Mr. Day stated their boiler controls had been recently replaced and that project was just finishing. Their SCADA [Supervisory Control and Data Acquisition] control was being replaced and was expected online by midsummer. He noted this was the main computer they used to control the electrical system and it was a joint project with Chugach, their sister utility. The meter-reading equipment had all been replaced and they had solved the Y2K problem with their billing system. Mr. Day indicated ML&P's financial system was currently being upgraded through a municipality-wide initiative. He noted the Y2K issue was not necessarily the sole reason for these changes, commenting that the financial and billing systems were 20 years old. He said they did expect to have a power outage somewhere in the Anchorage Bowl on December 31, 1999 or January 1, 2000, because it would be a Friday night, New Year's Eve, with intoxicated people and vehicles, but the lights should be back on. He indicated ML&P supported legislation of this nature that tried to mitigate the legal ramifications of a problem they were all working very hard to resolve. He stated ML&P would continue to investigate and try to mitigate this problem as much as possible, regardless of the outcome of the legislation. Number 0337 CHAIRMAN ROKEBERG asked if Mr. Day could shed any light on the question the chairman had directed toward Mr. Borden, noting he had spoken about the SCADA system. Number 0350 MR. DAY noted it was an engineering acronym, supervisory control and data acquisition. He noted, "It's a computer system that monitors the (indisc.) from large capacity delivery points throughout the system. It measures the interchange between ourselves and our sister utilities and helps the generators to raise or lower production based on what we're supposed to be generating." He added that part of this system was to recognize when there was a deficiency on one or the other side, and react accordingly. He described a problem had occurred that day with their plant in Muldoon, noting no one's lights on the entire Railbelt had gone out because, as a participant in the Railbelt, Chugach provided them with emergency power and ML&P stepped up the production on their remaining generators. He noted they hadn't operated in the most economical mode during that time, but the power had stayed on. He indicated the SCADA system's function was to monitor and control that on a real-time basis, noting moment by moment the computer watched what was going on and sent out adjusting signals to the various components in the electrical system. CHAIRMAN ROKEBERG indicated he was interested in knowing if there was any kind of group working on this problem as it related to the entire intertie in the state and the Railbelt. Number 0414 MR. DAY commented he was a bit confused by the chairman's terming of it a problem. He indicated that the interconnections, wires and devices that enabled them to interconnect were in most cases not date and year sensitive, thus not at risk for Y2K problems. Mr. Day said it was the control apparatus behind it was the Achilles heel they wanted to examine. He commented that since both they and Chugach had replaced their existing SCADA control equipment with similar systems that were purchased with the year 2000 in mind, and the vendor had assured them there was compliance, they didn't really see that there was a problem with the intertie. CHAIRMAN ROKEBERG asked if the SCADA gear for interfacing needed to be in place for all the electric utilities like Golden Valley and MEA [Matanuska Electric Association], questioning how that worked. MR. DAY indicated it didn't really matter if the utility was not a generating utility, it then being more of a billing and after-the-fact function. CHAIRMAN ROKEBERG commented that Golden Valley was a both a generator and buyer. Number 0472 MR. DAY explained that Golden Valley had recently gone through a large-scale program to bring its existing SCADA system into Y2K compliance. As far as he was aware, Chugach, Golden Valley and ML&P would all be Y2K ready as far as SCADA systems. CHAIRMAN ROKEBERG noted the committee would appreciate any more information Mr. Day could give the committee on that issue, indicating this area was of importance. MR. DAY gave his personal assurance that those things were being looked at and, for the most part, the lights would stay on. He noted they might have some small distribution outages here and there, commenting he was sure this was going to be the case with Chugach as well. Mr. Day indicated ML&P's research had not yielded any "showstopper." Number 0521 REPRESENTATIVE MURKOWSKI indicated the materials contained a comment regarding that possibly in the anticipation and paranoia attached with Y2K that so many people would turn their lights out at 11:55 on New Year's Eve and turn them back on ten minutes afterwards that a surge of power would be created that blew everything. She asked if there were going to be any public relations (PR) efforts from the utilities to assure people their lights would work and this kind of action was not necessary. Number 0553 MR. DAY indicated he was part of that PR relationship, participating in public forums and including informational mailers with their bills to try to bring the level of hysteria down a bit. He commented, "There is some old '60s (indisc.) terrorism that used to suggest this was a way of getting even with the big corporate giants -- let's go out there and flush all the toilets all at once - switch all the power off all at once -- it never really