HOUSE SPECIAL COMMITTEE ON UTILITY RESTRUCTURING April 21, 1999 8:07 a.m. MEMBERS PRESENT Representative Bill Hudson, Chairman Representative John Cowdery, Vice Chairman Representative Pete Kott Representative Norman Rokeberg Representative Brian Porter Representative John Davies Representative Ethan Berkowitz MEMBERS ABSENT Representative Joe Green (alternate) COMMITTEE CALENDAR * HOUSE BILL NO. 81 "An Act relating to the provision of electric service in the state; and providing for an effective date." - HEARD AND HELD * HOUSE BILL NO. 185 "An Act exempting certain small water utilities from regulation by the Alaska Public Utilities Commission." - HEARD AND HELD (* First public hearing) PREVIOUS ACTION BILL: HB 81 SHORT TITLE: ELECTRIC CONSUMER'S BILL OF RIGHTS 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) URS, L&C 2/16/99 228 (H) COSPONSOR(S): DYSON 4/21/99 (H) URS AT 8:00 AM CAPITOL 120 BILL: HB 185 SHORT TITLE: SMALL WATER UTILITIES EXEMPT FROM APUC SPONSOR(S): REPRESENTATIVES(S) OGAN Jrn-Date Jrn-Page Action 4/09/99 702 (H) READ THE FIRST TIME - REFERRAL(S) 4/09/99 703 (H) URS, L&C 4/21/99 (H) URS AT 8:00 AM CAPITOL 120 WITNESS REGISTER JANET SEITZ, Legislative Assistant for Representative Rokeberg Alaska State Legislature Capitol Building, Room 24 Juneau, Alaska 99801 Telephone: (907) 465-4968 POSITION STATEMENT: Answered questions with regards to HB 81. STEVE CONN Alaska Public Interest Research Group (AKPIRG) 603 West 18th Avenue Anchorage, Alaska 99503 Telephone: (907) 278-3660 POSITION STATEMENT: Testified on HB 81. ROBERT WILKINSON, Chief Executive Director Copper Valley Electric Association (CVEA) P.O. Box 45 Glennallen, Alaska 99588 Telephone: (907) 822-8340 POSITION STATEMENT: Testified on HB 81. DENNIS LEWIS, Electric Superintendent City of Petersburg; Chairman, Four Dam Pool P.O. Box 329 Petersburg, Alaska 99833 Telephone: (907) 772-4203 POSITION STATEMENT: Testified on HB 81. DAVE CARLSON, Board member Four Dam Pool P.O. Box 1232 Petersburg, Alaska 99833 Telephone: (907) 772-3765 POSITION STATEMENT: Testified on HB 81. NELSON ELLIOT, Director Crimsonview Owners Association 11600 Crimsonview Drive Palmer, Alaska 99645 Telephone: (907) 746-0775 POSITION STATEMENT: Testified on HB 185. REBECCA PAULI, Attorney Birch, Horton, Bittner and Cherot 1127 West 7th Avenue Anchorage, Alaska 99501 Telephone: (907) 276-1550 POSITION STATEMENT: Testified on HB 185. ACTION NARRATIVE TAPE 99-18, SIDE A Number 0001 CHAIRMAN BILL HUDSON called the House Special Committee on Utility Restructuring meeting to order at 8:07 a.m. Members present at the call to order were Representatives Hudson, Cowdery, Kott, Rokeberg, Porter and Davies. Representative Berkowitz arrived at 8:08 a.m. Representative Green (alternate) was not present. HB 81 - ELECTRIC CONSUMER'S BILL OF RIGHTS CHAIRMAN HUDSON announced that the first order of business was House Bill No. 81, "An Act relating to the provision of electric service in the state; and providing for an effective date." Number 0153 REPRESENTATIVE NORMAN ROKEBERG, Sponsor, Alaska State Legislature, noted that Janet Seitz, his Legislative Assistant, was present to answer any questions. He stated: House Bill 81 is the result of the testimony and information that was provided to the legislature in the form of the Joint Committee on Electric Utility Restructuring, which is a ... committee which I co-chaired with Senator Sharp this last year. In our studies of the electrical restructuring issue it became apparent to me, Mr. Chairman, that because we are fundamentally a publicly power-owned state the first building block that we should take up in consideration of any electrical restructuring is the consumer protection issues and giving guidance to the APUC [Alaska Public Utilities Commission] as to what the legislature believes to be the most important issues before we, if you will, dive off the cliff into any area of semi-deregulation or restructuring. With that, Mr. Chairman, we have drafted this legislation, which is intended to be triggered, if in fact the APUC and/or the legislature adopts any form of electrical restructuring or retail wheeling, whatever you wish to describe it. Mr. Chairman, I have passed out the committee a letter that was addressed to myself and Representative Sanders, as the chairman of the subcommittee in the Labor and Commerce Committee last year or in 1997, which is an opinion of the Department of Law, indicating that under existing statute the APUC has the ability without legislative direction to take up and grant competition. Mr. Chairman, I would point out that over the course of testimony to the interim committee this was a major ... topic of conversation, but I would report to you that I think there's general consensus throughout the states in utilities that the APUC does retain this power. At one point a couple years ago there was some controversy about whether or not it exists, but I think everybody recognizes now or agrees with this legal opinion that the APUC does have the power and with that, Mr. Chairman, because there is a docket before the APUC by Aurora Power to be an aggregator or resaler of power, I think this bill is appropriate currently, and therefore, it has some sense of urgency and a sense that even if the legislature does not act on the report by CH2M Hill that the docket before the APUC allows them and almost asks them to take up the whole issue of restructuring and particularly that of the resaler or the aggregator. Mr. Chairman it's my opinion that the provisions for these regulations and consumer protections should be in place before that docket is ruled on finally to protect -- in the public interest. This proposal is not unique among the states, Mr. Chairman. You'll find in your packet just some examples of legislation and reports from various other jurisdictions; including Arizona, California, Maine [and] Delaware that have adopted an electric ... consumer bill of rights, so I can't take credit for being the originator of this idea, but it's positive legislative plagiarism, if you will, that we address these particular issues. Among the issues ["rights"] that are covered here, Mr. Chairman, are the Right to Know, the Right to Choose and the Right to Fair Dealing, the Right to Redress, the Right to Privacy, the Right to Service Quality and Required Code of Conduct and Oversight. The bill further mandates regulations to require that electrical service providers must continue to provide service to residential consumers who demonstrate that economic hardship has prevented payment of a bill in full. So, this speaks to the issue of not only the provider of last resort, but also speaks to the issue of inability to pay, and those particular consumer issues. The bill is intentionally simple, in the sense, to give maximum flexibility to the APUC in drafting the regulations, but on the other hand it points out and it stipulates those areas that should be covered by the commission. We also have distributed to you an e-mail that we received, just yesterday, from Karl Rabago of CH2M Hill, who was kind enough to look at the legislation and makes a critique of a legislation and has several points and recommendations to the committee regarding adjustments