HOUSE LABOR AND COMMERCE STANDING COMMITTEE April 17, 2000 3:33 p.m. MEMBERS PRESENT Representative Norman Rokeberg, Chairman Representative Andrew Halcro, Vice Chairman Representative Lisa Murkowski Representative John Harris Representative Tom Brice Representative Sharon Cissna Representative Jerry Sanders MEMBERS ABSENT All members present COMMITTEE CALENDAR HOUSE BILL NO. 169 "An Act relating to including the costs of expansion activities and political activities in rates of electric cooperatives." - MOVED CSHB 169(L&C) OUT OF COMMITTEE PREVIOUS ACTION BILL: HB 169 SHORT TITLE: ELEC.COOPS:EXPANSION & POLITICAL ACTIVITY Jrn-Date Jrn-Page Action 3/31/99 625 (H) READ THE FIRST TIME - REFERRAL(S) 3/31/99 625 (H) URS, L&C 4/28/99 (H) URS AT 8:00 AM CAPITOL 120 4/28/99 (H) SCHEDULED BUT NOT HEARD 5/05/99 (H) URS AT 8:00 AM CAPITOL 120 5/05/99 (H) SCHEDULED BUT NOT HEARD 3/15/00 (H) URS AT 8:00 AM CAPITOL 120 3/15/00 (H) -- Meeting Postponed to 3/22 -- 3/22/00 (H) URS AT 8:00 AM CAPITOL 120 3/22/00 (H) Heard & Held 3/22/00 (H) MINUTE(URS) 3/29/00 (H) URS AT 8:00 AM CAPITOL 124 3/29/00 (H) Heard & Held 3/29/00 (H) MINUTE(URS) 3/31/00 (H) L&C AT 3:15 PM CAPITOL 17 3/31/00 (H) 4/05/00 (H) URS AT 8:00 AM CAPITOL 120 4/05/00 (H) 4/12/00 (H) URS AT 9:00 AM CAPITOL 120 4/12/00 (H) Moved CSHB 169(URS) Out of Committee 4/12/00 (H) MINUTE(URS) 4/13/00 3111 (H) URS RPT CS(URS) 4DP 1NR 4/13/00 3111 (H) DP: HUDSON, ROKEBERG, GREEN, KOTT; 4/13/00 3111 (H) NR: COWDERY 4/13/00 3112 (H) ZERO FISCAL NOTE (DCED) 4/14/00 (H) L&C AT 3:15 PM CAPITOL 17 4/14/00 (H) Heard & Held 4/14/00 (H) MINUTE(L&C) 4/17/00 (H) L&C AT 3:30 PM CAPITOL 17 WITNESS REGISTER JEFF LOGAN, Staff to Representative Joe Green Alaska State Legislature Capitol Building, Room 214 Juneau, Alaska 99801 POSITION STATEMENT: Provided information on behalf of sponsor of HB 169. NORM STOREY, General Manager Homer Electric Association 3977 Lake Street Homer, Alaska 99603 POSITION STATEMENT: Testified on HB 169. BERNIE SMITH, Commissioner Regulatory Commission of Alaska Department of Community and Economic Development 1016 West Sixth Avenue Anchorage, Alaska 99501 POSITION STATEMENT: Testified on HB 169. ROBERT BEANS, Chairman Alaska Village Electric Cooperative Association, Inc. 4831 Eagle Street Anchorage, Alaska 99503 POSITION STATEMENT: Testified on HB 169. TUCKERMAN BABCOCK, Manager of Government and Strategic Affairs Matanuska Electric Association 163 East Industrial Way Palmer, Alaska 99645 POSITION STATEMENT: Testified on HB 169. GEORGE KITCHENS, President Golden Valley Electric Association 758 Illinois Street Fairbanks, Alaska 99701 POSITION STATEMENT: Testified on HB 169. ACTION NARRATIVE TAPE 00-51, SIDE A Number 0001 CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce Standing Committee meeting to order at 3:33 p.m. Members present at the call to order were Representatives Rokeberg, Halcro, Harris and Sanders. Representatives Murkowski, Brice and Cissna arrived as the meeting was in progress. HB 169-ELEC.COOPS:EXPANSION & POLITICAL ACTIVITY CHAIRMAN ROKEBERG announced that the first order of business would be HOUSE BILL NO. 169, "An Act relating to including the costs of expansion activities and political activities in rates of electric cooperatives." Number 0050 REPRESENTATIVE HALCRO moved to adopt the proposed committee substitute (CS) for HB 169, Version I [1-LS0766\I, Cramer, 4/17/00], as a work draft. There being no objection, it was so ordered. Number 0076 JEFF LOGAN, Staff to Representative Joe Green, Alaska State Legislature came forward on behalf of Representative Green, sponsor of HB 169 to explain the changes in Version I. In response to committee members' comments and public testimony at the last hearing, a number of changes had been made to the bill. The first change is on page 1, line 4, Section 1: The statute cited has been changed to AS 10.25.010 from AS 42.05.381. This reflects the suggestion of Nan Thompson, chair of the Regulatory Commission of Alaska, that the language more appropriately belongs in AS 10.25, which is the section of the statute dealing with the relationship between cooperatives and their members. The sponsor and his staff concur, and have moved the language to a different [statutory] title. He noted that subsections (1), (2) and (3) are essentially the same as they were in the previous version. Number 0222 MR. LOGAN called attention to subsection (4), which now says, "received approval of a majority of the cooperatives' board of directors for including the cost of expansion activity in rates." This changes the focus of decision making from a pre-approval