worked then, I don't know that it would work now." He indicated if people were to do that in a concerted manner, they could probably make the utility "sweat a little bit" but he didn't think it was within their power to burn things down or cause the system to fail. He indicated the utility's computer systems and fail-safe devices would prevent any permanent damage. CHAIRMAN ROKEBERG asked Mr. Day if he was aware that there was another bill introduced this session that would immunize the state and local governments. MR. DAY answered in the negative. CHAIRMAN ROKEBERG commented, "Then presumably because ML&P is owned by the Municipality of Anchorage that the immunity would flow from that legislation to you vis-a-vis Chugach and the other utilities." Number 0619 MR. DAY responded that regardless of that, his purpose had been reassure the committee and put the message out into the public forum that the electric utilities were going to be ready. CHAIRMAN ROKEBERG noted that was the primary purpose of the meeting. He recognized from Vice-Chairman Halcro that the other piece of legislation was HB 57. Number 0665 TOM WALDOCK, Vice President of Administration, ENSTAR Natural Gas Company (ENSTAR), testified next via teleconference from Anchorage. He indicated he was there at the committee's invitation to discuss ENSTAR's efforts to contain the Y2K bug and his comments were meant to be a disclosure under the federal Year 2000 Information and Readiness Disclosure Act. He stated ENSTAR didn't explore for or produce natural gas, stating, "That's the job of the ARCOs [ARCO Alaska, Incorporated] and the Marathons [Marathon Oil Company] and the others in the Inlet." He indicated ENSTAR brought the gas to the communities. They brought high pressure gas from at or near the gas fields through several hundred miles of transmission pipeline to the various communities they serve. At the city gate of each of the communities they had a distribution grid where they reduced the pressure and then took it to their individual customers throughout their service area. On January 25, 1999, ENSTAR reached and exceeded its 100,000 customer. On the business side, they kept track of each customer, billing them monthly. ENSTAR paid its own expenses, kept track of its assets, generated accounting records, and made reports to the Alaska Public Utilities Commission (APUC), the governmental entity that regulated their business. He stated their Y2K program, like their business, also had an operation side and a business side. On the business side, their goal was to not have any significant business system fail due to the Y2K bug. He stated generally what they had done was taken an inventory of all the hardware and software that could possibly be affected by the Y2K virus, developed a plan of action, had a testing schedule, and, more appropriately, they had a contingency plan. He indicated he had elaborate examples he could give the committee if desired. Mr. Waldock stated ENSTAR thought they were about 95 percent compliant in their business system. He noted the committee that the Y2K bug was not new news, they had been concerned and working to solve this problem throughout the 1990s. MR. WALDOCK noted he had some words of comfort on the operation side. He stated that the natural gas business was not especially "high tech" compared to the telecommunications industry and even the electric industry. Yes, they did have hundreds of miles of pipe in the ground and remote devices at various locations that could control the flow [of gas] from a central location. However, at least with respect to their primary gas sources - the gas they received from Marathon and the Beluga fields ARCO operated - wherever there was an on or off valve, that valve was set to fail in the open position. He noted they also had modulating valves at different points which could be set at varying degrees of flow. If those valves failed for any reason, including the Y2K virus, they were set to fail in place. Mr. Waldock stated ENSTAR did not believe there would be an interruption in its gas supply on January 1, 2000. He commented they had not only relied on the nature of the valves as they had examined and tried to solve this problem, but they had also inventoried what could be affected by the Y2K problem in their operations side, prepared an action plan at each instance, testing, and had a contingency plan. ENSTAR had determined its SCADA system was year 2000 compliant. The communications systems were compliant, both internal telephone and microwave communication systems. Mr. Waldock indicated they thought they were currently at 95 percent of full compliance in their operation system. He noted ENSTAR was presently receiving all of its gas from Marathon and ARCO's Beluga field. Mr. Waldock commented that they had had extended communications with their gas suppliers and had been assured that their suppliers' systems were, like ENSTAR's, in a "fail open" or "fail in place" valve, and there would be no interruption in service on January 1. He mentioned Representative Murkowski's concerns about contingency plans, noting theirs was about four years old. He commented that through most of ENSTAR's existence the company did not have remote, computer-driven control devices and valves; everything was done and controlled manually. He commented they still knew how to do this and would have crews ready to take over the system manually. Mr. Waldock stated ENSTAR welcomed HB 82; the company thought it would "throw a bucket of cold water" on the current frenzy among attorneys, consultants