HOUSE SPECIAL COMMITTEE ON UTILITY RESTRUCTURING May 18, 1999 9:05 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 CONSIDERATION OF ALASKA REGULATION COMMISSION APPOINTEES: Wilfred K. Abbott - Anchorage Patricia Maria Demarco - Anchorage James S. Strandberg - Anchorage G. Nanette Thompson - Anchorage Burnell Smith - Eagle River - CONFIRMATIONS ADVANCED PREVIOUS ACTION No previous action to record. WITNESS REGISTER WILFRED K. ABBOTT, Appointee to the Alaska Regulatory Commission 9701 Arlene Anchorage, Alaska 99515 Telephone: (907) 248-3798 POSITION STATEMENT: Testified as appointee to the Alaska Regulatory Commission. PATRICIA MARIA DeMARCO, Appointee to the Alaska Regulatory Commission 8101 Oney Circle Anchorage, Alaska 99516 Telephone: (907) 346-8385 POSITION STATEMENT: Testified as appointee to the Alaska Regulatory Commission. JAMES S. STRANDBERG, Appointee to the Alaska Regulatory Commission 3217 Purdue Street Anchorage, Alaska 99508 Telephone: (907) 278-5812 POSITION STATEMENT: Testified as appointee to the Alaska Regulatory Commission. G. NANETTE THOMPSON, Appointee to the Alaska Regulatory Commission 1031 West 4th, Number 200 Anchorage, Alaska 99501 Telephone: (907) 269-5267 POSITION STATEMENT: Testified as appointee to the Alaska Regulatory Commission. BURNELL SMITH, Appointee to the Alaska Regulatory Commission No address provided. Eagle River, Alaska No telephone provided. POSITION STATEMENT: Testified as appointee to the Alaska Regulatory Commission. STEPHEN CONN Alaska Public Interest Research Group PO Box 101093 Anchorage, Alaska Telephone: (907) 278-3661 POSITION STATEMENT: Encouraged the committee to promote an education process for the new appointees. ERIC YOULD Alaska Rural Electric Cooperative Association 703 West Tudor Anchorage, Alaska 99503 Telephone: (907) 561-6103 POSITION STATEMENT: Commended the choice of appointees. ACTION NARRATIVE TAPE 99-22, SIDE A Number 0001 CHAIRMAN BILL HUDSON called the House Special Committee on Utility Restructuring meeting to order at 9:05 a.m. Members present at the call to order were Representatives Hudson, Cowdery, Kott, Rokeberg, Porter, Davies, Berkowitz and Green (alternate). CONSIDERATION OF ALASKA REGULATION COMMISSION APPOINTEES CHAIRMAN HUDSON announced that the only order of business would be the consideration of the appointments to the Alaska Regulatory Commission. Number 0080 WILFRED K. ABBOTT, Appointee to the Alaska Regulatory Commission, said that he was excited to be a part of this changing regulatory arena. He informed the committee that he was in the U.S. Air Force for 28 years. After retirement from the U.S. Air Force, Mr. Abbot was a Building Official for the Municipality of Anchorage for a year during the waning years of construction. Then he was the Director of the Department of Public Works, Municipality of Anchorage, for a short time after which he became the Director of the Office of Emergency Management. Subsequently, Mr. Abbott worked in the private sector for an environmental firm for a year. Finally, Mr. Abbott moved to his current position as the Director of Housing Operations, Public Housing Division, Alaska Housing Finance Corporation. Mr. Abbott commented that there is a lot of hard work ahead and he is a hard worker. Number 0346 REPRESENTATIVE COWDERY commented that he met Mr. Abbott when he worked for the Municipality of Anchorage. Mr. Abbott is very organized, is a hard worker, and would be an asset to this commission. Representative Cowdery noted that Mr. Abbott was a prisoner of war in Vietnam for six years. REPRESENTATIVE GREEN asked Mr. Abbott if he was aware of the variety of issues that he would have to pass judgement on. MR. ABBOTT replied, yes and recognized that the commission is a very busy body with varied issues. Mr. Abbott said that he looked forward to those aspects and thrives on such. REPRESENTATIVE PORTER concurred with Representative Cowdery's comments and welcomed Mr. Abbott. REPRESENTATIVE DAVIES inquired as to Mr. Abbott's impression of the emerging retail competition for telephone utilities and possibly electric utilities in the future. MR. ABBOTT said that he believed that enterprise should be allowed to proceed as far as is in the public's interest. Number 0649 PATRICIA MARIA DeMARCO, Appointee to the Alaska Regulatory Commission, testified via teleconference from Anchorage. She said that she was honored to be suggested for appointment to the Alaska Regulatory Commission. She felt she has been preparing for this position for most of her adult life. Ms. DeMarco informed the committee that she has a doctorate in genetics and has an empirical scientists approach to information analysis. At present, there is an intersection between the march of technology and the march of information as a basis for business as well as daily life. Regulatory procedure is mired in a tradition which requires innovation and creativity to accommodate