HOUSE SPECIAL COMMITTEE ON UTILITY RESTRUCTURING April 7, 1999 8:09 a.m. MEMBERS PRESENT Representative Bill Hudson, Chairman Representative John Cowdery, Vice Chairman Representative Norman Rokeberg Representative Brian Porter Representative Ethan Berkowitz Representative Joe Green (alternate) MEMBERS ABSENT Representative Pete Kott Representative John Davies COMMITTEE CALENDAR ALASKA PUBLIC UTILITIES COMMISSION (APUC) PROPOSED LEGISLATION AT&T PRESENTATION FOUR DAM POOL (* First public hearing) PREVIOUS ACTION No previous action to record. WITNESS REGISTER WALTER WILCOX, SR., Legislative Assistant for Representative Hudson Alaska State Legislature Capitol Building, Room 108 Juneau, Alaska 99801 Telephone: (907) 465-6820 POSITION STATEMENT: Introduced the proposed draft legislation. SAM COTTEN, Chair Alaska Public utilities Commission (APUC) 1016 West 6th Avenue Anchorage, Alaska 99501 Telephone: (907) 276-6222 POSITION STATEMENT: Answered questions about the language in the proposed draft legislation. JIM ROWE, Executive Director Alaska Telephone Association 4341 B Street Anchorage, Alaska 99503 Telephone: (907) 563-4000 POSITION STATEMENT: Voiced some concerns on the proposed legislation. TOM POSEY, President American Telephone & Telegraph (AT&T), Alascom 210 East Bluff Drive Anchorage, Alaska 99501 Telephone: (907) 264-7122 POSITION STATEMENT: AT&T Alascom presentation. MARK VASCONI, Regulatory Affairs Director AT&T, Alascom 210 East Bluff Drive Anchorage, Alaska 99501 Telephone: (907) 264-7122 POSITION STATEMENT: AT&T Alascom presentation. DAVE CARLSON P.O. Box 1232 Petersberg, Alaska 99833 Telephone: (907) 772-3765 POSITION STATEMENT: Presentation on Four Dam Pool. ACTION NARRATIVE TAPE 99-12, SIDE A Number 0001 CHAIRMAN BILL HUDSON called the House Special Committee on Utility Restructuring meeting to order at 8:09 a.m. Members present at the call to order were Representatives Hudson, Cowdery, Porter and Berkowitz. Representatives Green (alternate) and Rokeberg arrived at 8:12 and 8:17, respectively. APUC PROPOSED LEGISLATION CHAIRMAN HUDSON announced the first order of business was a draft of the APUC proposed legislation. Number 0186 WALTER WILCOX, SR., Legislative Assistant for Representative Hudson, Alaska State Legislature, stated: Generally, the new bill does two things; one, gives more power to the chair, and two, it requires the APUC to come before the legislature in annual review to evaluate their activity and productivity on the timeliness of their dockets and to brief the legislature on all of their activities for the year. Section 1 is the same as before. It's a general correction from "chairman" to "chair." It also makes the chair responsible for the administration of the commission and commission employees; that's the same as it was in your last version. Section 2 is the same as your last version. The chair rather than the commission may establish offices for the APUC. Section 3, the chair rather than the commission may employ temporary legal counsel. For the chair, rather than the commission, may hire outside consultants and experts. Section 4 will be addressed by Jim Rowe. Section 5, in addition to the annual report, the APUC will present the legislature the commissions activities and timeliness of docket activity for the previous year, as I mentioned. Section 6 are mearly repealers. The portion about removal ... of a commissioner was dropped, because if this goes on to be a two-year piece of legislation the question that it addresses becomes moved. We also, as a request of the chair, dropped a section on having no more than two individual commissioners from the same party. We also decided that if the chair had the power and was functioning as a strong chair the descriptions of the backgrounds for the commissioners would also not be a problem. Number 0402 REPRESENTATIVE COWDERY said that he doesn't think the proposed legislation says anything about assigning of the cases and he wondered if it was going to. MR. WILCOX responded that if a strong chair is going to work they need to be given the power and then monitored. The more limitations that are put on them seems to be counter productive. He asked Representative Cowdery what he would suggest for a change. REPRESENTATIVE COWDERY replied that he felt the proposed legislation should address who controls the agenda and the assignment of the cases. Number 0472 CHAIRMAN HUDSON wondered if in Section 1, where the chair is given responsibility for the administration of the commission and commission employees, administration would include the assignment of case loads. REPRESENTATIVE PORTER noted that the assignment of case loads is one of the things that administration is intended to encompass. CHAIRMAN HUDSON asked if in Section 1, line 10, the committee would want to add, "including assignment of case loads." He wondered about the correct language for that. REPRESENTATIVE BERKOWITZ asked how dockets are currently assigned to members. Number 0598 SAM COTTEN, Chair, APUC, testified via