HOUSE SPECIAL COMMITTEE ON UTILITY RESTRUCTURING April 28, 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 Representative Joe Green (alternate) MEMBERS ABSENT All members present 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 CONCURRENT RESOLUTION NO. 10 Proposing recommendations concerning the sale of the Four Dam Pool hydroelectric facilities. - MOVED CSHCR 10 (URS) OUT OF COMMITTEE * HOUSE BILL NO. 174 "An Act relating to personal services contracts for certain employees of electric cooperatives." - HEARD AND HELD HOUSE BILL NO. 185 "An Act exempting certain small water utilities from regulation by the Alaska Public Utilities Commission." - SCHEDULED BUT NOT HEARD * HOUSE BILL NO. 169 "An Act relating to including the costs of expansion activities and political activities in rates of electric cooperatives." - SCHEDULED BUT NOT HEARD (* 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 4/21/99 (H) HEARD AND HELD 4/23/99 (H) L&C AT 3:15 PM CAPITOL 17 4/23/99 (H) 4/28/99 (H) URS AT 8:00 AM CAPITOL 120 BILL: HCR 10 SHORT TITLE: SALE OF FOUR DAM POOL SPONSOR(S): REPRESENTATIVES(S) AUSTERMAN, Harris, Grussendorf Jrn-Date Jrn-Page Action 4/22/99 914 (H) READ THE FIRST TIME - REFERRAL(S) 4/22/99 914 (H) URS, FIN 4/28/99 (H) URS AT 8:00 AM CAPITOL 120 BILL: HB 174 SHORT TITLE: ELECTRIC COOPERATIVE EMPLOYMENT CONTRACT SPONSOR(S): REPRESENTATIVES(S) SANDERS Jrn-Date Jrn-Page Action 3/31/99 628 (H) READ THE FIRST TIME - REFERRAL(S) 3/31/99 628 (H) URS, L&C 4/28/99 (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 4/21/99 (H) HEARD AND HELD 4/28/99 (H) URS AT 8:00 AM CAPITOL 120 BILL: HB 169 SHORT TITLE: ELEC.COOPS:EXPANSION & POLITICAL ACTIVITY SPONSOR(S): REPRESENTATIVES(S) GREEN Jrn-Date Jrn-Page Action 3/31/99 625 (H) READ THE FIRST TIME - REFERRAL(S) 3/31/99 625 (H) URS, L&C 4/28/99 (H) URS AT 8:00 AM CAPITOL 120 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: Introduced the committee substitute for HB 81. ERIC YOULD, Executive Director Alaska Rural Electric Cooperative Association (ARECA) 703 West Tudor Road Anchorage, Alaska 99503 Telephone: (907) 463-3636 POSITION STATEMENT: Testified on HB 81 and HB 174. ROBERT MAXWELL 126 Boaters Lane Fairbanks, Alaska 99707 Telephone: (907) 479-0592 POSITION STATEMENT: Testified on HB 81. MARY ANN PEASE Aurora Power Resources, Incorporated 310 K Street, Number 601 Anchorage, Alaska 99501 Telephone: (907) 277-1003 POSITION STATEMENT: Testified on HB 81. MEERA KOHLER, General Manager Municipal Light and Power (ML&P) 1200 East First Avenue Anchorage, Alaska 99501 Telephone: (907) 263-5202 POSITION STATEMENT: Testified on HB 81. ROBERT WILKINSON, Chief Executive Officer Copper Valley Electric Association (CVEA) Box 45 Glennallen, Alaska 99588 Telephone: (907) 822-8340 POSITION STATEMENT: Testified on HB 81. RANDY CORNELIUS, Director Electric Utility, Sitka City and Borough P.O. Box 1253 Sitka, Alaska 99835 Telephone: (907) 747-2661 POSITION STATEMENT: Testified on HB 81. PAUL MORRISON 1016 West Sixth Avenue, Number 400 Anchorage, Alaska 99501 Telephone: (907) 269-6222 POSITION STATEMENT: Testified on HB 81. CLIFF STONE, Legislative Assistant for Representative Austerman Alaska State Legislature Capitol Building, Room 434 Juneau, Alaska 99801 Telephone: (907) 465-2487 POSITION STATEMENT: Introduced HCR 10. ED KOZAK, General Manager Kodiak Electric Association 515 Marine Way Kodiak, Alaska 99615 Telephone: (907) 486-7700 POSITION STATEMENT: Testified on HCR 10. BOB EVANS, Lobbyist for Copper Valley Electric Association and Four Dam Pool 227 Fourth Street Juneau, Alaska 99801 Telephone: (907) 586-6252 POSITION STATEMENT: Testified on HCR 10. RICHARD TRIMBLE, Alternate Representative Project Management Committee Four Dam Pool; Power Project Manager, Ketchikan Public Utilities (KPU) EDWARD BURKE, Legislative Administrative Assistant for Representative Sanders Alaska State Legislature Capitol Building, Room 414 Juneau, Alaska 99801 Telephone: (907) 465-4945 POSITION STATEMENT: Introduced HB 174. ACTION NARRATIVE TAPE 99-19, 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, Berkowitz and Green (alternate). Representative Davies arrived at 8:12 a.m. 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 0143 REPRESENTATIVE ROKEBERG made a motion to adopt the proposed committee substitute for HB 81, version 1-LS0181\G, Cramer, 4/26/99, as a work draft. There being no objection, Version G was before the committee. He indicated that the committee substitute includes the suggestions by Karl Rabago of CH2M Hill and the recommendations by Representative Davies. JANET SEITZ, Legislative Assistant for Representative Rokeberg, Alaska State Legislature, explained that on page 1 the title has been tightened up as the committee requested. On page 2, lines 7 through 20 there is new language about free basic information and reasonably priced additional information to be granted to the consumer, which was a suggestion by Mr. Rabago and Representative Davies. On page 2, lines 24 and 25 there is a language change to take out "without discrimination", which was suggested by Mr. Conn of Alaska Public Interest Research Group (AKPIRG). On page 2, line 28 after "confidential records" through page 3, line 7, there was some language added by the request of Representative Davies to make it clear that a regulated and unregulated component of an entity must keep customer records confidential unless there is a written request by the consumer to share information. On page 3, line 22 after "certification", Representative Davies requested that "these standards must explicitly provide for reliable and safe electrical power" be added. On page 3, beginning on line 28 after "generation" through page 4, line 10, is all new language. The first part on page 3 of subsection (e) concerns the consumer bill and Mr. Rabago had suggested language that if an aggregator wanted to get some information on the bill it should be without undue process and non-discriminatory rates. In subsection (f) there is the slamming provision that indicates that a costumers electrical service provider may only be changed with the written authorization of the customer, which she believes was Mr. Conn's concern. In subsection (g) there is Mr. Rabago's suggestion on requiring certain reports from electric service providers. In subsection (h) there is the definition of competitive electric service market, which was discussed in the committee. REPRESENTATIVE COWDERY referred to page 3, line 23, where it talks about "reliable and safe electrical power." He wondered how that is defined. MS. SEITZ indicated