the speed with which this industry is evolving. Alaska is a great challenge in the regulatory world due to wide geographic disparities. If the state desires all citizens have the right to appropriate infrastructure and utility amenities, there must be a balancing of the risks and opportunities in a cost efficient manner. MS. DeMARCO informed the committee that she has served on the regulatory staff of the Connecticut commission during the time that state was dealing with the deregulation of electric, gas, and telecommunications industries simultaneously. Although the conditions in Connecticut are vastly different than Alaska, the need to accommodate change in a compressed time frame is common to many such commissions. She expressed interest in bringing modern technology to the entire state. The utility infrastructure is a significant component of the economic future of Alaska. The ability to integrate the utility infrastructure efficiently is a tremendous opportunity the commission can shape. In conclusion, Ms. DeMarco commented that she looked forward to working with the committee. REPRESENTATIVE GREEN asked if in Ms. DeMarco's work with Connecticut, she had become familiar with the type of joint federal and state board of universal service as in Alaska. MS. DeMARCO said that was not the case in Connecticut because Connecticut had more stringent rules than the federal government in most areas. The only area of joint jurisdiction was the nuclear regulatory review of the nuclear power plant. REPRESENTATIVE GREEN noted that this joint relationship could be a major issue and was happy that Ms. DeMarco was up to speed on that issue. Number 0986 REPRESENTATIVE DAVIES commented that Ms. DeMarco's background will probably be in demand as this process continues. He inquired as to her thoughts of the different challenges which face deregulation of electric utilities given the ownership patterns in Alaska. MS. DeMARCO indicated that the lack of connectivity among communities would be more of an issue than ownership. The deregulation issues are more defined by how service is provided to rural areas and therefore, she was interested in technologies that could provide more cost efficient service in areas that are not on the connected grid. She noted the importance of tying the structure of the industry to the functions being served in the communities. CHAIRMAN HUDSON expressed the hope that Ms. DeMarco and the other members would provide some creativity. He indicated the need to review this issue in the urban as well as rural setting. He presumed that Ms. DeMarco would be willing to travel. MS. DeMARCO said she looked forward to traveling throughout Alaska. She believed the cooperatives were a good structure from which to work. She informed the committee that she has worked for a municipal electric cooperative which represented five communities, one of which was only 14 square miles. There were some interesting problems in Connecticut and there are pockets of rural communities. REPRESENTATIVE PORTER congratulated Ms. DeMarco and commented that she must find someone suitable to replace her at the Anchorage Economic Development Corporation (AEDC). REPRESENTATIVE ROKEBERG echoed Representative Porter's comments. He noted that Ms. DeMarco has done an extraordinary job at AEDC. Number 1251 JAMES S. STRANDBERG, Appointee to the Alaska Regulatory Commission, testified via teleconference from Anchorage. He informed the committee that he was born in Anchorage and has worked extensively in the public and private sector. Presently, Mr. Strandberg is a consulting engineer in private practice. He pointed out that the bulk of his work has been in energy systems both in the Railbelt and rural power systems. Mr. Strandberg said that he was honored to have been selected and believed he could be of service. He echoed Ms. DeMarco's statements regarding the winds of change across the nation with regard to utility services. Although his experience has been primarily in energy and power systems, he noted that he was conscious of the equal importance of telecommunications infrastructure. There is an opportunity in Alaska and these systems will be important in the way Alaska develops. In conclusion, Mr. Strandberg looked forward to serving on the commission. REPRESENTATIVE GREEN commented that Mr. Strandberg had an impressive dossier. He wondered if Mr. Strandberg would have to guard against any potential or perceived conflict of interest. MR. STRANDBERG stated that he would transfer his projects to colleagues in total in order to eliminate any conflict of interest. He did not believe a commissioner could function without doing such. REPRESENTATIVE GREEN mentioned that Mr. Strandberg is a civil and mechanical engineer. Number 1503 REPRESENTATIVE DAVIES welcomed Mr. Strandberg's experience on the commission. He requested that Mr. Strandberg address the challenges Alaska