teleconference from Anchorage. The chair assigns the cases to a panel, which consists of three to five members. The members that aren't appointed to the panel can choose to be on it. CHAIRMAN HUDSON asked Mr. Cotten if he had a copy of the APUC proposed legislation before him. MR. COTTEN replied yes. CHAIRMAN HUDSON asked Mr. Cotten if he believes that the language on page 1, line 9 and 10, is adequate for dealing with case loads. Number 0655 MR. COTTEN said that it has never been the point of any controversy. REPRESENTATIVE COWDERY referred to the issue last year about political appointees for parties and explained that if it isn't implemented there could be a governor who appoints all of one party, democrat or republican. He believes that by limiting the political party the politicization argument would be bogus. Number 0819 REPRESENTATIVE PORTER noted that in previous discussion it was decided that there would be no more than two members from the same party, but took out the language that would have precluded consideration for non-affiliated votes. He agreed with Representative Cowdery that some protection would exist with that limitation. REPRESENTATIVE BERKOWITZ pointed out that once the doors are opened to partisanship they can be opened to regionalism. CHAIRMAN HUDSON expressed that he feels it is a balancing act. The Utility Restructuring Committee is the one that should be the least political, because it deals with constituents across the board. He informed the committee that he is not opposed to adding the language which says, "no more than two from the same party." Number 0964 MR. WILCOX pointed out that it does not include independents. It only includes registered parties that received more than 5 percent of the vote in the last election. CHAIRMAN HUDSON clarified that the language already in the proposed legislation would be the definition of, "no more than two from same party." MR. WILCOX explained that if those are the committee's wishes, it can be done. REPRESENTATIVE BERKOWITZ stated that it is not his wish. He believes that the committee is moving in the wrong direction, especially with Section 6 where there is the repealer of other qualifications. Someone anomalous could say that the only qualification is that someone not be a member of a political party. There is no concern for engineering, law, finance and business administration. He would dispute that politics is important to what the APUC does. Number 1057 REPRESENTATIVE PORTER expressed that the committee would be better served to support Representative Berkowitz's argument than to deny it. He stated that if the other qualifications were taken away and there was an extremely bad governor, he could take the downtown republican club and appoint them to the APUC. There should be some protection against that happening. If there were individual qualifications that needed to be met, the members of the republican club would not meet those qualifications, but without those restrictions they would. REPRESENTATIVE GREEEN concurred with Representative Porter. If the proposed legislation is adopted he believes that they will be moving away from politics as opposed to moving closer to it. If there ends up being a bias board, this legislation would tend to do away with the bias. As we move into the 21st century, the APUC will become one of the most important commissions that Alaska will be dependent on, and the further from politics the better. Number 1172 REPRESENTATIVE BERKOWITZ noted that he does have some concern with competence in regards to the commission and that there is some overlap with being a republican and being competent or incompetent, but that is not the focus. He stated that if the worry is whether or not this is a partisan activity then the legislation should say, "commission members shall engage in no partisan politics." This would force everyone to not be a member of a political party, making sure they don't make any campaign contributions and restrict their rights of speech. He suggested a possibility may be to put the same restrictions on commission members that are put on judges. REPRESENTATIVE COWDERY stated that he doesn't think the commission members could be restricted from donations; it would be unconstitutional. He believes that if the language was added that it would depoliticize it, which is what the committee is trying to do and he would like to see the language, "no more than two members from the same party," added to the proposed legislation. REPRESENTATIVE BERKOWITZ stated that it is clear what the concern is. Governor Knowles, who is a democrat, may have a couple of vacancies and he might appoint a couple of democrats. If he chooses to appoint republicans and a republican governor follows Governor Knowles, the new governor may be put in a position of appointing democrats. Number 1315 CHAIRMAN HUDSON said that he believes the purpose is not to put more people from one particular party or the other on the commission, but to try to create a balance. In his opinion, the