to the bill. We haven't had time to digest that and put it in any amendment form, Mr. Chairman, but I would commend that to the committee. Also, we do have a letter of opposition from Copper Valley Electrical Association, and it points out something very interesting that everybody should be aware of; that in the existing statutory scheme in Alaska publicly owned utilities may opt out by election. Copper Valley has opted out of regulation by the APUC from economic regulation; however, this bill before you does provide that it can't be opted out from and that's an important fact and I wanted to bring that to the committee's attention, because a consumer bill of rights and protection of the consumer interest is important whether you regulate it or not. So, I think it should have a universal application to all consumers in the state of Alaska. ... There's the concerns and I appreciate Mr. Wilkinson's concern; hopefully he'll be on teleconference this morning and be able to testify. We also have testimony hopefully from Ms. Pease from Aurora Powers speaking on some of the issues that are important. Mr. Chairman, I think there is a certain sense of urgency on this legislation. I think it needs to tuned up a little bit, but I commend this to the committee and look forward to working on this and reporting this bill out. Thank you Mr. Chairman. Number 0680 REPRESENTATIVE BERKOWITZ wondered what legislation, from another state, was used as a pattern for Representative Rokeberg's legislation. REPRESENTATIVE ROKEBERG deferred the question to Ms. Seitz. JANET SEITZ, Legislative Assistant for Representative Rokeberg, Alaska State Legislature, replied that HB 81 was basically patterned after Michigan. REPRESENTATIVE BERKOWITZ indicated that if the adjective "competitive" was eliminated throughout the legislation, the consumer protection would apply to all consumers in the state and it would avoid the problem of having providers claim that they weren't in a competitive market, and therefore, they didn't have to comply. Number 0740 REPRESENTATIVE ROKEBERG pointed out that the intention of the bill is to have the protections in place only for those areas and those jurisdictions that have competition. Under current regulatory authority a lot of the issues should to be spoken to, even though there is a certain universality. The concern is what type of statutory and regulatory regime would a competitor of including a pilot program be operating under. The intent of this legislation is to draw to the commission's attention what the legislature believes the public policy of the state should be in the competitive environment, but not necessarily a fully regulated environment. REPRESENTATIVE BERKOWITZ explained that it would leave consumers in a non-competitive environment with different rights than is seen in a competitive environment. REPRESENTATIVE ROKEBERG said that he believes Representative Berkowitz's statement is probably accurate. The question is whether or not the consumers in a non-competitive environment are properly protected by the existing regulatory scheme. He added that it is not the intention of HB 81 to rewrite the entire regulatory scheme that already exists, but to rewrite it in that area, if selected, to adopt competitive market place conditions for electric service providers. The bill speaks to instances of single billing provisions, which really only apply to competition and those type of circumstances. REPRESENTATIVE BERKOWITZ stated that if that is really the intent of the bill then it seems that something could be done to tighten up the title. Number 0888 REPRESENTATIVE COWDERY said, "You said that the smaller utilities -- this doesn't affect the small ones; the unregulated utilities. Just regulated or unregulated. He asked, "Does it affect both or the smaller utilities it's your attention not to affect?" REPRESENTATIVE ROKEBERG clarified that it is not a matter of size, but whether or not it is a competitive environment. Currently, all utilities in the state that have not opted out are regulated by the APUC. Even the opted out utilities are regulated in terms of their service area. The distinction is the whole issue of restructuring the competitive market place. The point of HB 81 is contingent on the creation of any kind of competitive environment. He noted that one of Mr. Rabago's recommendations is to make sure that the bill is clear that it would affect the buy-out program. REPRESENTATIVE COWDERY wondered if Chugach Electric Association (CEA) and Matanuska Electric Association (MEA) have had an opinion on HB 81. REPRESENTATIVE ROKEBERG indicated that he is not sure if any formal testimony was received on the bill, but they have been in discussions with them for several years. CHAIRMAN HUDSON noted that Robert Wilkinson from Copper Valley Electric Association (CVEA) will be testifying on the bill as well as Steve Conn from the Alaska Public Interest Research Group (AKPIRG). Number 1037 REPRESENTATIVE PORTER referred to Representative Rokeberg's testimony, specifically the part on right to privacy and wondered where privacy was stated in the bill. REPRESENTATIVE ROKEBERG referred to page 2, subsection (4) on line 15 of HB 81, where it reads, "maintain information and records, including records concerning individual electric use patterns, about the electric service provider's consumers as confidential records." There is additionally some comments by Mr. Rabago on the treatment of those records. The intent there is so a competitor doesn't become privy to that, although there are provisions and recommendations that the records be available without the names attached to them so they are a part of a statistical pool. CHAIRMAN HUDSON indicated that he was looking in HB 81 for a reliability requirement. Number 1144 REPRESENTATIVE ROKEBERG referred to page 2, line 31, subsection (d) of HB 81, where it reads, "The commission shall adopt regulations to require a supplier or an aggregator operating in a competitive electric service market to meet minimum standards for certification as a condition of market entry." CHAIRMAN HUDSON asked if the idea is that reliability will fit within the minimum standards. REPRESENTATIVE ROKEBERG replied that is the intention. He pointed out that reliability was probably the number one issue of the testimony given at the interim committee. Number 1190 REPRESENTATIVE DAVIES indicated that there may be some question about defining when a competitive electric service market has been entered into. In the report from CH2M Hill there are a variety of pathways that are discussed; one, jumping in with both feet and two, systematically getting there. The question in his mind is if they might want to consider a more measured approach to getting into retail competition. He wondered at what point are they truly in a competitive retail market and if that might be something the APUC decides. Clearly whenever there is some consumer choice this would have to come into effect. REPRESENTATIVE ROKEBERG referred to paragraph 2 on page 1 of Mr. Rabago's e-mail, where it states, "A competitive electric service market means a market or program in which retail electricity customers are provided a choice of electricity