of members to simply an approval of the majority of the board of directors. "That is where such decisions are made anyway, but it just doesn't say that anywhere in the statutes," Mr. Logan explained. He added that Representative Green thought that if the co-op members were advised in advance that there would be a meeting to discuss the use of rate monies for these types of [expansion] purposes, that would give co-op members plenty of opportunity to address their board. Number 0296 MR. LOGAN pointed out that comparable changes are made on page 2, lines 2 through 12, concerning political activities. However, the definitions sections needs some help from the committee. On page 2, line 14, subsection (1), is the definition of "expansion activity." The title of the bill reflects the inclusion of telephone cooperatives, and that was inadvertently omitted from this definition. The drafter had advised him that if someone were to move a conceptual amendment that telephones be included, it could be taken care of as a House Labor and Commerce committee substitute (CS). Number 0391 REPRESENTATIVE HALCRO made a motion to adopt conceptual Amendment 1 to Version I: on page 2, line 15, eliminate the word "electrical" before the word "service", and insert "or telephone" before the word "cooperative"; and on line 16, delete the word "electric". There being no objection, it was so ordered. CHAIRMAN ROKEBERG reminded Mr. Logan of a suggestion the chairman had made in the House Special Committee on Utility Restructuring about adding expansion outside a certified service area to the expansion definition. He asked if that would be redundant. MR. LOGAN said he remembered that suggestion. Number 0493 REPRESENTATIVE HALCRO said he has heard some concern about money for expansion activities being taken from the cooperative's operation and maintenance funds. He asked if that had been discussed. Number 0550 MR. LOGAN said it had been discussed briefly in the House Special Committee on Utility Restructuring, where there had been a brief explanation of the difference between "rate monies" and "margin monies." The rate monies are those allowed to be collected for the services the utility provides. But, in fact, the utilities are allowed to collect a small portion above and beyond the cost of operating the utility. That additional amount goes into what are known as "margin monies," the savings account, as it were. "We acknowledged that there could still be a use of margin monies to perform some of these activities, but it was the rate monies that are reviewed more stringently by the commission," Mr. Logan recalled. Number 0493 REPRESENTATIVE HALCRO said he just wanted to make sure that the question had been addressed in the previous committee, because he had heard some concerns that "it's not only that you [utilities] are using rate payers' money for political activity or expansion, but you [utilities] are diverting those dollars from operation and maintenance, [away] from providing a stable source of electricity or telephone service." MR. LOGAN commented that he hoped if there were a street light out at the playground, it would be repaired before the next ad was placed in the paper. CHAIRMAN ROKEBERG said there had been testimony in the last committee about an existing statute that prohibited political activity on the part of the cooperative. He wondered if HB 169 would override that. Number 0692 MR. LOGAN explained that the current prohibitions are found in AS 15.13.074, and they relate to candidates. [CHAIRMAN ROKEBERG asked an indiscernible question.] MR. LOGAN said he did not believe so, and that it was only that they could not advocate for a candidate, which was in the original version of the bill. Identified political activity means an activity intended to advocate for a candidate or make a contribution to a candidate or political party. Those were both already covered under AS 15.13.074 and 3 AAC.50.500, so those have been removed. CHAIRMAN ROKEBERG asked, "You have removed those from the bill?" MR. LOGAN responded, "We have removed the duplication from this bill. Those prohibitions are still in the statute and regulation I cited." CHAIRMAN ROKEBERG asked, "Shouldn't we put that in here, that any political activity be subject to those provisions?" He said he thought it would cause confusion if there were one section that says political activity is permitted and then another section of statute prohibits it. CHAIRMAN ROKEBERG declared a brief at-ease beginning at 3:46 p.m. The meeting was called back to order at 3:47 p.m. Chairman Rokeberg noted that Representatives