amendment is not necessarily intended to restrict anybody, instead, all the qualifications will be taken away and the governor will be asked to appoint five honorable people and avoid any inference of politicizing and make sure that no more than two members are from the same party. He thinks it is a balancing act not necessarily a partisan activity. REPRESENTATIVE PORTER stated that his interest in having the revision has nothing to do with the current Governor. REPRESENTATIVE COWDERY concurred with Representative Porter. He pointed out that Commissioner Jim Posey of the APUC was appointed by the Governor and is a registered republican. CHAIRMAN HUDSON explained that the amendment will read, once drafted, "No more than two members of the commission may be members of the same political party." Number 1482 REPRESENTATIVE COWDERY made a motion to adopt the amendment. REPRESENTATIVE BERKOWITZ objected. He stated that he understands the committee's concern with partisan politics. It is optimistic to feel that just because there is a limitation in the political party that partisan politics is going to be restricted from the commission members. If the intent is to restrict the political involvement of the commission members, he suggests that a model be adopted that is similar to the restrictions put on judges, which precludes them from being involved in partisan politics at all. REPRESENTATIVE PORTER pointed out that the model that Representative Berkowitz is referring to is already in place in the Ethics Committee. He believes that it is a bit extreme to try to put the same restrictions on commission members that are put on judges. The concern is more their action before they are appointed to the commission; what philosophical intent the members bring to the commission. REPRESENTATIVE BERKOWITZ explained that the Ethics Committee does have certain restrictions; they can't make contributions and they can't be involved in partisan politics. Number 1591 CHAIRMAN HUDSON asked Representative Berkowitz if he would feel more comfortable if the commission was more clear about its intent. He indicated that he does not want to treat the commission members like judges and he thinks that the real concern is the members actions before they are appointed commissioners as opposed to their political action after they are appointed. He asked Representative Berkowitz if his objection was still maintained. REPRESENTATIVE BERKOWITZ replied yes. A roll call vote was taken. Representatives Porter, Cowdery, Rokeberg, Green (alternate), and Hudson voted in favor of adopting the amendment. Representative Berkowitz voted against it. Therefore, the amendment was adopted by a vote of 5-1. Number 1702 REPRESENTATIVE BERKOWITZ referred to Section 2, and wondered why the power was being given to the chair instead of the commission in establishing an office. MR. WILCOX responded that the staff was directed by Chairman Hudson to add that language. REPRESENTATIVE BERKOWITZ presumed that the same would hold for Section 3 and Section 4. MR. WILCOX replied that is correct. REPRESENTATIVE BERKOWITZ wondered what the impetus is behind the repeal of qualifications in Section 6. CHAIRMAN HUDSON responded that Section 6 opens it up so the Governor and the legislature can consider citizens of sound judgement regardless of their background. Given the professionalism of the staff and the ability of the chair and the commission to hire proficient people that language was put into the drafting. Number 1779 REPRESENTATIVE BERKOWITZ stated that the removal of a commissioner is not a mute point even though it might not be appropriated for in the current situation, but if another contingency occurs in the future it would be good to have a "removal clause." MR. WILCOX responded that a "removal clause" has been discussed at length and at this time it is probably poor public policy to aim legislation at a particular individual. REPRESENTATIVE BERKOWITZ noted that he has never wanted to endorse poor public policy and that's why he is in the minority. Good public policy would suggest that the "removal clause" would go beyond the current situation. He stressed that he specifically said that it does not necessarily apply to the current situation. CHAIRMAN HUDSON added that a number of folks have expressed their concern about putting an amendment in that simply deals with a condition that is in flux. The committee doesn't know what is going to happen to the commissioner that some folks believe that we're aiming at here. He said that for the purposes of a clean draft he felt it would be better to leave out the "removal clause." The two best things in the proposed legislation is, one, the finality that will come from decision making and, two, hopefully better administration by the commission with the requirement that they come before the legislature every year. Number 1921 JIM ROWE, Executive Director, Alaska Telephone Association (ATA), expressed concern with page 2, line 17, Section 4, subsection (b), where the chair