provider, whether on a permanent, limited, or pilot basis." He said that he would be recommending that as an amendment to HB 81 in order to make sure that it's clarified. REPRESENTATIVE DAVIES asked Representative Hudson what his intent is on moving the bill. CHAIRMAN HUDSON replied that the committee will work through testimony and then decide. He agreed with Representative Rokeberg that an amendment should be made to include Mr. Rabago's definition. REPRESENTATIVE ROKEBERG stated that he appreciates Mr. Rabago's input, which is not only complimentary to the legislation, but also makes some extremely important recommendations. Number 1354 CHAIRMAN HUDSON stated, "One of the questions I have, Representative Rokeberg, is we're putting in a new provision in there to essentially tell the commission to establish by regulation all of these consumer protective elements in here. To your knowledge, particularly since you dealt with this throughout the interim last year, how many of these are they currently dealing with? Do they have anything like this already on the books that we're trying to expand or to fulfill, or do they not?" REPRESENTATIVE ROKEBERG replied, "They do have provisions on the economic hardship issue, but in terms of many of the other issues, I'm basically guessing that they don't, because a lot of these are based on the necessity to have regulation in the competitive environment not in a non-competitive environment." He pointed out that a substantial fiscal note may accompany HB 81. There have been some conversations with the APUC. He said that in a certain sense it doesn't surprise him, and in another sense he finds it disappointing, but anytime legislation is being drafted of this scope, meaning that HB 81 is an essential portion of any restructuring regime, there is going to be some cost. It is up to the legislature to decide if they want to absorb any of those costs and how that is going to be done with relation to HB 81. CHAIRMAN HUDSON requested clarification on whether or not there was any fiscal note. REPRESENTATIVE ROKEBERG clarified that they haven't received one yet. STEVE CONN, Alaska Public Interest Research Group (AKPIRG), testified via teleconference from Anchorage. He stated that from day one, as we enter the brave new world of electric restructuring deregulation, Representative Rokeberg has sought to learn and define the consumers interests. He pointed out that HB 81 is seeking to address the brave new world in which consumers will now be confronting competition. In California there were people who held themselves out as capable of providing service and were actively soliciting consumers when they in fact could not provide service; therefore, pre-certification requirements are absolutely essential. A problem that is less apparent in the bill is the "slamming" phenomenon that happens in telecommunications, whereby someone calls and before the consumer knows it they've been switched. The Federal Communications Commission (FCC) has developed regulations for allowing a consumer, who discovers that they are working with a "Brand X" provider, to opt out of that within a certain period of time. This new environment does require funding. Historically, the biggest problem in Alaska has not been the absence of legislation to protect consumers, but the wherewithal to enforce and implement that legislation. He said that he hopes a fiscal not emerges which is satisfactory to the legislature and accompanies the bill throughout. Number 1623 MR. CONN continued. He pointed out that another issue the bill is seeking to address is the issue of "cherry-picking." There are customers who are desirable and there are customers that are less desirable. He expressed concern with the language on page 2, lines 10 through 14, which reads, "offer electric service to any consumer in the area served by the electric service provider so long as providing the service is technically feasible at a reasonable cost to the provider; provide electric service choices and pricing options to all consumers without discrimination." He wondered who is alternately going to determine the technical feasibility and the reasonable cost. He also recommended that the language read, "provide the same electric service choices," instead of, "without discrimination." MR. CONN concluded by stating that HB 81 demands that APUC or some regulatory mechanism have exclusive and broad power to deal with consumer complaints. He believes that HB 81 is a good first step, but he hopes that the committee will take his recommendations under advisement and fine tune the bill. Number 1743 REPRESENTATIVE BERKOWITZ stated that it seems the consumers are best served if the adjective "competitive" is taken out of the bill. If it is going to work for consumers in a competitive environment, it should work for all consumers. MR. CONN responded that it is quite obvious that HB 81 would not have emerged without the competitive reality that is moving across the state. There are a lot of electric cooperatives, particularly the smaller ones, that do a good job of serving their consumers and there is a more immediate relationship between the operators and the consumers. He said that his own sense of what the word "competitive" means is that it reflects a movement throughout the entire state and is not reflective of subregions. He views the bill as one that reflects that the entirety of the state, particularly as it relates to suppliers and aggregators. Number 1813 CHAIRMAN HUDSON referred to Mr. Rabago's suggestion that the legislature implement a definition of a competitive electric service market. That way if the term "competitive" was left in the bill with a definition, it would fit better. REPRESENTATIVE BERKOWITZ pointed out that anytime there is a definition, it is a loophole for somebody. REPRESENTATIVE COWDERY noted that competition is suppose to be the best means of consumer protection. The utilities are deregulated to allow for competition. MR. CONN explained that there is no question that competition is good for the consumer, but the problem that is found with the new realms, telecommunication and electric or other, is that those who speak with one tongue, competition, often seek to discriminate as they actually move into a realm and implement their endeavors. For example, "cherry-picking" is a phenomenon; the new competitor doesn't really want to compete for all the business, they just want to compete for the very best business. A bill like HB 81 serves a useful purpose, because it sustains, maintains and underscores competition. REPRESENTATIVE COWDERY stated that if this regulation is needed when competition occurs, then it must really be needed without competition. Number 1941 ROBERT WILKINSON, Chief Executive Director, Copper Valley Electric Association (CVEA), testified via teleconference from Glennallen. He expressed his appreciation to Representative Rokeberg and the spirit of legislation regarding HB 81. He indicated that he had a few concerns with the bill; one, that the CH2M Hill report is in draft form. In his opinion the state falls short of properly addressing rural issues. Another policy issue that has not been addressed or finalized is how will public power, in general, be