Brice and Murkowski were now present. CHAIRMAN ROKEBERG noted that there were two people on the teleconference line, and he asked if both of them had Version I of the bill. Number 0824 NORM STOREY said they did not. They had heard some of the discussion, but despite staff efforts earlier in the day, they had not received copies. CHAIRMAN ROKEBERG asked if they were at the Legislative Information Office (LIO), and Mr. Storey confirmed that he was one of two participants at the LIO office in Wasilla, and they did not have a copy. [Arrangements were made to transmit one immediately.] Chairman Rokeberg observed that the bill had been radically changed, so they needed to see the new version before they could make any comments. BERNIE SMITH, Commissioner, Regulatory Commission of Alaska (RCA), confirmed that he had a copy. He testified by teleconference from Anchorage, explaining that he was sitting in for RCA chairperson Nan Thompson. He agreed that Version I of the bill is radically different. He said: It took quite a bit of the recommendations that we had put together, and I think it is appropriate. I guess I would probably see if we could add a little bit more definition to 'expansion activities,' but other than that, I think it would work for us. We have no problems with it. MR. SMITH answered a question that Representative Halcro had asked, saying the RCA would still regulate the rates if they came to the RCA in a rate case. But if they came under the margins, the RCA would not have jurisdiction over that. Number 0971 CHAIRMAN ROKEBERG said that was the point he was getting at with Mr. Logan - the rate structure area exclusive of the margin area. He wondered, "Is that what you are referring to?" MR. SMITH said that is correct. CHAIRMAN ROKEBERG asked, "So it's currently prohibited to charge in your rate base for any political activities?" MR. SMITH said that is correct, although it would be a little bit better definition to refer to AS 42.05.381 and include political activities and lobbying in amending that particular section. "That gives us a little bit more 'oomph' to do away with the lobbying and the political activity," he said. "So it just adds a little bit more power to us to define those two items." CHAIRMAN ROKEBERG told him that a couple of lobbyists sitting in the room had "just about had a heart attack" when he said that, and Mr. Smith humorously remarked that that was good for them. CHAIRMAN ROKEBERG confirmed that the section cited was AS 42.05.381. Then he asked Mr. Smith if he had any suggestions regarding expansion activities. MR. SMITH said he did not. CHAIRMAN ROKEBERG declared a brief at-ease at 3:52 p.m. to give those who had just received a copy of the new Version I to read it. The meeting was called back to order at 3:56 p.m. ROBERT BEANS, Chairman, Alaska Village Electric Cooperative, Inc. (AVEC), serving some 51 villages throughout Western Alaska, came forward to testify on HB 169. He asked if it would be possible to have some time to digest this new language, and perhaps AVEC would come back in favor. He said, "We are electric board members. We have in place in AVEC a system which is fair to everybody, a system where all of our 6,500 members have an opportunity to voice their concerns through a process." He said AVEC is cognizant of all the rules and regulations governing cooperatives. He asked for a chance to "at least digest this new language to see if we can come to an agreement." Number 1202 CHAIRMAN ROKEBERG restated that this version is radically different, saying he thinks it is a much improved version of the bill. He said he appreciated Mr. Bean's request, but added, "This thing has a long way to go anyway, so you should have more than adequate time to digest it. But having indigestion down here at this time of year is not uncommon." Number 1235 NORM STOREY, General Manager, Homer Electric Association, offered that Version I leaves him a bit in question. He said: We are speaking of regulating the electric cooperatives of this state to include in some ways divulging information to the public that could be critical in terms of strategies to provide future service and economic service to our consumers by (indisc.) a strategy to either expand or to complement the services we provide today. I have some concerns with that in terms of giving notice to rate payers. I think the commissioner commented on things that today we know is not included like political activities into our rates, and those non-electric costs are obviously not includable in our rates. However, this new bill seems to speak to the fact that we have