is given the power to decide if there needs to be services of consultants. Overall the draft looks good, but subsection (b) brings up some concerns. He suggests on line 19 where commissioner has been eliminated and chair has been added, perhaps to reverse that, so the commission decides if it's necessary and then consults the chair. A few reasons for this is, one, the monetary cost for hiring a consultant, which is of less importance, and two, if only the chair gets to decide then too much weight is being put on the chair and not on the commission. REPRESENTATIVE GREEN asked Mr. Rowe if his intention is to soften the potential dictatorial position of the chair of the commission. MR. ROWE responded that he would not go so far as to say dictatorial, but he thinks what is being looked for is a commission decision. Number 2138 REPRESENTATIVE ROKEBERG noted that a couple of issues are not in the draft, such as the employment of non-Department of Law attorneys. He wondered if ATA's working group would look over things like that. MR. ROWE replied yes. REPRESENTATIVE ROKEBERG wondered if there was the issue of commissioners being provided staff that are independent from the commission. MR. ROWE replied that there is, and he would like to see various members of industry working these issues out. CHAIRMAN HUDSON clarified that what Mr. Rowe was suggesting was to eliminate chair from line 19 and reinstate commission, which would provide the management and contractual responsibilities to the chair, but the discretionary decision making to the commission. He said that he agrees with that concept, because we want the commission to be an independent body. If the committee feels comfortable with the change, he suggests that the final draft be changed accordingly. Number 2266 REPRESENTATIVE PORTER suggested that they add on the political party section that a person may not be appointed or reappointed to the commission for one year after changing political party membership. MR. WILCOX said that he has that language and it can be added. CHAIRMAN HUDSON agreed. AT&T PRESENTATION Number 2348 TOM POSEY, President, American Telephone & Telegraph (AT&T), Alascom, read his testimony into the record, as follows: Good morning, Mr. Chairman and members of the committee. My name is Tom Posey, and I am the President of AT&T Alascom, which is the AT&T subsidiary providing telecommunications service in Alaska. I want to thank you for allowing AT&T Alascom to address the committee today. I have been in the telecom industry for 17 years and have been with AT&T Alascom since September 1998 as a Vice President and took over the reigns as President in January 1999. Today, I will give a brief "State of the Business" at AT&T Alascom and then Mark Vasconi, our Director of Regulatory Affairs will provide further testimony on access charges and competition in the provision of local telephone services. AT&T Alascom currently employs 482 people and has responsibility for serving residential and business markets, plus we operate the most distributed network in Alaska. We are the only carrier in the state required to service all locations in the state with 25 or more customers. Our backbone network consists of: fiber optics, terrestrial radio, and a satellite network with more than 200 earth stations. From the time AT&T purchased Alascom in 1995 through the end of this year, we have invested over $198 million dollars in capital improvements to our network in the State of Alaska. Some examples of these improvements include: A new "4E" switch. This switch provides the basic platform for all AT&T services. The "4E" circuit switch allows Alaska to become part of the AT&T Global Network. It also supports disaster recovery, long range planning and feature upgrades as part of the AT&T Global Network. The normal duration for a project of this scope is about two years, but we did it in just eight months. Digitization of the Bush Network. Digitization of the Bush is a multiple year project which AT&T Alascom began in 1996, and which we plan to complete by the end of the year 2000. When AT&T purchased Alascom in 1995, equipment and technology in the Alaska Bush was nearly 20 years old. Replacement parts were becoming scarce. Because analog services are nosier than digital equivalents, customers were expressing interest in digital services. AT&T Alascom was unable to provide the desired digital services over the network that existed at the time, and thus plans were made to digitize the Alaska Bush. Digitization of the Bush is a multifaceted plan that involves network improvements both for terrestrial and satellite routes. Digitization of terrestrial routes involves replacement of analog equipment with digital equipment. Digitization of satellite-dependent routes includes the deployment of a relatively new technology, Demand Assigned Multiple Access, or DAMA, at many Alaskan locations. DAMA technology provides numerous benefits to our customers in the Bush. The technology reduces the number of times a call must