that she does not have a definition of "reliable and safe electrical power." REPRESENTATIVE COWDERY pointed out the purpose of his question is that sometimes in rural areas it is less reliable than in non-rural areas. Number 0545 REPRESENTATIVE DAVIES explained that it is a policy that they are setting and something that can be dealt with in the practical application of the regulations. REPRESENTATIVE ROKEBERG agreed with Representative Davies, in that, reliability and safety standards are elements that need to be considered when providing service to a service area. REPRESENTATIVE PORTER stated that it is an absolute and an absolute cannot be guaranteed, so there needs to be a qualifier. REPRESENTATIVE ROKEBERG pointed out that in that subsection the commission is to adopt the regulations. Number 0620 REPRESENTATIVE PORTER reiterated that they do not want an absolute in statute. CHAIRMAN HUDSON indicated that when the committee talked about HB 81 last time, he felt that reliability should be put in as well. He asked Representative Rokeberg if they have been instructed by Mr. Rabago. REPRESENTATIVE ROKEBERG pointed out that it was a suggestion by Representative Davies. REPRESENTATIVE DAVIES recommended that they add some reference to generally accepted industry standards. CHAIRMAN HUDSON asked Representative Davies if he wanted to move the amendment. Number 0780 REPRESENTATIVE DAVIES made a motion to adopt the conceptual amendment, "line 23, after the word power, insert, that meets generally accepted industry standards." There being no objection, the conceptual amendment was adopted. REPRESENTATIVE COWDERY stated that the bill is premature, because it anticipates competition. He does not believe that the committee has decided to go with competition yet. REPRESENTATIVE BERKOWITZ pointed out that Representative Cowdery should have supported his amendment last week to remove "competitive," because HB 81 is really about a general consumer protection issue. CHAIRMAN HUDSON wondered if he means as opposed to leading to competitiveness. REPRESENTATIVE BERKOWITZ explained that that way when markets emerge that are competitive they have already complied. Number 0938 REPRESENTATIVE ROKEBERG stated that the design of HB 81 is that it is intended to be "trip wired" by the implementation of any competitive electrical service in the state. He doesn't believe that it is necessarily appropriate given the work load and the situation the Alaska Public Utilities Commission (APUC) is in right now to have them come up with a bunch of new regulation when the committee is potentially on the verge of shifting their focus to some type of restructuring. He recalls the testimony regarding the ability of the APUC currently, particularly in the form of the docket that is before the APUC from Aurora Power that would act as an aggregator and, therefore, a "trip wire" in order for HB 81 to take effect. The regulations that would be provided in this legislation would have to be undertaken and drafted concurrently with that docket. He said that the legislation is not intended to force that; it is trying to be anticipatory in that regard. Number 1029 REPRESENTATIVE DAVIES indicated that the task force did find that competition could be shown to benefit the consumers. Further, they have found that the APUC does have the power to grant competition in certain areas. The last point is that it would be appropriate to have HB 81 in place before the pilot project in Anchorage takes place. He said that for those reasons he feels that HB 81 is not premature. REPRESENTATIVE COWDERY indicated that the committee should decide what the competition issue is. He still feels that HB 81 is a little premature. ERIC YOULD, Executive Director, Alaska Rural Electric Cooperative Association (ARECA), stated that his utility members have had a chance to review HB 81 and they are generally in favor of the legislation, with certain caveats. He indicated that there is some reluctants to the bill, in that, it is a bit premature. On the other hand, he believes that Representative Davies argument is valid as well. The only real objection to HB 81 is that it may coopt utilities that are not presently subject to economic regulation. The way that the bill is written it implies that many of the provisions of the APUC would be imposed on those utilities. He recommended that there be an amendment to HB 81 so the utilities would not become coopted into economic regulation. He referred to page 1, on line 6, where it states, "The commission shall establish by regulation," they would include the language, "for those utilities subject to economic regulation by the APUC." On page 4, they would add a subsection (i), which would state, "Nothing in this section would result in a utility becoming subject to economic regulation by the APUC." In other words, those that are legally required to be economically regulated would remain regulated, but those that are not required to be regulated would not be regulated as a result of the statute. Number 1333 REPRESENTATIVE DAVIES wondered exactly what the term "economical regulation" implies in a competitive market place. Presumably, even deregulated utilities would be subject to some minor forms of economic regulation. He wondered how that terminology would apply in that context. MR. YOULD explained that what is being discussed is a definition of "regulation." If the committee decides that they want the electric utility industry to be regulated even in a minor way the additional regulations and re-regulation statutes will be adopted, which will coopt what the committee has before them presently. REPRESENTATIVE ROKEBERG expressed concern about the effect of the regulatory environment if the regulation is adopted. It seems that it would be an incentive for those utilities that were concerned about this to endeavor to opt out. He wondered how the utilities that had opted out would be able to react to the competitive environment without the regulatory underpinning. MR. YOULD asked, "Can you imagine a utility trying to go to its membership saying, We need a two-thirds vote to get out of economic regulation, so that you don't have access to the consumer bill of rights." He indicated that his utilities are in favor of HB 81 and it's not because of an opportunity to opt out of the APUC. He believes that there is no problem in ensuring that there are certain stipulations and standards that the utility industry needs to meet under a competitive market, but that doesn't mean they have to be under economic regulation. REPRESENTATIVE ROKEBERG stated