to advise the members that a portion of the rates would be used for expansion activities and then later on in the bill addresses receiving approval of a majority of the cooperative's board of directors. If that was in reverse, it would certainly be friendlier to our concerns, and that is that our board of directors has to by a majority vote move to pass rate changes and tariffs today. No activity is allowed until that is done and rates are not affected until such time as the RCA actually takes action and approves that filing. So there is process there already in place. If I read this correctly, it could mean that we would have to go out and advise the members that we were going to use portions of future rates to do expansion activities and later charge them into the rates. So that's a little confusing to me and we don't understand that. We have difficulty with the legislature getting involving in directing the electric utilities only in this regard. Each time I sit with a private sector utilities I understand fully their need to keep information confidential to go out and market and do different things they need to make their business successful, which is to sell their service. It may be that the maker of this bill or staff could explain how (1) and (4) on page 1, lines 7 and 14, relate to one another and what we're really looking at here in terms of requirement by law. My concern is understanding when does the co-op have to go out an advertise to let its members know that it is considering activities that might cause rate increases, and exactly what does it means in terms of priority. Number 1445 CHAIRMAN ROKEBERG said, "Mr. Storey, you mentioned something else. You said you couldn't understand one for the other?" Number 1463 MR. STOREY answered: Normally, if we were going to conduct business, we would go to our board of directors, we'd get approval for whatever the activity is, and we would go out and we would seek to complete that activity or that strategy. That sometimes is done well in advance of any actual change. At some point, there may be a business activity that results in a success or a conclusion and money was spent, it would be later that it would be considered going into rates. At that time, the board of directors would have another opportunity to approve the rate filing that would then have to be sent to the RCA for final approval before we could actually affect a rate change. So my question is, if this were to become a law, would we as a cooperative be required to advise the members in advance that we may be spending money that would come out of rates before we start any activity, or would it be a subsequent event that would occur after or before the board makes the decision to do a rate filing that would include those monies spent in the rate. CHAIRMAN ROKEBERG told Mr. Storey that he was going to offer an amendment that says nothing in this section is to be construed to be contrary to the AS 42.05.381 [sub]section (a) provisions. That might help clean some of that up. CHAIRMAN ROKEBERG also asked Mr. Storey and Mr. Babcock to be aware that the committee amended the subsection (e) definition of expansion activities to include both telephone [and electric utilities]. Number 1574 TUCKERMAN BABCOCK, Manager of Government and Strategic Affairs, Matanuska Electric Association, testified by teleconference from the Mat-Su (Matanuska-Susitna) Legislative Information Office (LIO). He asked whether or not - either under the definition of expansion activity or political activity - enterprises such as Chugach Electric's going into the Internet business and buying Internet companies, or Chugach Alaska's bid submitted to purchase Enstar Natural Gas last year would be covered under having to advise members before committing several hundred million dollars. Number 1620 CHAIRMAN ROKEBERG said he thinks one could construe this to say that the activities of an electric cooperative (indisc.), because that is what the definition says, but it is not entirely, 100 percent theirs to (indisc.). In other words, enterprise activities outside the realm of their typical electric cooperative activity might be looked upon as something that needs to be cleared up to make sure there is no ambiguity. Number 1665 REPRESENTATIVE HALCRO said he would interpret it on page 2 under the definition of expansion activity. He said, "You are intending to attract customers to the cooperative from another public utility." CHAIRMAN ROKEBERG said that was his opinion, too. Number 1696 MR. LOGAN apologized, saying that after the hearing on Friday there had been a flurry of