be routed up to the satellite from 2 times to 1. the elimination of this "double satellite hop" reduces the delay experienced during the voice conversation, or switched data circuit connection. DAMA technology also improves the quality of the transmission by reducing noise, improving the echo control and by supporting many FAX and dial up data calls at higher transmission rates. DAMA provides for more efficient transponder utilization, reducing overall cost. Although, as mentioned before, Bush Digitization is a multi year project, the vast majority of sites will be upgraded by the end of this year. The remaining sites are scheduled for upgrade in the year 2000. The result of AT&T Alascom's Bush Digitization project ultimately comes down to this: improved quality of service; and more and better services for Alaska consumers. New satellite replacement of Aurora II in 2001. As I am sure you are all aware, the satellite is a critical element necessary to preserve Universal Service to Bush Alaska. The primary reason for the replacement of Aurora II is it is approaching end of service life. In order to offer continued universal service to Bush Alaska, the Aurora II replacement will be deployed in 2001. So what does this all mean to the State? The essence of the investments AT&T Alascom has made over the past four years is about our customers. We will continue to provide and invest in a new generation of universal communications services that put our customers in touch with the people or information they need, want and at a competitive price. Competition works. Speaking of competition, I would like to take a few minutes to talk about the changing face of competition and facilities-based competitors in Alaska. AT&T Alascom has fully supported facilities-based competition in all locations because we believe we can be competitive based on our offer set and what customers will perceive as our value to them. In the last year, fiber optic capacity within Alaska and to the Lower 48 has increased dramatically with more scheduled to come on line. AT&T Alascom supports this capacity expansion and the new services that may utilize it. All of this has occurred in a competitive marketplace. When the Legislature considers competition in local markets, we believe that good lessons can be learned from competition in long distance. That is, more capacity and lower prices have resulted from this competitive landscape. In a competitive environment, the winner is chosen based on their offers and efforts, not based on a regulation that prohibits competition. TAPE 99-12, SIDE B Number 2330 MARK VASCONI, Regulatory Affairs Director, AT&T Alascom, read his testimony into the record, as follows: Thank you Tom, and good morning Mr. Chairman and members of the committee. I would like to talk this morning about access charges and competition in the provision of local services from the standpoint of what these mean to consumers and AT&T Alascom. As you might know, long distance carriers pay for the use of local telephone companies' networks, to originate or terminate long distance calls. these so-called access charges are a major part of the costs of long distance calls and can be reduced either by further regulatory initiative or the institution of local service competition. To the extent that access costs drop, consumers will benefit as competition in long distance (LD) will force LD rates for consumers to drop. We think that these issues are important for the legislature to understand as they will ultimately affect the bills paid by consumers. As the largest long distance carrier in Alaska, in 1998, AT&T Alascom paid Local Exchange Carriers (LECs) in Alaska approximately $39 million to use their networks to complete in-state long distance calls. AT&T Alascom's total revenues from in-state services were roughly $61 million; in other words, approximately 64 percent of AT&T Alascom's in-state revenues went to pay for the use of Local Exchange Carriers' networks. In order to put these numbers into perspective, local access charges translate roughly into fourteen and a-half cents per minute for each and every in-state long distance phone call versus a national average of just over five cents. At approximately 14.5 cents per minute, access charges in Alaska are among the highest in the nation. Sates such as Montana, Utah and Wyoming all have lower access rates yet, like LECs in Alaska, LECs in those states must cope with issues of relatively low subscriber densities and long distances between locations. The access charges in Alaska are clearly higher than national averages and higher than those in states with low population densities and heavy reliance on long distance calling. Not only have access charges been high in Alaska, they have exhibited very little downward movement while competition in the long distance market has steadily been dropping rates (See Chart 1 showing comparison of ARPM with access costs). As you can see, since 1995 when AT&T purchased Alascom, the Average Revenue per