treated. As heard from the consultants this is a public power state with somewhere around 90 percent of the costumers being served by public power utilities. With those issues open, he believes that adopting a bill of rights that would effect every regulated electric utility in the state would be premature, given that it is not certain if competition will be coming to certain parts of Alaska. Number 2061 MR. WILKINSON continued. Two, the applicability of Article 3 of AS 42.05, which has a provision where cooperative utilities may opt out from under economic regulation by the APUC. CVEA exercised that right last year and of the 36 percent of CVEA members who were asked, "Should CVEA be exempt from regulation by the APUC?", 67 percent said yes. A major concern during the time when the CVEA was campaigning for deregulation was the fair and non-discriminatory treatment of the customers by the utility. As part of the campaign CVEA adopted their APUC approved Tariff as the rules and regulations they would follow under local regulation. They are planning on making some modest changes to the Tariff to make it a little more user-friendly to the customer. There was a concern identified by the members that if the CVEA took the APUC out then there would not be an appellate body to go to in the event they had a dispute with the utility. The CVEA adopted a very expanded complaint procedure, and created what they call a Board of Adjustment, which is composed of members of the association. The Board of Adjustment serves as an appellate body for going through a dispute resolution. Specifically, if the members are not satisfied with how the utility decides on a certain issue then they appeal to the Board of Adjustment and then the Board of Adjustment may appeal to the full Board of Directors if the customer is still unsatisfied. The CVEA also adopted principles that say that their services and policies will be fair and non-discriminatory. This again was a very important issue to the membership. MR. WILKINSON concluded by saying that he feels it is premature to move HB 81, given where the CH2M Hill study is on rural Alaska and public power. He believes that CVEA's local elected Board of Directors can do the job of providing electrical service much better than the APUC, and that is a major reason they opted out of APUC regulation. Doing business in a rapidly changing environment when there is the bureaucracy of the APUC is very difficult. CVEA has two open dockets at the APUC still dealing with competitive issues. He said that if CVEA is going to survive a new competitive environment, they cannot afford APUC regulation and they feel they can do better on their own. Number 2246 REPRESENTATIVE PORTER asked Mr. Wilkinson what kind of competitive arena he was in presently that would entail a "cherry-picking" case. MR. WILKINSON replied that there was a company called Alaska Power Systems that was attempting to install generators adjacent to two of CVEA's customers and it was a direct competitive threat. If these customers had went off the system it would have been a good example of the stranded investment issue. CVEA would have lost energy sales, and given the cost to operate this utility CVEA would have experienced adverse rate impacts on their customers. The company, Alaska Power Systems, is now out of business and the situation has more or less gone away. There was also a situation where a company contracted with CVEA's largest industrial customer, Petro Star Valdez Refinery, and it looked as if they were going to install their generating equipment and the Petro Star Valdez Refinery was going to leave CVEA. The members, in that situation, would be facing a rate increase of over 13 percent, which means "cherry-picking" in rural Alaska is very real and CVEA has seen it first hand. He pointed out that the "cherry picking" issue would still remain under the purview of the APUC, because "cherry picking" is a service territory issue, which the APUC continues to regulate. He added that if a company came in attemping to take some of CVEA's large customers, they would file a complaint with the APUC. Number 2356 REPRESENTATIVE ROKEBERG said that he appreciates Mr. Wilkinson's comments on HB 81. He requested clarification on whether or not Mr. Wilkinson's concern is more a concern with regards to the APUC's ability or inability to follow through and implement HB 81 or if it is about the area of competition. MR. WILKINSON expressed concern with regards to competition coming to rural Alaska prior to adopting legislation, because it would give the APUC broad power and that is a concern. Also, he believes that the study does not properly address what competition will look like in rural Alaska. Number 2400 REPRESENTATIVE ROKEBERG pointed out that Representative Berkowitz has asked some questions along the lines of why the provisions of HB 81 would not be applicable in a non-competitive environment. He asked Mr. Wilkinson if he would shed some light on whether or not he feels it is applicable to his circumstance currently. MR. WILKINSON stated that HB 81 is very much applicable to every utility that requires a certificate. He pointed out that it might be appropriate to include a definition as to where competitive markets are going to exist, and certainly if HB 81 was modified to say that the competitive markets include the interconnected Railbelt system or the Anchorage area, whatever the committee chooses, HB 81 would make a lot more sense. REPRESENTATIVE ROKEBERG restated his question. He asked if HB 81 was applied to Mr. Wilkinson's service area, currently, not withstanding whether there was competition or not, does he think it would be beneficial or harmful. TAPE 99-17, SIDE B Number 2461 MR. WILKINSON stated, "... our Board of Directors, which are elected by our 3,300 customers are the best equipped to determine what is best for this region of the state, not the Alaska Public Utilities Commission." CHAIRMAN HUDSON explained that the committee is looking for what the constructive elements in HB 81 are and where they should apply and where they should not apply. MR. WILKINSON responded that he would be happy to provide additional comments on the individual sections of the legislation. Number 2365 DENNIS LEWIS, Electric Superintendent, City of Petersburg; Chairman, Four Dam Pool, testified via teleconference from Petersburg. He stated that HB 81 is premature; they need to wait and see what competition brings before they create solutions for it. The communities, at least Petersburg, opted out by election in the middle 1970s from the APUC. The APUC only governs two things in the electric utility in Petersburg; one, the certificate of convenience, which is a service area, and two, if there is a dispute on joint goal agreements. As far as rate goes, with regards to competition, Petersburg is an isolated community and the Mayor and City Council decide the regulations. He cannot see a small community, such as Petersburg, being governed by the APUC. Number 2294 DAVE CARLSON, Board member, Four Dam Pool, testified via teleconference from Petersburg. He noted that he is also a former Mayor and City Council member. He stated that municipalities such as Petersburg presently