activity between Representative Green's office and the drafter's in trying to come up with something that would be acceptable to the committee. He said: Somehow a simple phrase was left out, and it might help satisfy Mr. Storey's [concern]. That is on page 1, line 7, after the words "advised its members," we had intended to have the phrase "in advance". The intent was if the cooperative was not going to go out and get permission from its members because it used rate money for these purposes, that at least the board would have to vote on it, and before that vote, the members would know that there would be an issue on this that they could come to the board and make their comments known. So, I think if we say, "advised its members in advance that a portion of the rates would be used for expansion activities" -- and then, in subsection (4), it says that a majority of the cooperative board of directors has to vote to do so. In that manner, it allows the members of the cooperative to be properly noticed that this type of discussion is going to take place, and they can go down to the local meeting hall and make their feelings on the subject known. Number 1759 CHAIRMAN ROKEBERG asked, "Wouldn't 'in advance' apply to all of them?" MR. LOGAN said it could. He stated: We took it that if it advised its members in advance that subsection (2) would follow, that they would also know how much, and we would expect that sub[paragraph] (3) would be a policy adopted by the board that might not be included in every notification, but we thought it would be adopted by the board as an operating policy of the cooperative, that everyone would know that. If the board was considering a use of rate moneys, that might be controversial to some of the members. CHAIRMAN ROKEBERG asked, "Wouldn't you do that in advance?" MR. LOGAN said yes. CHAIRMAN ROKEBERG asked, "Wouldn't you have to get the approval of the board in advance to do anything?" MR. LOGAN replied, "I would think that, as a priority, you would have to." CHAIRMAN ROKEBERG said, "So I think that both (c) and (d), you'd have to have advance approval on all - (1), (2), (3) and (4) - would you not?" MR. LOGAN said yes. Number 1835 MR. BABCOCK said he appreciates some of the changes with respect to trying manage a business enterprise and to figure out reimbursements on the (indisc.) scale. He stated: It is a more workable method of advising members and giving them an opportunity to comment on any sort of expansion activity. I do appreciate that. My question relates to (indisc.). Last year Chugach Electric Board, in executive session, met to discuss a bid of hundreds of millions dollars in stock. I don't see that this bill would have done anything to protect cooperative members in that case from having hundreds of millions of their own in their equity committed to expansion in a non-electric, cooperative environment. I'm not sure whether or not the intention of the sponsor was only to allow the members to comment when you're (indisc.) electric service or whether you would also want members to be able to comment if you're going to commit the resources of their co-op towards some other business purchase. CHAIRMAN ROKEBERG wondered what the MEA [Matanuska Electrical Association] would like to see. MR. BABCOCK replied that MEA would like to see the bill considered over the interim. The other question that concerns MEA is the definition of "political activity". He said: We understand and appreciate the political side, but the policy position is a little troubling to us on two counts. One, despite Commissioner Smith's recommendation that the utilities not be allowed to make any comments on policy positions, ... my main observation is this: We donate a lot of money to Boys and Girls Clubs and school sporting events and those sorts of activities in our community, in Eagle River, in Palmer, Wasilla, and Talkeetna, and we would like to be able to continue to do that. And we're just not certain whether or not those are prohibited under the definition of "political activity". It does not appear to be that they're ... prohibited, and I just want to confirm that interpretation meets with the sponsor. MR. LOGAN specified that the sponsor's position is that if it is an expenditure approved by the duly-elected members of the board of directors of MEA, then it is something they should be able to do. It is not the intent of this legislation to stop that kind of activity. CHAIRMAN ROKEBERG commented that it is a public relations activity and has nothing to do with political activity. REPRESENTATIVE BRICE said, "Unless, of course, it's supporting