Minute (ARPM) has been on a steady decline. In 1995 AT&T Alascom's ARPM was at 29 cents; by 1998 it had dropped to 21 cents. That's a decrease of 27 percent and that is exactly what you'd expect from the workings of a competitive marketplace. Aside from the conclusions that one can draw on the level of competition in the LD market, the chart also shows that per minute access costs have been flat and are effectively placing an absolute floor on how low LD prices can go. Presently, AT&T Alascom is offering Optional Calling Plans (OCPs) that have specific in-state rates that are as low as 15 cents per minute with no associated monthly recurring charge - it is impossible for AT&T Alascom or any other rational competitor to justify any lower priced OCPs when the margin between access costs and rates is less than a penny. I also want to stress that the fall in LD prices occurred prior to the implementation of any statewide access reform. The workings of the competitive marketplace for LD services provided these savings to consumers in an environment of high access charges that have historically exhibited little if any downward price movement. As access rates decline, the workings of the competitive LD market will inevitably result in even more reductions in rates. While the APUC needs to continue examining access charges, it is our guess that substantial reductions in access charges will not occur until competition provides alternative access to local customers. In fact, to the extent that LECs try to maintain access charges above their true economic costs, they will deny further benefits of lower long distance prices to end users and they also serve as a disincentive for Long Distance companies to invest in Alaska. In order to understand where we need to go, its important to understand something about how Local Exchange Carriers have traditionally recovered their costs. Local Companies historically had three sources of revenue: (1) charges for local service; (2) charges for access service (which has hidden subsidies); and (3) explicit payments from the federal Universal Service Fund. This system was designed to foster healthy LECs by ensuring that these three sources of revenue gave a LEC a reasonable opportunity to recover its expenses plus a reasonable rate of return. The current system is also designed to provide affordable universal service. This present system features high subsidies, high costs and low local rates. This system is economically unsound because it was designed to achieve social, not economic goals. When all facets of the telecommunications industry were organized around the principles of monopoly markets, it was a fairly easy chore for regulators to require business users to subsidize residential users and Long Distance service to subsidize local service. If anyone paid a rate equal to cost it as merely a coincidence. As long as the primary goal of telecom policy was universal service in a monopoly environment, the internal subsidies were successfully managed through regulation. Regulators designed a system of hidden subsidies that supported both local and long distance services. Alaskans, both rural and urban, were major beneficiaries of this policy. So was Alascom. After all, prior to AT&T's purchase of the company Alascom received an annual subsidy of approximately $100 million to keep interstate Long Distance rates affordable to all Alaskans. Since the advent of AT&T's purchase, the subsidy is no longer there, but universal toll service has continued, and competition has extended itself to more and more locations in Alaska. While Universal Service goals have not changed, the tools for insuring it must. With competition in the long distance industry, prices and margins have dropped to the point that it is becoming more difficult for Long Distance carriers to provide support for Universal Service through the mechanism of hidden subsidies which have historically been paid by long distance companies in the form of high access charges. Other mechanisms, as well as other market structure policies have to be implemented in order to insure that Universal Service goals are met. First, the APUC and its Staff should continue efforts begun last year that identify hidden subsidies in access charges. Once these subsidies are "smoked out" of rates, the APUC needs to examine them in light of what is actually required to preserve Universal Service. As an example, last year the APUC identified approximately $3.8 million of costs that were moved out of access charges and into an Alaska Universal Service Fund. This $3.8 million was seen as a hidden subsidy that was used to support switching costs for 9 of the 22 LECs operating in Alaska. In an effort to examine if the entire 3.8 million is needed to support Universal Services, the APUC on March 23 took up a Staff recommendation to begin an inquiry into the necessity of any or all of the $3.8 million. This inquiry will need to consider the affordability of local phone service without the subsidy as well as