have the governing powers to deal with the issues at hand. A lot of the issues addressed in HB 81 have come up on a local level and they've dealt with them there. He expressed concern with APUC becoming more involved in the regulation of the utility, because he feels it will raise the level of regulation to a degree of almost redundancy. He pointed out that issues and consumer complaints are handles effectively at the local level and energy is delivered to the consumer at a competitive rate; if he truly thought that the APUC could do a better job then they do locally then he would be forced to believe that the federal government could do a better job regulating fish and game. Number 2228 REPRESENTATIVE ROKEBERG informed Mr. Carlson that HB 81 does not apply to any area that is not under a competitive market situation. He asked Mr. Carlson if he thought that Petersburg would or should be classified as a competitive retail marketplace. MR. CARLSON responded that he didn't understand Representative Rokeberg's question. REPRESENTATIVE ROKEBERG said that he wasn't sure if Mr. Carlson understood the bill, because it only applies to those areas that are in a competitive market circumstance. MR. CARLSON stated that there is not currently any competition in Petersburg, although they still have the same concerns with "cherry picking." If HB 81 is specifically limited to the Railbelt area, then that is another issue, and if Petersburg is truly exempt then he indicated that his comments probably weren't worth much. Number 2156 REPRESENTATIVE COWDERY pointed out that there is competition in the telephone industry. He asked Representative Rokeberg if he thought HB 81 should apply to the telephone industry as well. REPRESENTATIVE ROKEBERG noted that there is not local competition, except in the Anchorage area, and there are certain areas that might be applicable, but he hasn't looked at them yet. CHAIRMAN HUDSON added that there is not only telephone, but also cable. REPRESENTATIVE ROKEBERG explained that these are all consumer protection issues that are suppose to be covered by the regulatory authority, which is the APUC. It is the level and in what context they choose to approach them, and HB 81 speaks to the context of retail electrical service. BOB LOHR, Executive Director, APUC, testified via teleconference from Anchorage. He stated that his staff has prepared a fiscal note for HB 81. They gave it to the APUC to review. The staff estimate is $207.7 thousand fiscal year 2000 and the same level through the year 2003 and then dropping off to zero thereafter. As Representative Rokeberg indicated this is not a cheap or free exercise in terms of the steps involved; number one, the development of very detailed regulations and the crafting of those and, number two, the ongoing response to complaints under the regulations adopted on the local telephone side. The volume of complaints has substantially increased as a result of local competition. Customers have a choice, but in terms of exercising that choice the customers need to have the rights that are provided in this bill, clearly specified, as well as consumer education about what is involved in making a choice of a service provider. In the past it has been a monopoly service and the commission has very carefully regulated the entry into that monopoly market. REPRESENTATIVE PORTER stated that from the testimony received, specifically CVEA's testimony, he is wondering if HB 81, when in place, would kick in when somebody decided to come into a small community and sell a generator. He said if that was the case it would be problematic. CHAIRMAN HUDSON pointed out that they have the option of opting out, so if they opt out then would it or would it not apply. Number 1906 REPRESENTATIVE DAVIES agreed that it is important to define when HB 81 goes into effect. He stated that he would hope that the issue that Representative Porter is referring to would be dealt with under the territorial regulatory powers of APUC and not under HB 81. He noted that he can see where the ambiguity is coming from and thinks that the ambiguity needs to be removed. REPRESENTATIVE ROKEBERG stated that he appreciates Representative Porter's concern and he is not sure whether or not it is handled under the territorial issue. He clarified that the point is that the local utilities can opt out but they can't opt out under territoriality and the provisions in HB 81 would apply to them if there was a competitive situation. If the APUC allows competition they have to look at these issues. He concluded by saying that some of the testimony exhibits the fear and loathing of electrical restructuring and the lack of confidence in the APUC and the concerns about what electric restructuring will do in rural areas. He thinks that it is ironic, because HB 81 is trying to answer those questions, not inflame them, and those people would not be affected unless they were in that situation and then HB 81 would kick in and help. Number 1791 CHAIRMAN HUDSON announced that HB 81 would be held over to the next meeting. HB 185 - SMALL WATER UTILITIES EXEMPT FROM APUC CHAIRMAN HUDSON announced that the next order of business was House Bill No. 185, "An Act exempting certain small water utilities from regulation by the Alaska Public Utilities Commission." Number 1765 REPRESENTATIVE OGAN stated that HB 185 adds "small water utilities" to the existing exemptions that apply to "small electric" and "small telephone" utilities that don't gross over $50,000 annually. He pointed out that there is a subdivision in his district where in the first phase the homeowners association assumed ownership of the utility and then a subsequent different developer decided to come in and develop the second phase, which was never developed but simply platted and the developer wanted to tag on to the water system owned by the homeowners association. The Homeowners Association wanted the developer to develop his own water system, so the developer appealed to the APUC to get them to declare it a public utility. He indicated that he has been waiting for the APUC to rule on it, but they have not, so he introduced HB 185. He referred to a letter from Birch, Horton, Bittner and Cherot addressed to Representative Hudson, on the second page, where it reads, "Water is essential to a person's survival while electricity and telephone service are not." He stated that electricity is kind of essential to Alaskan's survival, because their water systems don't run without electricity and their heat doesn't run without electricity. He referred to the next paragraph of the letter, where it reads, "Historically, the APUC has not sought out small water utilities such as homeowners associations for regulations. The APUC only becomes involved in the 'regulation' of these water utilities when asked to do so by a consumer or a lending institution." He referred to footnote 2, where it states, "See, e.g. Re Country Lane Estate Subdivision Property Owners Association" and under that it reads, "ORDER declaring a small residential subdivision's sewer operations to be a public utility, but exempting the utility from regulation by the commission." He said, therefore, by their own footnotes they are declared