that they have had some testimony from Mr. Wilkinson of the Copper Valley Electric Association (CVEA) and he indicated that it was not HB 81, but the whole idea of deregulation caused CVEA's consumers to decide to opt out. He pointed out that it seems to be a circumstance that goes against the grain of what Mr. Yould just said. MR. YOULD stated, "Quite to the contrary." He said that they view that as allowing a utility the flexibility to fully compete in a deregulated industry. For instance, if the utilities have to run back to the APUC every time they want a rate change, to compete with an aggregator that has come into their service territory, then they don't have the flexibility to truly compete. What the utilities are really trying to do is get out from the APUC jurisdiction so that they can change their rates in the event that an aggregator or "cherry picker" comes into their service territory and tries to take a customer away. It actually works in favor of customer choice, because if somebody comes in and wants to take their customers they want to be able to go straight to that customer and give him a better deal. He thinks that getting out of regulation is a step toward getting out of an unstructured market. Number 1568 REPRESENTATIVE DAVIES asked Mr. Yould if he would restate the concern of his members. He feels that the bill doesn't focus on the provider, but on the consumer. It defines a competitive electric service market, and that is when consumers are offered a choice. He pointed out that if a provider of any strife is operating in a competitive market then consumers should be afforded those kind of protections. Number 1619 MR. YOULD indicated that the concern is in order for the APUC to exercise its jurisdiction on a utility that presently is not subject to jurisdiction they are going to start requiring many things out of that utility perhaps having to do with rate and contracts that allows the APUC to exercise its jurisdiction. Therefore, in a backdoor way the utilities are going to become subject to regulation just through the process of trying to enforce the statute. He added that the committee should consider reviewing Mr. Wilkinson's testimony given in the previous meeting. REPRESENTATIVE GREEN wondered how many members feel that the bill is premature. MR. YOULD stated that there was that general feeling that it may be premature, but weighed against that is that they are technically in a deregulated market. Number 1734 ROBERT MAXWELL testified via teleconference from Fairbanks. He indicated that he only has the original version of HB 81 and, therefore, his comments will be truncated. He referred to Section 1, subsection (5), of the original bill where it states, "penalties for electric service providers operating in a competitive electric service market who fail to comply with the requirements of this chapter." He stated that he would prefer to see some language that would say, "substantial penalties." He explained that in the lower 48 the penalties have not been substantial enough and people will go ahead and circumvent regulations in order to make a profit. He referred to Section 1, subsection (7), of the original bill where it states, "refrain from imposing unreasonable terms and conditions as a precondition to providing service to a consumer in a competitive electric service market." He stated that he likes that language and would like to see that there are not unreasonable disconnect and reconnect fees attached to consumers that may have problems paying their bills. He believes that it could put lower income folks into a cycle that they could never get out of. CHAIRMAN HUDSON pointed out that version G of HB 81 was faxed to them. Number 1851 MARY ANN PEASE, Aurora Power Resources, Incorporated, testified via teleconference from Anchorage. She indicated that she sent in four pages of written testimony and was not going to reiterate what she presented in that testimony, but she added that they are supportive of HB 81. They feel that the electric consumer's bill of rights is an appropriate first step towards deregulation. She referred to the comments of Mr. Yould and stated that she finds it interesting that they are considering adding language to the bill to opt out of economic regulation, so that the utilities could be more able to deal with competitive pricing. She pointed out that this goes back to the argument that she has made several times, which is that when ever possible market based rates are much better than regulated based rates. If the utilities need the option of opting out of economic regulation so they can compete, it says that there is something left on the table. She explained that what they need to look at is moving forward towards a deregulated utility environment where prices are based on the market rather than on regulation. Number 1918 MEERA KOHLER, General Manager, Municipal Light and Power (ML&P), testified via teleconference from Anchorage. She indicated that she sent in three pages of written testimony. She expressed the support of ML&P for the context of HB 81. They believe that Representative Rokeberg has done a good job with protecting the interests of the consumers and that consumer protection is a matter of central and critical importance in any effort to restructure the electric utility industry. She noted that in the CH2M Hill study they state that misdirected restructuring efforts can impact consumers adversely in terms of availability, cost and reliability of electric power. HB 81 begins the process of ensuring that as restructuring moves forward the consumer's interests are not left behind, subjugated to the inequities of the marketplace. She indicated that they have four suggestion. One, although critical components in the restructuring equation, the provisions of HB 81 do not address all the elements which the commission must address to successfully investigate electric restructuring. This fact is made clear by the CH2M Hill, which outlines the broad array of matters, including those in HB 81, which require examination. ML&P recommends that under the proposed Section 42.05.226(a) be amended to read: *Sec. 42.05.226. Electric consumer protections. (a) As part of any general proceeding or proceedings to investigate electric industry restructuring, the Commission shall establish by regulation [etc.] Two, at least one would-be electric service provider has already asserted that it is not subject to the jurisdictional powers of the commission concerning utility service provisioning. The proposed legislation uses various terms at various