faces with respect to universal service and general approaches to the many rural communities. MR. STRANDBERG acknowledged that he would need to do much study on universal service. With regard to general approaches, he said that the commission must consider the needs of the rate payer because the goal is to provide reliable, affordable, and dependable service to each rate payer. He reiterated that utilities will be instrumental in the competitiveness of the state. Therefore, there should be strides for good service in the urban areas as well the fringes of those urban areas. With regard to rural areas, Mr. Strandberg has participated in community energy projects which are directed towards replacing power cost equalization (PCE) in rural areas. Community energy projects are very important for the PCE dilemma. REPRESENTATIVE ROKEBERG expressed curiosity in Mr. Strandberg's relation to the former Commissioner Harold Strandberg and a friend of Representative Rokeberg's, Sig Strandberg (ph). MR. STRANDBERG informed the committee that the former commissioner was his uncle and that Sig Strandberg (ph) is his brother. CHAIRMAN HUDSON commented that he liked what he heard from this conversation and was interested in further examination, evaluation and suggestions regarding community energy projects. REPRESENTATIVE ROKEBERG asked if Mr. Strandberg felt that the Alaska Regulation Commission should have oversight in the refuse industry or the small water utilities. REPRESENTATIVE BERKOWITZ asked if Mr. Strandberg believed that the commission should do what the legislature allows. MR. STRANDBERG said that he was not supportive of regulation unless it is clearly shown to be necessary. While he viewed the refuse industry as an energy source, he could not comment on the regulatory side at this time. Number 1847 G. NANETTE THOMPSON, Appointee to the Alaska Regulatory Commission, testified via teleconference from Anchorage. She informed the committee that she graduated from Stanford University in 1978, after which she attended the University of Washington School of Law. Ms. Thompson is a member of the Alaska Bar and the Washington Bar, but she has practiced in Alaska since her graduation. She began working in private practice for a large Seattle-based firm. The she worked for a year in the Attorney General's office, after which she worked for a small Anchorage firm. During her time at the small Anchorage firm, she worked for utility and government clients. In 1988, Ms. Thompson started her own firm and has been in practice for seven years and has continued to represent utility and municipal clients. She also works as a contract hearing officer for various state agencies. Ms. Thompson left private practice in 1995 and took over the Alaska Public Utilities Commission. She was confirmed by the legislature, but left the commission when the supreme court ruled that the seat to which she had been appointed was not vacant. Since that time, Ms. Thompson returned to the Attorney General's office in the Oil Gas and Mining Section. She mentioned that she was familiar with SB 133 and is familiar with the audits that were the basis for this project. Many of the current APUC staff, for whom she has great respect, were present when Ms. Thompson was there in 1995. She recognized the need for change in the organization and its operations. The passage of the Telecommunications Act in 1996 was the beginning of massive changes in the regulation of utilities which is the case now with electric utilities. She looked forward to the opportunity to be a part of those changes. Ms. Thompson believed that SB 133 contains the tools enabling the new commission to respond to the changes in the regulatory environment. REPRESENTATIVE COWDERY commented that a past APUC commissioner, Don Schroer, gave Ms. Thompson high marks. REPRESENTATIVE PORTER also mentioned that former commissioner, Don Schroer, had conveyed to him that he enjoyed working with Ms. Thompson. Representative Porter was pleased to see Ms. Thompson's reappointment to the commission. Number 2044 REPRESENTATIVE DAVIES asked Ms. Thompson to comment on the added flexibility that was attempted to be built into the hearing structure. He asked if she felt that would allow the commission to move through the backlog more rapidly than in the past. MS. THOMPSON replied yes. She supported the options given to the commission to resolve the various issues the commission faces. The flexibility should allow the work to be accomplished more efficiently and more rapidly. REPRESENTATIVE GREEN asked if Ms. Thompson felt this new group would be up to the task, recognizing that there is a learning curve, a large backlog, and a heavy work load. MS. THOMPSON recognized that as a tremendous challenge for the group, but noted that the group contains a variety of expertise. Ms. Thompson viewed the commission as having a dual task to first address the backlog