a public utility, but they are not regulated. Number 1553 REPRESENTATIVE BERKOWITZ explained that the synthesis in the beginning is nothing more than an editorial comment about the content of the order. He believes that the APUC was making a general determination that small residential sewer operations are public utilities subject to regulations. REPRESENTATIVE OGAN pointed out that he thought it was kind of curious that in the example they used they exempted them. He stated that they would like to do the same and exempt them. CHAIRMAN HUDSON asked how the $50,000 applies. REPRESENTATIVE OGAN responded that he picked it because it is already set in statute for electric and telephone utilities and there is a precedent for it. CHAIRMAN HUDSON indicated that it is the same figure that is used for electric. REPRESENTATIVE OGAN replied yes. Number 1473 REPRESENTATIVE DAVIES stated that HB 185 seems to be an example of a continuing class of legislation that deals with individual circumstances; legislation by anecdote. He expressed concern with legislating a solution to a series of individual programs. He stated that he is assuming that the opt out provision applies to the homeowners association as well. He believes that when a subdivision is developed and water is provided to anyone that moves in then there needs to be some public protection. The appropriate place to resolve issues that arise on the subject of public service is the APUC; that's why they were formed. REPRESENTATIVE PORTER said that he doesn't disagree that an individual situation was the impetus for this legislation, because quite often individual situations bring things to light. He asked why there is a statute that says that there is a $50,000 gross income exemption for electrical and telephone that does not include water. REPRESENTATIVE COWDERY indicated that the small water utilities have always been protected in the health and required samples. For example in the Anchorage area in the early times when alot of subdivisions had there own water systems they were tightly regulated by the health issues. Also, in the Wasilla area during the 1980s there were many areas where water was almost prohibitive on certain lots and only a half a mile away there was an adequate water supply. He stated that he shares the same concerns as Representative Davies with regards to public involvement, but he feels the main thing is the sanitation and health issues. He stated that HB 185 is an appropriate piece of legislation and that the APUC should not burden the public with the small water systems and increased regulations, but the health issue needs to be addressed. REPRESENTATIVE OGAN explained that the Department of Environmental Conservation (DEC) does not cover the health issues. For example, if someone moves into a subdivision and buys a house they become a member of the homeowners association, which means suddenly they become a public utility. REPRESENTATIVE BERKOWITZ pointed out that the conversation highlights why water was not included initially. He said that he would be curious about the legislative history on the subsection and he would also like to know the impacts beyond this one situation in Palmer. REPRESENTATIVE ROKEBERG wondered how many lots are in phase one and how many are in phase two. Number 1167 NELSON ELLIOT, Director, Crimsonview Owners Association, testified via teleconference from Palmer. He stated, "We would like to thank Mr. [Representative] Ogan for introducing this legislation and the committee for hearing us today. ... This homeowners association and I believe most of the others, at least in this area and probably throughout the state, were originally set up following housing urban development model for community water systems. If these systems require an article of incorporation and a non-profit corporation it's going to have covenants and bylaws, and those determine how the systems are owned and operated. The systems are self-regulating and approval of them by HUD (Housing and Urban Development) is required to obtain mortgages under federal programs, ... and these are the documents under which all of us here purchased our properties and our homes. Current APUC policy, at least informally from what we have discovered since this complaint was filed, is that in discussing it with APUC staff members, five of them have indicated to us that they do not ... regulate homeowners associations. One informed the director (indisc. - ripping paper) APUC will not issue, because of necessity and convenience to homeowners associations. A staff member at APUC indicated to one of our directors, when they called to get procedural information, they would not even believe that commission decided to hear this complaint until the director had given them the complaint, the file number for the case and they called it up on the computer and found it. APUC at this point has nothing in place to regulate homeowner associations and have no guidelines. ... They have made one filing. Their advocacy staff, in this particular case, has made one filing, and their recommendation is that the commission needs to convene a (indisc.) to establish guidelines for these homeowner associations. As it stands right now the APUC policy prevents owner-operated systems, such as this, from complying with the statutes or (indisc.) from regulation, and there are no guidelines for regulations to follow that would provide us with reasonable assurance of protection from even frivolous complaints. If APUC hold that they have the right to regulate these homeowner associations, do they not have a statutory responsibility to do so? What statutory authority do they have to nullify our (indisc.) covenants and bylaws under which we purchased our property. If they regulate us then the provisions in those documents would be basically out the window; we'd have to rewrite them." Number 0950 MR. ELLIOT further stated, "Currently, APUC indicates that there are approximately 700 class A water systems in the state of Alaska. It would be curious to know how many of those does APUC regulate and do they have the staff and budget resources to regulate all of them. Again, if the systems fall under their regulatory authority, do they not have the responsibility to establish clear room for regulation and or attention. Our only means of revenue are through our annual and special assessment. If APUC regulates us, this association has no way of raising funds to meet the emergency situation if reserve funds are insufficient to cover the cost. We would have to file for relief through a (indisc.) and rate process prior to being able to collect any money; financial flexibility would be lost. ... Utilities grossing less than $50,000 annually had to limit their subscriber base. The cost of regulation by APUC would dramatically increase consumer costs. In our case, we would no longer be able to manage the water systems. We would have to contract with a management firm at a (indisc.). This coupled with the APUC fees for regulation could easily double the cost of our operation. This homeowners association is only two years old and we've had very little time to continually preserve. Most of those have currently been eroded in legal costs