and others. It would retard finger-pointing and provoke cooperation, and businesses like theirs would be able to spend less money on attorneys and consultants, and more of their resources on solving the problem. Number 0998 REPRESENTATIVE MURKOWSKI indicated the reasons for her questions about contingency plans were make sure that if the legislature did pass legislation that provided immunity to the private sector, the private sector would not use the immunity as its contingency plan. MR. WALDOCK said it seemed to him that due diligence would have to mean a real contingency plan as the bill was currently written. CHAIRMAN ROKEBERG commented that should probably be stipulated in the draft. CHAIRMAN ROKEBERG noted to Mr. Waldock, "Your gas supplies the electrical utilities in very large part, so you're the cornerstone of the whole pyramid of utility service ...." Number 1068 MR. WALDOCK stated they transported ML&P's gas for them. Chugach had separate pipelines to its Beluga facility, so ENSTAR didn't transport much gas for Chugach. ENSTAR did have Bernice Lake, the facility at "International," and "Soldotna One." CHAIRMAN ROKEBERG asked if ENSTAR, as its Alaskan operation, engaged in interstate commerce. Number 1098 MR. WALDOCK replied a lawyer would answer yes to that question because they used the telephone and the mail, but the practical reality was no. Their business was totally within the state. CHAIRMAN ROKEBERG asked if they were a common carrier pipeline that was regulated by federal agencies. MR. WALDOCK stated they were not regulated by FERC [Federal Energy Regulatory Commission], the federal agencies, and not classified as a common carrier. They were regulated by APUC as a utility. Number 1119 DAVID LAURENCE, Vice President and Chief Information Officer, Alyeska Pipeline Service Company (Alyeska), testified next via teleconference from Anchorage. He indicated Alyeska had been working on the project for a couple of years, particularly intensively the past year. Mr. Laurence stated this was the number one project at Alyeska, noting he was accountable to Bob Malone (ph), the president and CEO [chief executive officer], for the project's outcome. He indicated seven teams working on the project reported to him. Mr. Laurence said, "(Indisc.) the test phase in most cases. Some of our testing's completed. All our projects are on or ahead of schedule, so we feel pretty confident about the outcome." He said one comment he would make about testing and contingencies was that they had found in their testing that systems represented in many cases by vendors to be compliant, had turned out not to be, whether it was the individual systems or the way the systems worked through the logic of other particular aspects of controlling their operations. Mr. Laurence stated they thought testing was vital, indicating they were going from component testing to system-level component testing, [to] a much broader systems level testing. He indicated Alyeska's SCADA systems controlling the pipeline had been completely certified and functioned appropriately, although he noted they had some broader level testing to do throughout the pipeline. Number 1219 MR. LAURENCE indicated they felt their contingency plan was the most significant thing they would be doing from mid-June on. He stated, "We've already designated all critical employees, management, informed them all there won't be any vacation around two dates this year, 9/1/99 and 12/31/99 obviously. Our contingency plans will be (indisc.) command system which is our mechanism that we use to respond to any sort of instability of the environment ... -- and it's a well-understood process within the company, tested on a regular basis. So these particular cases we find this summer will be tested using our (indisc.) command system. So, for us safety in terms of our Y2K ... successes, first of all is safety, no one gets hurt, no issues (indisc.); the second of all, no environmental impacts occur to our operation." He noted their contingency plans did not necessarily rely on their systems actually being operational, "but whether on man and control of the systems, and anticipating the testing potential mechanisms to react to outcomes that we deem to be serious. We also say that we're working on our vendors pretty heavily, because we can't run the pipeline without some of the people who are actually in the room here. From two aspects, one is that our employees obviously are concerned about ... how potential utility (indisc.) and other things could affect their own personal lives, so if you're worried about whether you have heat or not, you're not so inclined to worry about whether the pipeline's operational or not. So we're addressing those issues as well. We draw some critical components that we bring in from outside the state in order to help us run the pipeline for us, which contingencies are found around those as well. So, as far as this particular bill goes, I think we welcome the legislation. I think based on the fact that we are regulated by the DOT [Department of Transportation] and we're (indisc.) corporation and we have a rather interesting ownership structure, I'm not sure it affects us except for the due diligence piece of it of which we're certainly compliant." Number 1366 CHAIRMAN ROKEBERG commented it might potentially affect one of their suppliers or local vendors. Commenting on chains of activity, he asked if Alyeska's vendors "on all your software and hardware in terms of (indisc.) and even any out-sourcing vendors you may have used -- ... how have your agreements, both