the financial position of local exchange carriers. At this point it is premature to make any conclusions as to whether the switching subsidy is or is not required but we think that continued investigation by the APUC is critical. Investigation should also continue with respect to other subsidies that remain hidden in access charges. Second, while it's important for the APUC to continue its investigation of subsidies found in access charges, the legislature and the APUC need to promote the development of the ultimate access reform measure and that is allowing competition in local markets. Competition in local markets will ultimately take a number of forms ranging from mere resale of existing services, to the introduction of wireless technology, new wireline infrastructure or even Internet-based telephony. All of these developments will require participants in the industry to adapt. While I listened to Mr. Rhyner's testimony last month I was struck by the static quality of his analysis. In an example that Mr. Rhyner presented, potential competition in Fairbanks would force rates to increase to $27 from $16. This would indeed happen if the costs of the business were to stay the same and if monopoly concepts of pricing were to continue. However, with competition, monopoly concepts of "revenue requirement" that allow for the recovery of investments and expenses plus a return (so-called cost-plus) are replaced by market-based concepts that force a firm to reduce costs through expense reductions or even mergers in order to position themselves to meet the prices quoted by a new competitor. In short, competition forces changes and reactions that are not incorporated by Mr. Rhyner's analysis. Therefore, in summary, we believe that the APUC needs to continue its efforts to "smoke out" subsidies that have been embedded in access charges and then work to examine if the subsidies are indeed needed to promote Universal Service. Second, to the extent that subsidies are needed they should be correctly sized, distributed to those who need them most and most importantly, collected from all telecom providers, not just the long distance carriers who are required to pay access charges. Last, the legislature and the APUC should move to allow competitive entry into local exchange markets. Through competition we have seen prices for LD services drop and the limited experience we have in Anchorage with local service competition suggests that we will see service expansion and lower rates when competitive entry is allowed. These changes will result in lower prices to consumers for local services and will enable the competitive long distance market to continue offering services to customers at affordable prices. I'd like to close by thanking the legislature for allowing us to address these issues and for your previous work on promoting competition in the long distance market. We think there will be substantial benefits by extending the competitive model to local service markets. We'd be glad to answer any questions you might have. FOUR DAM POOL Number 0270 DAVE CARLSON testified on behalf of the Four Dam Pool and clarified that he is currently not the vice-chair of the Project Management Committee, but a member with possibly the longest tenure. He stated that he was on the Petersburg City Council during the Tyee Lake project and was involved during the power sales negotiations and is still involved. He discussed a history of the Four Dam Pool and how it works and also divestiture and restructuring. The report titled, "Project Management Committee", gave a overview of the Four Dam Pool Project. The introduction read as follows: Following the dramatic increase in oil prices in 1979-1980, the State was in a financial position to pump massive amounts of money into the development of energy projects. During the early 1980s, the Alaska Energy Authority constructed or acquired four projects - Tyee Lake, Terror Lake, Swan Lake, and Solomon Gulch. The costs for constructing or acquiring the projects was initially paid by bond financing. Eventually, the bonds were replaced with money lent to the Authority by the Department of Commerce and Economic Development, from the Power Development Revolving Loan Fund. In an effort to equalize power costs for the communities served by the four projects, the Alaska legislature provided that these four projects would be considered as one project - the Initial Project. Together they would be operated and managed jointly and the wholesale power rate for power sales would be the same for all four projects. Between May and October of 1985, the parties engaged in intense negotiations. The Memorandum of Understanding between the Authority and the Representatives of the Four Dam Pool communities (signed on May 8, 1985), forged the basic tenets of what was to become the Long-term Power Sales Agreement for the Four Dam Pool. TAPE 99-13, SIDE A Number 0931 ADJOURNMENT CHAIRMAN HUDSON adjourned the House Special Committee on Utility Restructuring meeting at 9:55 a.m.