a tee-ball team whose team's name is the anti-IBEW/MEA team." Number 1991 REPRESENTATIVE HALCRO referred to a letter from Mr. Babcock dated April 13, 2000 (included in the bill packet), in which he defended the decision to spend money to purchase Chugach Electric. The letter states that 59 percent of the MEA supported the decision. Representative Halcro wondered if that was 59 percent of those who responded or 59 percent of the total membership base. MR. BABCOCK answered that it was 59 percent of all those who voted in the election, not 59 percent of the total membership base. Number 2037 GEORGE KITCHENS, President, Golden Valley Electric Association, testified via teleconference from Fairbanks. He had received a copy of Version I of HB 169 just recently and was not sure if he has anything meaningful to add that afternoon. He indicated he was still somewhat concerned that the bill, even with the modifications, still targets electric and telephone cooperatives. It does not impact others who might try to compete and does not preclude them from doing expenditures of the type anticipated in the bill to capture market shares in their areas. He said: We're still getting back to the form where the cooperatives, in general, represent the democracies and that our members, just like in state government, represent board members to represent their interests in the management of the cooperatives. Number 2128 CHAIRMAN ROKEBERG made a motion to adopt conceptual Amendment 2: to add ", in advance" after "members" on page 1, line 7, and to add ", in advance" after "cooperative" on page 2, line 3. He said the intent is to advise the members in advance before any of these activities can occur. There being no objection, conceptual Amendment 2 was adopted. CHAIRMAN ROKEBERG made a motion to adopt conceptual Amendment 3 on page 2, lines 19 and 20, as follows: (f) nothing in this section shall be construed to negate AS 15.13.074 or AS 42.050.381(a). He clarified that AS 42.050.381(a) is the rate-making power which says that the rate may not include an allowance for costs of political contributions or public relations. He added: My point here, with this conceptual amendment, is to say, "Whatever you do here with political activities, you can't overcome the rate-making power found in Chapter 42, which is existing law, or Chapter 15, which is for campaign election law." Just so we say we can do it here in this context. My intention with the conceptual amendment is to not override existing statutes in other areas of the law. REPRESENTATIVE MURKOWSKI asked what the first statute was that was referenced. CHAIRMAN ROKEBERG explained that the first statute was AS 15.13. He reiterated that he did not want to override the existing statutes. He asked if there was objection to the adoption of conceptual Amendment 3. There being no objection, conceptual Amendment 3 was adopted. CHAIRMAN ROKEBERG moved conceptual Amendment 4: *Sec. 3. Providing for an immediate effective date. REPRESENTATIVE MURKOWSKI asked why an immediate effective date is needed. CHAIRMAN ROKEBERG indicated he had heard some rumors. He asked Mr. Logan whether he knew the reason. MR. LOGAN answered that in the flurry of drafts going back and forth, the sponsor had intended to include an immediate effective date in the bill. In further response to Chairman Rokeberg, he said he was not aware of any other reason. REPRESENTATIVE BRICE wondered what those rumors were. CHAIRMAN ROKEBERG said, "I don't really know. I just heard some scuttlebutt." MR. LOGAN indicated there were no rumors in the sponsor's office that were being responded to. The sponsor simply wanted to get consumers protected as soon as possible, which is the reason that he wanted the immediate effective date. Number 2350 REPRESENTATIVE HALCRO wondered if an effective date needed to be provided for in the title. CHAIRMAN ROKEBERG answered, "That's why it's a conceptual amendment." He asked if there was any objection to conceptual Amendment 4. There being no objection, conceptual Amendment 4 was adopted. MR. LOGAN stated that all the conceptual amendments are consistent with the sponsor's intent in offering the bill. Number 2393 REPRESENTATIVE HALCRO made a motion to move HB 169, Version I, as amended, out of committee with individual recommendations and the attached fiscal note. There being no objection, CSHB 169(L&C) moved out of the House Labor and Commerce Standing Committee. ADJOURNMENT There being no further business before the committee, the House Labor and Commerce Standing Committee meeting was recessed to the call of the chair at 4:25 p.m.