your operational and maintenance agreements -- have you reviewed all of those particular agreements and contracts to make sure that the responsibilities for compliance and/or cures to these problems are covered by your contracts and your agreements?" Number 1416 MR. LAURENCE said to answer he thought they needed to look a little more broadly at the way they dealt with this entire problem. He indicated most people probably first "triaged" to discover which systems were mission critical to the enterprise's operation and then group by mission critical, business critical, and then less important. He stated the same held true for their vendors, noting there were two approaches. If there were systems like the chairman spoke of and they were operating internally, Alyeska actually tested them themselves. He indicated many times someone else's system was being put into a logic circuit that the systems manufacturer had no knowledge of, and Alyeska had to test. Secondly, he referred to experiences with relatively new technologies, less than two years old, that the vendors said were Y2K compliant, but Alyeska found out this was not true during testing. He indicated that unless the vendors could prove the systems were compliant, Alyeska tested. He noted the risk was just too great. Mr. Laurence commented the other type of vendor was someone who, for example, would be providing some "dry (ph) reducing (ph) agent" which was important to operate the pipeline. He commented they could run the pipeline without this agent, but at a lower capacity which had mostly financial impacts to the state and owner companies. He stated the contingency there was how they wanted to deal with a potential interruption to the shipment of "dry (ph) reducing (ph)" agent. Mr. Laurence noted they couldn't really trace the logistics back as far as they would go to assure them that this agent would be arriving because there were "too many links in the chain." He noted, therefore, they felt they needed to have their own contingency to deal with that and achieve their goal of safety, no environmental impact, and operation of the pipeline. CHAIRMAN ROKEBERG questioned whether Alyeska's contractual obligation with that particular supplier spoke to this delivery. Number 1565 MR. LAURENCE replied the contractual obligation could and did, noting on one hand there were the remedies if the supplier didn't deliver and on the other hand there was the reality that they still had to operate their enterprise. He stated they were preparing for the contingencies that would impact them significantly and cause them to have problems in one of the three areas he had mentioned: safety, environment or operation. He indicated there was the issue of dealing with the problem and then dealing with the suppliers. CHAIRMAN ROKEBERG indicated he took it Alyeska would like to maintain the ability to have a cause of action against that vendor or supplier who promised Alyeska they were supplying the product but failed to do so because a system the supplier had warrantied to be compliant wasn't. MR. LAURENCE stated he would not say that was Alyeska's official policy, but he said that they would obviously like to have remedies, noting anyone would like to have remedies if someone was negligent. CHAIRMAN ROKEBERG noted he just wanted to bring that out to make a point, indicating he wasn't targeting Alyeska specifically. Number 1659 ALYA DONALSON, Y2K Project Coordinator, General Communication Incorporated (GCI), testified next via teleconference from Anchorage in support of HB 82. Ms. Donalson noted she had been involved in Y2K issues for about 25 years, the first few years as a [computer] programmer and a source of the problem. She stated she would like to discuss GCI's actions and current status in addressing the year 2000 problem. "In 1997 GCI established a company-wide task force to assess and address the Y2K issue. We set as our number one goal the delivery of service. We realize that the organizations are dependent upon our facilities to accomplish their critical activities, and our goal is ... business as usual. One of the things that we focus on is that the ensuring that we can deliver phone service, complete transmission of critical data, provide Internet -- that's our top priority .... At this time GCI has completed its inventory and assessment. We've identified some upgrades that are necessary and are replacing or upgrading any item that might affect service delivery. The majority of our ... elements are currently Y2K-ready." Ms. Donalson noted she would speak a bit on the testing process they had undergone. "Most of our large items are tested by the vendors that provide them - most of the large switches - and what we have done is not only taken their letter, we have taken their test plans, their test results, and sent our engineers to review those tests and come back and make assessments. So far in all cases the test results have shown us that there is no service delivery failure ... that means phone calls will go through the switch and connect with the next switch down the line. Occasionally there are some problems with people monitoring the switch or looking at the switch might see something out of sequence ...." Number 1786 MS. DONALSON continued, "One of our greatest challenges has been communication, not with the hardware/software, but with other organizations. Our policy has been to be very open with our customers and business partners related to our Y2K status." She indicated the more that was known about any organization's Y2K status the