points, for example, "electric service providers," "electric suppliers, aggregators, and distributors" and "supplier or an aggregator." ML&P suggests that they the phrase "electric service supplier" be uniformly utilized throughout the proposed legislation and that the following amendment be added to Section 1: (f) For purposes of this section, "electric service provider" shall mean any person or entity, including but not limited to a utility, a broker, a marketer, a wholesaler, or an aggregator, seeking to provide or providing electric service to the public or any portion thereof, whether for compensation or otherwise. Three, the experience in telecommunications restructuring, as well as in those few jurisdictions which have undertaken electric restructuring, clearly demonstrates that more consumer data is not the same thing as more consumer information. CH2M has noted in there study, "Equipping all customers with the education and technological capacity to fully participate in markets characterized by changing hourly electricity costs could easily overwhelm any savings likely to result from the introduction of competition into the industry." She stated that while ML&P does not disagree with the direction of the draft provisions, they believe that any legislative intent accompanying HB 81 should make clear that the goal of the legislation here is clarity, not volume of information, and that the cost of such information are recoverable from the rates charged to consumer. Four, ML&P has received a copy of CH2M Hill's comments on HB 81, addressing five numbered items. ML&P believes that items 4 and 5 in those comments deal more with competition and competitive structures than with consumer protection, and are neither properly nor effectively addressed by minor amendments to HB 81. Competition produces benefits where it promotes reduced costs of service. In seeking to inject issues concerning "customer proprietary network information" and access to billing and other "back office" support systems, CH2M Hill's comments open very broad topics with implications far beyond consumer protection. She added that consumer protection is an important piece, but only one piece of the puzzle. The other parts, requiring 15 pages of summarized "recommendations" in the study, also require thoughtful attention in the manner proposed by the study. ML&P supports the CH2M Hill study concept of methodical investigation and implementation of the issues. The approach suggests that the competitive issues be reserved for separate commission and legislative actions, and not be lightly injected into an otherwise sound piece of legislation on a different subject. ML&P appreciates the opportunity to provide there comments and recommendations and wants to support the committee and sponsors of HB 81. She pointed out that electric cooperatives are allowed to exempt themselves from economic regulation by the APUC per action that was taken in 1980; therefore, she believes that when Mr. Yould was speaking to that process he was actually referring to an old piece of legislation. Number 2235 ROBERT WILKINSON, Chief Executive Officer, Copper Valley Electric Association (CVEA), indicated that he did send in written testimony, so his comments will be brief. CVEA's concern with the bill is specifically with the definition of a "competitive electric service market," and they believe currently with the issue of public power in rural Alaska that the definition is somewhat broad. As the committee and the state of Alaska go down the trail of industry restructuring, they feel that the more prudent course of action would be to move in small steps rather than open things wide open, which they feel is what HB 81 does. He explained that with respect to CVEA's decision to conduct a local regulation campaign last year, in which there was a two-thirds vote to do so, their motivation was to prepare themselves to do business in a competitive environment. The mission of CVEA is to be the energy services provider of choice, which requires them to be the low cost provider. That is how they beat the competition a couple years ago that was attempting to "cherry pick" some customers, and that is how they intent to do it in the future. CVEA believes that the language in HB 81 needs to be tightened up. Number 2335 REPRESENTATIVE DAVIES asked Mr. Wilkinson if he has any suggestions on how to tighten the language in the bill. REPRESENTATIVE WILKINSON pointed out that Mr. Yould made some suggestions early. He indicated that he hasn't really given it any thought, but that he can make some suggestions and send them to the committee. REPRESENTATIVE PORTER wondered if the tightening up that Mr. Wilkinson is referring to has to do with the definition of "competitive electric service market." MR. WILKINSON responded correct. REPRESENTATIVE ROKEBERG stated that he was unsure what the thrust was behind tightening up. Number 2393 MR. WILKINSON explained that with the overall restructuring issue and the questions that were raised by the CH2M Hill study that there are many unresolved issue. They feel that by opening competition across the state is premature at this time. They propose that the definition be tightened up, so if the intent of the committee is to have competition in the interconnected area of the Railbelt, then HB 81 should reflect that. REPRESENTATIVE ROKEBERG asked Mr. Wilkinson if the committee and any bills on restructuring built a Chinese Wall around the Railbelt if that would make him happy. MR. WILKINSON indicated that he was not sure how to answer that question. He stated that it would make him happy for a short period of time, until more of the questions of the CH2M Hill study are answered. Number 2453 RANDY CORNELIUS, Director, Electric Utility, Sitka City and Borough, testified via teleconference from Sitka. He pointed out that the City and Borough of Sitka has been concerned about the customer all along and he believes that HB 81 is trying to address that. The only comment is that they feel it brings them under the jurisdiction of the APUC. TAPE 99-19, SIDE B Number 2473 MR. CORNELIUS stated that if HB 81 brings them under the APUC, they will end up being regulated by two regulators. He believes that they need to take small steps for the municipalities to start breaking out from underneath assembly jurisdiction and either go into the APUC or drop APUC. He pointed out that it should be one way or the other, but it is unfair to have them under two regulators and it would be difficult for them to compete like that in a marketplace. REPRESENTATIVE DAVIES