associated with this complaint. The idea of regulation by complaint is a very expensive and slow process. The issues, as far as CVOA [Crimsonview Owners Association] and the developer, that are in this suit really are not relevant. We feel that this legislation would present unnecessary costs associated with regulation, leave all of the articles, covenants and bylaws of the homeowners associations throughout the state intact and still provide protection to the subscribers and exempt utilities that opt for APUC regulation by vote of members in the same hands that the Copper Valley Electric Association opted out." Number 0778 CHAIRMAN HUDSON pointed out that the whole discussion brings up the interrelationship between the Alaska Department of Environmental Conservation (ADEC) and APUC and water and sewer. He said that it makes him wonder if they should have one or the other, but not necessarily both. He asked Mr. Elliot if they deal with ADEC as well. MR. ELLIOT stated that ADEC does regulate the water systems and they are required to do monthly testing for E. Coli bacteria, as well as, other periodic tests. Also, any engineering on the systems requires approval by ADEC. He indicated that there is considerable regulation that they have to comply with and do comply with as far as ADEC is concerned. REPRESENTATIVE DAVIES requested clarification on what the dispute is here. MR. ELLIOT clarified that the original subdivision was set up with 46 lots. The original engineering that went to the ADEC for the approval of the water system was very specific. It requested engineering approval for 50 or less units. That is the construction approval that they got from the ADEC and that is what this system is currently approved for. With regards to the water rights associated with the well, the only thing ever applied for was the 46 units that are currently subdivided. The property that the current developer would like to develop as phase two of this property was never subdivided and is roughly an 11.5 acre piece of land. The developer now wants to subdivide it and use the water system for it. The original concept for the subdivision was that fact would be part of the subdivision. The original engineering, by the original developers, engineers and approved by the APUC, very specifically delineates what would be done to the system to operate it to meet the needs of that property if developed. The homeowners association, in discussions with the developer, had asked for nothing engineered that was not in that original engineering by the ADEC. The developer simply does not want to comply with the original engineering. Number 0480 REPRESENTATIVE BERKOWITZ asked if the committee is going to hear from the developer as well. Number 0449 REBECCA PAULI, Attorney, Birch, Horton, Bittner and Cherot, testified via teleconference from Anchorage. She stated that their firm represents Robert Mellish in his Complaint against The Crimsonview Owners Association. She indicated that Countrylane Estates demonstrates how well the current system works. In that case a lender requested a declaratory judgement as to whether the homeowners association would be a public utility under state statute. The commission said that they would be and they need a statutory definition of a public utility, which is service to ten or more people for compensation. Then the APUC recognized that the association has many of the hallmarks of a cooperative and it would not benefit the public to have the association economically regulated. Under the statute AS 42.05.711(D) provided the association with a public interest exemption, while repeating jurisdiction to hear disputes that may arise. She said that is one of their primary concerns with HB 185, is that in exempting water utilities the only form left to resolve a dispute is the court system, which is much more expensive and time consuming than the APUC. Secondly, she feels it is important that the committee understand that the situation that gave rise to this is that Mr. Mellish will be a member of the association as will the individuals that purchase the 22 homes. She wanted to relay Mr. Mellish's experience in attempting to obtain water service. Even though HB 185 appears fairly benign, it raises the question of why not throw in all the other public utility services as well. She thinks that the reason for that is there are health and safety concerns that certain types of utilities have very broad reaching social impacts. MS. PAULI further stated: Over the past two years Mr. Mellish has attempted to work with the Association regarding his development of phase two of the Crimsonview Subdivision. The association has been both unreasonable and unfair in its demands of Mr. Mellish. If HB 185 passes, Mr. Mellish's frustrating and time-consuming experiences will become routine for other developers. As discussed below, we believe HB 185 is both anti-consumer and anti-development. First, I am going to provide a brief background that will provide you with an overview of Mr. Mellish's experience and then I'm going to address why we believe this is unnecessary reactive legislation. Then finally, I'm going to suggest a couple of solutions. Following is a summary of the undisputed facts as admitted by the Association in their Answer to Robert Mellish's Complaint. The Crimsonview Subdivision was designed and platted to be developed in two phases. Phase one consists of 47 lots and phase two consists of 22 lots. There is a community well and an integrated loop distribution water system that was designed to serve both phase one and phase two. So, presently on these 22 lots you have a distribution system that is connected to the well at phase one. The note on the official platt provides that lot 11, block one of phase one of this platt is the site of the community well system, and will be exclusively used as such until such time a connection of the subdivision's designed water system to a possible city water system. At which time the community well will be abandoned. As required by the platt note, in 1984 phase one was developed with 46 lots for single family residents and one lot for the community well. In 1985 the water system was completed and this is when the integrated loop distribution network was installed. TAPE 99-18, SIDE A MS. PAULI continued: ... charge Mr. Mellish and they continue to control the water. When Mr. Mellish was ready to develop phase two, he was very conscientious and wanted to do it right, so he hired the original engineering firm, that designed the water system, to determine whether the existing system under state standards would be adequate, and the original engineering firm said they were. It's undisputed by all the engineers that the aquifer is more than sufficient to supply water to all 68 lots. The only thing that is not sufficient is the pressure, which is equally resolved by just adding that 2 horse power pump. However, Mr. Mellish being very cautious hired a second engineering firm to review the original engineering firms conclusion that the distribution system was adequate. Upon confirmation, Mr. Mellish informed the association of plans to develop the 22 lots and this development would necessitate the operation of a water