better, commenting, "with Y2K it's what you don't know that can hurt you." Since January of 1998, GCI had been contacting their business partners and suppliers to determine how their Y2K efforts might affect GCI's ability to deliver service. She indicated the most disturbing response they had received to their inquiries from some was that all Y2K inquiries must be referred to the organization's legal department. She noted this might mean the organization viewed Y2K as a legal problem rather than a business problem. Ms. Donalson indicated the 1998 Year 2000 Information and Readiness Disclosure Act was a step in the direction of telling companies to proceed with the business of resolving the problem, not getting ready for lawsuits. She commented, "Some people believe that you have to force us to do this. Actually, what will happen is if your customers are not confident in your ability to deliver service, they aren't your customers anymore. This is one reason that GCI fully supports open communication on year 2000." She stated HB 82 would help all organizations focus their energy and resources on the solutions, not possible lawsuits, and indicated the legislation was in the best interest of the public. Number 1882 CHAIRMAN ROKEBERG asked if GCI was going to be Y2K-ready next January 1. MS. DONALSON replied their current plan was to be Y2K-ready in early summer, noting they would be continuing their testing and contingency planning efforts. CHAIRMAN ROKEBERG noted GCI's business was overseen by both APUC and the FCC, and that GCI was involved in interstate commerce. He confirmed from Ms. Donalson that his older model Motorola, Incorporated, cellular phone probably did not contain an embedded chip and should function just fine. Number 1968 MS. DONALSON stated, "One of the difficulties with the embedded chip, though, is forcing them to think it's year 2000 or to have warp (ph) test them and push them forward it's fine, which is one of the reasons it's such a pervasive problem." CHAIRMAN ROKEBERG asked if GCI was finding any embedded chips in their equipment. MS. DONALSON replied, "Well, we have a great deal of embedded chips -- we have not found any of them that are in the models of equipment that we have that are causing substantial failures, or service delivery failures." Number 2033 MARK VASCONI, Director of Regulatory Affairs, AT&T Alascom, testified next via teleconference from Anchorage in support of HB 82. Mr. Vasconi spoke from a prepared statement: "Thank you Chairman Rokeberg and the House Labor and Commerce [Standing] Committee for inviting AT&T Alascom to provide this testimony on HB 82. "We at AT&T Alascom want to commend the committee for stepping up to some of the issues posed by the Year 2000 problem. HB 82 is intended to provide protection for persons and companies like AT&T Alascom who exercise good faith and due diligence to identify and find solutions for computer-based systems that may be affected by year 2000 errors. AT&T Alascom supports this bill. "I would like to take this opportunity to provide the committee with a brief summary of the efforts that AT&T has undertaken to insure that the year 2000 date change does not affect AT&T's systems or its customers. "In 1996, AT&T recognized the challenges that the year 2000 date conversion represented to its systems and its customers. AT&T's commitment to a year 2000 solution is to take all reasonable steps to ensure that all our systems are year 2000 compliant. In addition to our in-house efforts, in new contracts with our equipment suppliers we are also insisting on Y2K compliance. "In response to these challenges AT&T established a corporate Y2K program office that is responsible for program management of all of AT&T's Y2K activities. The focus of AT&T's Y2K effort is enterprise-wide, addressing domestic and international Y2K activities across the full extent of AT&T services including wireline-, wireless-, and Internet-based voice and data. "Year 2000 problems have been found at all levels of computing from mainframes to desktops, software to hardware, customer service systems to billing, and switching to transmission. AT&T has inventoried and modified million of lines of computer code and installed millions of dollars in new equipment. In fact, in Alaska AT&T Alascom has spent approximately $2 million on replacing and upgrading our switches and pieces of our network to insure that Y2K problems are discovered and remedied. "As of January 1, 1999, AT&T has fixed and tested 95 percent of its network elements. AT&T expects its networks to be fully year 2000 compliant by mid-year 1999, allowing the company time to do extensive testing before the end of the century. Because of the work already underway and planned over the coming months, AT&T and AT&T Alascom are confident that the entire network will continue to operate on January 1, 2000. "More information on AT&T's year 2000 compliance is available at a special Y2K website: www.att.com/year2000. "Given AT&T's considerable expenditure of personnel and financial resources to become Y2K compliant, AT&T and AT&T Alascom believe that firms that have been as conscientious as AT&T Alascom should at least be granted some form of assurance that their efforts to solve Y2K problems will provide them with a reasonable defense against civil claims. We also feel that this legislation puts in place incentives for firms to invest in finding and implementing solutions to Y2K's customer-affecting problems, rather than spending resources in defending themselves against civil actions. "With that I conclude this testimony