stated that there are different ways in which utilities are under regulation by the APUC. All utilities in the state are under regulation by the APUC in terms of their territory, and some utilities get to opt out in terms of economic regulation. He believes that HB 81 would say that all utilities who choose to provide competitive retail service will be affected, and the details of economic regulation would not matter. HB 81 is not intended to affect the decision of whether a utility opts in or out, but no matter what choice they have made, if they are offering competitive retail service, they will be affected by HB 81. Number 2382 REPRESENTATIVE ROKEBERG indicated that it seems that the APUC can grant the certification for a service area. He stated that he is concerned about the present circumstances, because if somebody wanted to compete they would have to get the approval by the APUC to enter into a service area and then be regulated perhaps by the local assembly or city council if they were in an opt out situation. He wondered if the tariff setting and the competition would be regulated by the local governing body after the APUC granted permission to enter the area. Number 2286 MR. YOULD said that he would tend to agree that it could overlay both subsets; regulated and non-regulated. The intent is to make sure that those that opted out of regulation or were not intended to be under regulation are not drug into regulation. As APUC is presently funded through the regulatory cost charge, which is a charge that is applied to those that are regulated, and on a case by case basis, those that are unregulated, but have to come in for a hearing. REPRESENTATIVE ROKEBERG indicated that the circumstance has not happened yet, but it could. He wondered if his statement was true that the APUC would have to grant the ability of a competitor to go into a non-economically regulated area in the first instance, because of the service area certification. MR. YOULD said yes, because of the service area certification. REPRESENTATIVE ROKEBERG asked if once the end of the area the local governing body would have economic regulation. MR. YOULD said that they could come back and impose their right through the APUC to that exclusive service territory, but they would not be subject to economic regulation. REPRESENTATIVE ROKEBERG indicated that the legislation would be forced on non-economically regulated opted out utilities the way the bill is written presently. He wondered what happens if they are already opted out, for example Copper Valley, and the APUC granted somebody certification to go in there and compete with them. He asked who is going to regulate the economic regulation. MR. YOULD stated that he thinks that the economic regulation is imposed on top of Copper Valley whether somebody is trying to get into their service territory or not. REPRESENTATIVE ROKEBERG wondered if it is an automatic opt in if there is an additional certificate granted. MR. YOULD replied no. He stated that they are trying to make sure that it doesn't happen. For example, that Copper Valley, just by somebody coming into their service territory, and hence becoming subject to the consumer bill of rights, doesn't become subject to economic regulation. Number 2228 PAUL MORRISON testified via teleconference from Anchorage. He stated that he believes the current statute has it so that if there is competition in the field they are required to become regulated by the APUC. MR YOULD indicated that the concern with HB 81 is that it implies that competition is allowed in areas that have opted out of economic regulation, and then they get coopted into economic regulation, which is what they are trying to keep from happening. REPRESENTATIVE DAVIES stated that HB 81 is merely establishing the basic ground rules under which consumers would be protected. He explained that there are several other steps that have to happen before there is competition. He pointed out that it seems bizarre that the APUC would establish a set of regulations that would open up a service area to competition, and then in the course of that require that somebody already there come under economic regulation. He stated that they distinguish the two different kinds of regulation. Utilities in the state, even in a free and open marketplace, are going to be regulated by the APUC, but in terms of economic regulation that is exactly the opposite of retail competition. REPRESENTATIVE BERKOWITZ explained that HB 81 is not intended for the benefit of the providers, the suppliers or the distributors. It is really for the benefit of the consumers. He expressed appreciation for the anxt that everyone has exhibited, but it isn't the point of what HB 81 is all about. Number 2120 REPRESENTATIVE PORTER agreed with Representative Davies. He stated that if it is the case, which he is suggesting by inference and it is ridiculous, then the economic regulation would be done by the board of the competitor of the electric service coming in. REPRESENTATIVE ROKEBERG pointed out that the whole issue is being opened up, and it is hard not to consider alot of things when discussing it. He thinks that a considerable look needs to be taken, although there is a need to have the legislation this year. In response to what Representative Davies said about not understanding how there could be economic regulation, in other states where they have deregulation there is the institution of a service credit where the regulators come in there and mandate a reduction in their rate. REPRESENTATIVE DAVIES indicated that is not economic regulation, but is meant to recover stranded costs. REPRESENTATIVE ROKEBERG stated that the idea is to lower the affordability level to make a reduction to consumers. REPRESENTATIVE DAVIES stated that maybe he misunderstood. REPRESENTATIVE ROKEBERG explained that in other states they have legislatively mandated a reduction in the rates and the surcharge comes back to recover the stranded cost. Number 1975 CHAIRMAN HUDSON announced that HB 81 would be held over until the next meeting. HCR 10 - SALE OF FOUR DAM POOL CHAIRMAN HUDSON announced that the next order of business was House Concurrent Resolution No. 10, proposing recommendations concerning the sale of the Four Dam Pool hydroelectric facilities. Number 1926 CLIFF STONE, Legislative Assistant for Representative Austerman, Alaska State Legislature, stated that the adoption of HCR 10 will request the Alaska Energy Authority (AEA) to divest itself of its interest in the Four Dam Pool. These projects were constructed in the mid-1980s and