distribution system. ... Throughout 1997 Mr. Mellish performed extensive work to bring phase two into compliance with the Matanuska-Susitna Borough subdivision requirements and he hired Alaska Rim to design any necessary upgrade to the system and address any association concerns. Specifically the association was concerned about whether they would have adequate water to water their lawns. Alaska Rim prepared a proposal to satisfy APUC requirements and propose that the associations concerns be addressed for the scheduling of lawn watering. Now, to address the association's concerns about the pressure on the well, Mr. Mellish proposed to furnish and install a 2 horse power booster pump and he also offered to provide and install the multi-function automatic dialer, which would monitor the systems operation, and immediately report any deviation from the norm. ... Finally, he was willing to establish and fund and escrow account to cover the capital costs of a 10 horse power pump that would be more than adequate to provide peak capacity to replace the existing pump and booster that should fail in the future. Warrant to ultimately increase the systems capacity. Once again it's undisputed that the existing distribution system is adequately sized to serve all 68 lots. CHAIRMAN HUDSON asked Ms. Pauli if she could focus on the intent of the bill. MS. PAULI continued: What this is important for, is to show you that this is before the APUC ever got involved. Mr. Mellish made three different proposals to the association. Every time the association came back and kept adding more things and ultimately they wanted paved roads. It is important to let you know that this is what is going to happen if HB 185 passes. It was only after the association demanded that Mr. Mellish install, pay for and maintain a 30,000 gallon water facility above ground, ... he filed a formal complaint at the APUC. Now, we filed a complaint in September of 1998. The commission set it for hearing in April. The association requested the hearing be postponed, because the (indisc.) is working to their favor for this development and this is what you will see should this bill pass. HB 185 is unnecessary reactive legislation intended to decide the complaint before the APUC and force Mr. Mellish to refile in the court system. ... As you know, historically the APUC has not sought out small water utilities such as homeowners associations for regulation. The APUC only becomes involved in regulation when asked to do so by a consumer or a lending institution. ... The APUC retains jurisdiction to resolve disputes in these situations, but grants the association the public interest exemption that I discussed earlier. ... Finding for the public interest exemption, the state, through its legislative body, and the APUC, widely recognize that consumers must have an easily acceptable and friendly forum for dispute. The most important function that the APUC provides is to provide a forum where a (indisc.) or potential consumer may be heard. If HB 185 becomes law, the only recourse that a (indisc.) or potential consumer will have will be the court system. ... I'd like the court system the APUC has as a stated purpose to assist the consumer in obtaining (indisc.) utility. In this case, the APUC staff acted as an informal mediator in an attempt to achieve a solution ... Number 0498 REPRESENTATIVE COWDERY wondered if there is an adequate water supply to address this now. He asked if it has been certified and if there is fire protection. He also wondered about the existing well. MS. PAULI stated that Mr. Mellish agreed to provide more compensation than what the other homeowners were paying. As far as the water supply, it has been certified through their engineers and the ADEC has approved the system. The existing system is seven gallons per minute shy of being instantaneous providing peak demand, but a booster pump will easily resolve that. REPRESENTATIVE COWDERY interjected. He wondered about the supply and the recovery rate, without considering the pump, has it been certified. MS. PAULI replied yes. The engineers have certified that it is adequate. Number 0641 REPRESENTATIVE PORTER stated that he would like to address two issues. One, there seems to be some dispute about whether the developer is or isn't meeting the original design that the original engineer, although it be the same engineer, had designed for the increase in the additional 27 lots. He wondered if the engineer changed his mind. Two, what is it that the developer in phase two is proposing. He wondered if the phase one residents would be required to schedule their lawn watering, because of the implementation of phase two. If that is the case he doesn't blame them for resisting. CHAIRMAN HUDSON indicated that the policy call of the committee is pretty simple, that being, whether or not to add water to the $50,000 annual exemption. It is not in all the detail that specifically relates to The Crimsonview Subdivision, because the legislature does not pass legislation to try to settle a single issue. REPRESENTATIVE DAVIES stated that one of the questions they should be asking is whether they want The Crimsonview Subdivision to be an example of the type of disputes that do arise, and if those disputes should be handled in the court system or at the APUC. Assuming that the APUC would operate in a timely manner, would that be a good venue. In other instances they have looked at alternative dispute resolution mechanisms; they have tried to put into place situations where disputes can be resolved without going to court. He argued that HB 185 should not be passed. CHAIRMAN HUDSON said that is true, but he referred to Section 1 that is being proposed, it clearly states that they are exempt from regulation unless the subscribers petition the commission for regulation. It is trying to go to something that is relatively small and provide the developers and the parties to be able to bypass the regulatory process of the APUC or use it at their discretion. Number 0894 REPRESENTATIVE PORTER pointed out that the committee is familiar with the processes and delays involved in APUC. There are a myriad of alternative dispute resolutions that are available rather than APUC. Number 0964 REPRESENTATIVE DAVIES referred to Representative Hudson's comment that unless the subscribers petition the commission. The problem with that is there would have to be a majority of the existing property owners petitioning to come under regulation, so that the dispute could not be resolved under the APUC and it would have to go to court. He wanted to draw their attention to other provisions in statute, such as Title 29, where it talks about the general desirability of not forming a new service area if a service can be provided by adding onto an existing one. He indicated that taking action that would not at least facilitate that kind of discussion and dispute resolution, shy of going to the courts, is contrary to the general intent of the statutes and the constitution. Number 1050 CHAIRMAN HUDSON announced that he was going to hold HB 185 over until the next meeting. ADJOURNMENT CHAIRMAN HUDSON adjourned the House Special Committee on Utility Restructuring meeting at 9:55 a.m.