and again want to thank the committee for giving AT&T Alascom this opportunity to voice its opinion on this legislation." Number 2345 CHAIRMAN ROKEBERG requested Mr. Vasconi provide the committee with his written comments, asking the same of the other witnesses. VICE CHAIRMAN HALCRO noted he was reminded of the "China plan," where the Chinese government was mandating that all airline CEOs be on one of their planes at midnight [on December 31, 1999] as a motivation for Y2K compliance. Vice Chairman Halcro asked Mr. Vasconi if it would be feasible to have all telecommunications senior executives stuck in a snow bank with their cell phones at midnight. Number 2406 MR. VASCONI indicated all critical personnel would be available. He said network operations center personnel across the country, including the one in Anchorage, and all field people, would be placed on call. He said he did tend to believe, from his own curiosity, that he would be making telephone calls at the turn of the year to make certain things worked. He noted for the chairman that AT&T was not allowing normal vacation or leave time for personnel in network operation centers or field installation. CHAIRMAN ROKEBERG commented, "There were earlier statements made today that no matter what you do, there is no was possible to assure the public..." [TESTIMONY INTERRUPTED BY TAPE CHANGE] TAPE 99-8, SIDE A Number 0001 MR. VASCONI indicated that until the moment came it would not be completely apparent what would happen; systems were complex and there was the chance that something could happen somewhere. CHAIRMAN ROKEBERG noted time was running short and questioned whether anyone present in Anchorage wanted to testify before the committee. Number 0075 REPRESENTATIVE MURKOWSKI noted Mr. Vasconi had given the opinion that HB 82 would act as an incentive for due diligence. Recognizing that "due diligence" had not been defined, she asked if the legislation could also be viewed as a disincentive to doing due diligence, in other words, doing what should be done. Number 0125 MR. VASCONI stated he thought in certain instances it might be interpreted as covered. Since the customer was ultimately affected and the telecommunications market was competitive, there was an incentive to ensure that their systems operated well, or customers and revenue could be lost due to network outages or failures. In the late 1980s, AT&T experienced difficulties with new software placed in the network which caused catastrophic failures for "800" service. Mr. Vasconi said AT&T learned some lessons from that outage and had redoubled its efforts over the years to ensure that the network worked properly. From a legal standpoint, he indicated the protection offered an incentive to do the right thing, but he also thought there was a business incentive to do the right thing. CHAIRMAN ROKEBERG indicated one of AT&T's competitors wanted to use its own Y2K compliance as a marketing tool. He noted it was an interesting point: the immunity could result in not working on Y2K compliance or the compliance could be used as a marketing tool. Number 0340 LIBBY RODERICK testified next via teleconference from Anchorage, indicating she was not affiliated with any of the companies present and was speaking as a member of the general public. She expressed the need to encourage the companies, utility companies in particular, to come forward as possibly a group in the media, and inform the public regarding their level of Y2K compliance, especially since much of the information was reassuring. Ms. Roderick commented she knew many people who did not have this information. Speaking about the possible passage of HB 82, she indicated granting some form of immunity to companies would not be reassuring to the general public unless the public was aware of the companies' level of preparedness and contingency planning. She also indicated it would be helpful for the public to know that no 100 percent reassurances could be given. Ms. Roderick asked if some information could be given regarding what would happen in the horrible event something did fail. She questioned if the municipality would receive the backing necessary to have something like earthquake prevention basics - a contingency plan on that level. Number 0500 CHAIRMAN ROKEBERG commented that the testimony from the electric utility companies was relatively reassuring. The primary purpose of the meeting was to provide a platform and opportunity for the utility companies to speak on the Y2K issue. Chairman Rokeberg said one of his major concerns was the hysteria created from newspaper articles; he noted the public utility base, in particular, was a very important matter of public safety and reliability. He clarified that good faith efforts and due diligence, including contingency plans, had to be undertaken in order to receive any immunity. Number 0648 MS. RODERICK indicated the public would benefit from having that information, if the information was correct, and also knowing that there was a municipal or state preparedness plan in the unlikely event there was failure of the basic survival systems. Eliminating hysteria by having these two things could allow other areas, such as food distribution, medical, 911 response, fire, et cetera, to be addressed. Number 0703 CHAIRMAN ROKEBERG confirmed no one else wished to testify in Anchorage and passed the gavel back to Vice-Chairman Halcro in Juneau for adjournment. [HB 82 WAS HELD OVER] ADJOURNMENT Number 0750 VICE-CHAIRMAN HALCRO adjourned the House Labor and Commerce Standing Committee meeting at 5:04 p.m.