they served the communities of Copper Center, Glennallen, Ketchikan, Kodiak, Petersburg, Port Lions, Valdez and Wrangell. Representative Austerman took HCR 16 and used it as a template to construct HCR 10. The wording, "fair market value," has been subject to some question; can we really expect this to go out to the market in the form of a request for proposals (RFP) and will it be open to just those communities listed or will people be given the opportunity to bid on this RFP? Number 1812 REPRESENTATIVE BERKOWITZ noted, "The Sitka wildflower has cropped up amongst the devils club again on this sponsor sheet." He wondered how much money will go into the general fund on account of the sale when the dust settles. REPRESENTATIVE AUSTERMAN responded that a lot of numbers have been thrown around. The question is, what is the fair market value? He said that he would love to see $125 million go into the general fund, but he has heard numbers a lot lower than that, so it is anyone's guess. REPRESENTATIVE DAVIES said that when the issue was dealt with last there was a major concern with the term, "commitment of the price." He asked the committee if they remembered something of that nature. He indicated that in the construction of the dams, he believes there was a certain price that was guaranteed to communities. REPRESENTATIVE AUSTERMAN explained that there is a power sales agreement that is a 40-year agreement that was originally signed with the construction of the dams and it has been a problem all along. Senator Grevel, when he was attempting to purchase this, it became obvious that he would have to break that power sales agreement to make his agreement work, and that is why HCR 10 is directing Alaska Energy Authority (AEA) to go out into the community to negotiate. He said that there are a lot of liabilities the state of Alaska has with the four dams, and he would like to see the state get out of the liability. Number 1678 REPRESENTATIVE DAVIES referred to line 12 of HCR 10, where it states, "WHEREAS the Alaska Energy Authority retains, under the power sales agreement, significant liabilities relating to the power project," but in the "resolves" it is not mentions. He wondered if it is Representative Austerman's intent to continue to honor the power sales agreement. REPRESENTATIVE AUSTERMAN stated that the intent is that the state of Alaska get out of the agreement all together; The AEA sell the four dams as a consortium or individually to each community. The best thing that could happen is for the Four Dam Pool to become the Four Dam Pool Inc. and buy the facilities and everything from the state of Alaska. Number 1620 REPRESENTATIVE DAVIES wondered if the power sales agreement is a commitment to the consumers in that area; that the liability being referred to is the state's contract with the consumers in the region, which means that there would have to be some concurrence by those consumers. REPRESENTATIVE AUSTERMAN replied correct. He indicated that he would have to have someone that has been more directly involved with the sales agreement in order to provide a definite answer on how they would address that issue. REPRESENTATIVE GREEN stated that it seems that the sale of the Four Dam Pool would have to be an all or nothing thing, as opposed to one at a time. REPRESENTATIVE AUSTERMAN stated that he believes the AEA cannot divest one unit without all four units agreeing to it. Number 1534 REPRESENTATIVE PORTER asked if the utilities being serviced by the Four Dam Pool have a first right of refusal. REPRESENTATIVE AUSTERMAN replied that he does not know and would have to defer to one of the utilities themselves. He said that he does know all four units could be sold individually if they all agree. The divestiture and the power sales agreement have been the biggest problem with why the Four Dam Pool has not sold in the past; if there is an outside entity they don't want to except the power sales agreement and everything else tied to it. Later on when the income stream was set up and divided it up there was nothing in the agreement that protected the state, but did protect all the utilities. There is a self-help clause within the whole thing; if the state doesn't come up with general funds to prepare the dams then they have there self-help clause and they can take their income stream that is being divided up and make the repairs. He added that the problems that existed when this agreement was set up are being worked out now. ED KOZAK, General Manager, Kodiak Electric Association (KEA), testified via teleconference from Kodiak. He stated that KEA is a member-owned non-profit cooperative that has provided service to Kodiak and the village of Port Lions for 57 years. The KEA Board of Directors and management staff strongly support HCR 10. They believe that it is through the sale of the Four Dam Pool that long term economic strength is promoted in their utilities in the community. He asked, "Why should we support ownership?" He said that first, significant opportunities for rate reductions, cost control, reliability and protection of service are there with utility ownership. There is the potential for increased economic development opportunity in the community with local control and decision making authority. The personnel knowledge and training necessary to keep the project well maintained is already in place. He said that they feel it is critically important with the isolated stand-alone electric utilities that are in the Four Dam Pool. Electric utilities served by the Four Dam Pool are either a cooperative or a municipal, which means that 100 percent of the savings will remain with the people in the state of Alaska. In example, over $3 million in capital credits have been returned by KEA to its members over the last three years. He added that the Kodiak Chamber of Commerce and the City of Port Lions have both passed resolutions in support of local ownership. He indicated that the state has divested boat harbors and roads to the local communities; therefore, it makes perfect sense to divest the Four Dam Pool to the local communities as well. It is their belief that local ownership of the projects will result in rate reductions at the retail levels and the sale of the projects to the utilities will provide a stable economic base in all eight communities that are served by the projects, which will result in a stronger state of Alaska. Number 1256 REPRESENTATIVE PORTER wondered whether or not the utilities in the communities have the first right of refusal under the power sales agreement. MR. KOZAK replied that the power sales agreement is a 45-year agreement, in which, the state and five communities are signatory to that agreement and all the utilities are contracted by that agreement to buy all of their energy from the projects that the serve the community. He added that he believes the answer to Representative Porter's question is yes. Number 1219 CHAIRMAN HUDSON pointed out that it may be true. REPRESENTATIVE DAVIES wondered if one of the communities was not in favor of the implied change in the contract if they would have a veto power. MR. KOZAK responded that any change in the power sales agreement has to be agreed to by all the parties that signed the agreement. BOB EVANS, Copper Valley Electric Association, Four Dam Pool, stated that he believes he is hearing two questions; Representative Davies is responding to a question that deals with the power sales agreement and the right of each community to be unanimous in their decision making and Representative Porter is asking whether or not the communities have the first right of refusal of the sale of the projects. The questions merge in some respects. If there is going to be a sale of the projects, ultimately it is going to require the approval from each of the communities to give up the power sales agreement. The reality is in the municipalities; it is going to require a vote of the people. Number 1070 RICHARD TRIMBLE, Alternate Representative, Project Management Committee, Four Dam Pool and Power Project Manager, Ketchikan Public Utilities (KPU), testified via teleconference from Ketchikan. He stated that Ketichikan has consistently supported a divestiture of the Four Dam Pool facilities to the purchasing utilities. He indicated that KPU has worked hard to craft an agreement that works for both the Four Dam Pool communities and the state. They feel that HCR 10 seeks to accomplish this objective. On the other hand, they do not support the concept of selling the facilities under a general RFP, because they do not believe the Four Dam Pool communities or the state of Alaska will be best served through that process. He asked will the RFP process bring a higher price for the Four Dam Pool? He said that it won't bring a better price from the purchasing utility. He pointed out that they are not in a good position to respond to an open RFP. He asked will a RFP bring a higher price for the Four Dam Pool from a private enterprise? He responded that is possible, but in the long run it is a losing proposition for the state. The risks that were jointly evaluated by the communities and the state during the vestiture negotiations are real. The communities have been prudent in their evaluation of that risk, because they recognize that they will bear them for decades to come. He said that it will be the communities and the state who will be left holding the bag when the risks do materialize and the venture fails; therefore, relieving the state of the liabilities is a vestiture to the Four Dam Pool. He indicated that they are ready to proceed; however, they do not support an RFP process. Number 0890 REPRESENTATIVE PORTER explained that in his reading of the "RESOLVE" in HCR 10, the only divestiture that would be available would be to the individual communities or a consortium of the community; there is no opportunity for an outside proposer under the RFP. MR. EVANS pointed out that if there was an RFP and a higher bidder, other than one of the communities, each community would have to approve the third party purchaser to take control of the power sales agreement. If the communities chose not to, presumably the state could still sale the property, but they would also retain the risk under the power sales agreement; therefore, without the approval of the communities the state cannot assign the risk under the power sales agreement. Number 0802 REPRESENTATIVE PORTER said that he is assuming the permission would not be given, so the opportunity of an outside purchaser is mute. REPRESENTATIVE DAVIES pointed out that he did not read the "RESOLVE" in HCR 10 as Representative Porter did; it states that the request for proposals for the sale of the power projects is open to the electric utilities in the communities. It does not say that it is open only to them; therefore, a third party could respond to the RFP. CHAIRMAN HUDSON said that is why the question of whether or not they have the first right of refusal came up. REPRESENTATIVE ROKEBERG stated that it should be clear in HCR 10 whether it does or does not. Number 0742 MR. EVANS indicated that the Four Dam Pool communities want HCR 10 to reflect that they are the sole purchasers of these projects. REPRESENTATIVE PORTER made a motion to adopt a conceptual amendment, "on line 5, page 2, after the word 'open' you would say 'only'." REPRESENTATIVE DAVIES wondered, if it is open only to the electric utilities in the communities, then why would a RFP be used. He asked isn't it then a negotiated sale? He said maybe the line should read, "divest itself of its interest in the Four Dam Pool power projects - preparing a request for proposals for the sale, by negotiating a sale of the power projects to those utilities." REPRESENTATIVE BERKOWITZ wondered if it would only be the utilities themselves that could make the purchase; the communities themselves would be precluded from doing so. Number 0610 REPRESENTATIVE AUSTERMAN explained that the issue of whether a consortium of all the Four Dam Pools buy them or a consortium of two of them or if they individually buy them could produce three different RFPs. REPRESENTATIVE BERKOWITZ stated that the language presently in HCR 10 would necessitate that the utility would make the bid and ultimately the purchase. There might be a different mechanism that the community would want to employ rather than the direct sale to the utility itself. REPRESENTATIVE PORTER said that even though some of the utilities are owned by municipalities and some are cooperative, they're made of the same ingredients. REPRESENTATIVE GREEN expressed his concern with regards to output, gigawatts per year, because on line 8 of HCR 10 it states, "the state receives a fair market value for the power projects." What if, for example, the smallest project, Solomon Gulch, had an accounting process that tells the state what would be a good price and they find out it is 1.5 times the best possible bid. He wondered if it would kill the whole deal or if everyone in the group would agree on buying three and leaving one to the state. REPRESENTATIVE AUSTERMAN stated that the power sales agreement would preclude that from happening, because they all have to agree. REPRESENTATIVE GREEN interjected that they might all agree, but they might not want to come up with that kind of money; therefore, they might agree on three being sold, but also agree that one is priced too high. Number 0385 REPRESENTATIVE AUSTERMAN said that if that were the case there would not be agreement among all of them. REPRESENTATIVE BERKOWITZ pointed out that HCR 10 is not suppose to dictate the terms of the sale, but just ask that some steps be taken to move towards a sale. MR. EVANS agreed. He said that HCR 10 is simply asking the AEA to come to the table and come up with a price. REPRESENTATIVE ROKEBERG requested clarification on whether the AEA had been instructed that an appraisal be done to determine fair market value. MR. EVANS indicated that a study has already been done on risk assessment. There are probably many approaches or concepts by which to come to some kind of evaluation. He expects that the AEA and the communities, during the interim, will attempt to find some basis that is acceptable to the legislature. REPRESENTATIVE ROKEBERG pointed out that the term, "fair market value," implies that some type of appraisal would be done. He wondered if the mechanism should be implicit or explicit in the resolution. REPRESENTATIVE AUSTERMAN responded that the AEA has the responsibility and he has no doubt that they will do what they are required to do with regards to do-diligence. REPRESENTATIVE ROKEBERG wondered if there should be legislative approval of any transaction. MR. EVANS explained that when negotiations began a couple of years ago the Governor's office issued a letter and set up certain standards before any approval of a sale could happen. The most important one was there would be no sale short of legislative approval. Number 0059 CHAIRMAN HUDSON asked if there was any objection to the proposed amendment, "on line 5, page 2, after the word 'open' you would say 'only'." There being no objection, the amendment was adopted. Number 0005 REPRESENTATIVE PORTER made a motion to move CSHCR 10 (URS) out of committee with individual recommendation. There being no objection, CSHCR 10 (URS) moved from the House Special Committee on Utility Restructuring. HB 174 - ELECTRIC COOPERATIVE EMPLOYMENT CONTRACT TAPE 99-20, SIDE A CHAIRMAN HUDSON announced that the next order of business was House Bill No. 174, "An Act relating to personal services contracts for certain employees of electric cooperatives." EDWARD BURKE, Legislative Administrative Assistant for Representative Sanders, Alaska State Legislature, read the sponsor statement into the record: Good public policy dictates that those who are elected by the constituency have the right and the responsibility to implement their own perspective and agenda on the operational management of the organization they were elected to by selecting and hiring paid staff of their own chosing. This holds true with the President of the United States, the Governor, and on down through the ranks of municipal forms of government. In each case the elected executives are granted the authority to select staff they have confidence will implement the agenda favored by the elected official. When first organized under the Rural Electric Association [REA], Alaska Cooperatives were beholden to this policy by a mandate from REA that dictated no General Manager's contract should exceed three years, the typical term of the elected boards of director of cooperatives. Since the abolition of REA, there is no official policy on the records to reinforce this traditional limit on cooperative executives' contracts. Indeed, since the demise of REA, we have seen the implementation of at least one utility cooperative General Manager contract that essentially grants a perpetual term through a unique automatic renewal clause that requires the Board to take affirmative action to negate the automatic renewal of the contract for another year on a five year term. In the case cited above, if a new board of directors wished to terminate the current General Manager's contract, they could find themselves obligated to in effect buy-out the remainder of the term of the contract. With current utility managers salaries and benefit packages reaching the $200,000 a year level, this could mean up to one million dollars, a figure most rural electric cooperatives would find staggering. Number 0360 REPRESENTATIVE ROKEBERG asked who is supporting HB 174. MR. BURKE indicated that it was done by request. REPRESENTATIVE ROKEBERG asked who requested it. Number 0385 MR. BURKE stated that the lobbyist Mich Gravvo(ph) talked to his boss and requested the bill. REPRESENTATIVE ROKEBERG asked if Mr. Burke knew for who the bill was requested. MR. BURKE replied no. REPRESENTATIVE PORTER indicated that they may want to take a look at the wording, because it may not be precluding what it is desiring to preclude. It just states that the term of a contract may not exceed 12 months. MR. BURKE stated that he believes the situation currently is that a general manager can be extended if the board does nothing. HB 174 would limit that, so the board could only do nothing one time, which would extend that contract for one year. After that, HB 174 would force them to send it back to the members of the cooperative to vote on that person. REPRESENTATIVE PORTER said that he doesn't doubt that is the intent, but he is concerned about the wording accomplishing that intent. Number 0540 MR. YOULD stated that they are unanimously against the bill. They feel that it is regressive, it does not give boards of directors the ability to attract good management to their utilities and it imports a level of micro-management. He indicated that when a contract runs out, it runs out. That general management no longer has an obligation to serve that utility, nor does a utility have an obligation to that general manager. He has not seen contracts for general managers that automatically re-up if the board of directors does not take an affirmative action. Also there was an allusion to the fact that the REA no longer requires contracts limited to 36 months, and it is true that they do no longer require that, because they stepped out of the business of trying to micro-manage general contracts. He added that as a general bill it is best left up to the local boards of directors to take care of, and in the event they are not acting well on behalf of their constituents they are subject to recall or a revote. ADJOURNMENT CHAIRMAN HUDSON adjourned the House Special Committee on Utility Restructuring at 9:50 a.m.