in cases and second to look ahead with regard to how the commission will do business. She believed the group to be "up to it." REPRESENTATIVE GREEN inquired as to Ms. Thompson's feelings on the joint federal and state board of universal services, in particular a former member of the national board was able to bring a significant number of dollars to the state. He asked if she had any proposals to regain a seat on the board. MS. THOMPSON agreed that it was a loss, but she did not have a specific plan to regain a seat. Number 2190 REPRESENTATIVE ROKEBERG noted that a key area of concern as identified by the NRA report and the testimony on HB 183 and SB 133, was the timing of this issue. Senate Bill 133 contains a section which demands regulations by a date certain. He inquired as to Ms. Thompson's thoughts on that issue; can the commission develop regulations meeting statutory requirements in six months? MS. THOMPSON stated that the legislature has told the commission it must do so and although, it will be a challenge, the commission will do so. She believed that there is a deadline in the legislation for the end of 1999. REPRESENTATIVE ROKEBERG mentioned that there was a significant amount of controversy surrounding the advocacy sections of SB 133. He asked how she would perceive the direction of the statute to the commission in that area. MS. THOMPSON said that it is appropriate to have a separate advocacy staff within the commission. She informed the committee that one of the first issues she will address will be which of the existing staff and that hired will be part of the advocacy staff. REPRESENTATIVE ROKEBERG pointed out that some testimony commented on the apparent or appearance of conflict of interest by staff shifting. Will the direction of the statutory change help that? MS. THOMPSON responded that should solve the problem. She explained that the concern was that in some cases the staff would be an advocate while on other cases, the staff would be an advisor. The criticism, from the industry and the commission, was that there was not the help available to resolve cases with a clear line. Therefore, placing people always in the role of advocate should alleviate that problem. If there is any difficulty in implementing that, she predicted the commission would probably voice that next session. CHAIRMAN HUDSON moved on to Burnell Smith who he noted he has worked with for a long time. They worked together when Chairman Hudson was the Chair of the House Oil & Gas Committee. He commented that Mr. Smith is a fine citizen and asset to this state. Number 2369 BURNELL SMITH, Appointee to the Alaska Regulatory Commission, said that he was honored to be in this position. He informed the committee that he graduated as an engineer in technology from Texas A&M in 1973. Since graduation, Mr. Smith has been in project construction and came to Alaska in 1980 as a project engineer at Tesoro for a construction company. He fell in love with the state and returned in 1983 to work with Tesoro. Mr. Smith has worked for Tesoro for 16 years as project management, project engineer, and part-time manager of government affairs and special projects for the past six years. He indicated that his project background would be of some benefit to the commission. He noted that he did not have a telecommunications background, but does have a background in electric utilities. Mr. Smith emphasized that Alaska is growing and will bloom in utilities in the future. REPRESENTATIVE PORTER commented that he has worked well with Mr. Smith in the past and he has always given fair and objective input. TAPE 99-22, SIDE B REPRESENTATIVE BERKOWITZ mentioned that he appreciated all the help Mr. Smith provided when there was controversy over a pipeline in Representative Berkowitz's district. REPRESENTATIVE GREEN said that it is great for another engineer to be on the commission. He asked if Mr. Smith foresaw any potential conflict of interest with regard to issues that he may be asked to regulate. MR. SMITH informed the committee that Tesoro does have an issue in front of the docket with the commission. He stated that he would recuse himself from that docket and should be able to remove himself from any conflict of interest. He noted that he sat on the Board of Marine Pilots for almost five years, and he has had to recuse issues in areas involving the Board of Marine Pilots. REPRESENTATIVE COWDERY commented that the Governor made a good choice. He hoped that the commission recognized the areas which need improvement within the commission as well as dealing with the backlog. Representative Cowdery was impressed with all the members and he looked forward to working with them. MR. SMITH noted that he did have a good work ethic and this commission looks as if there will be much work involved. REPRESENTATIVE ROKEBERG echoed Representative Porter's comments regarding Mr. Smith. CHAIRMAN HUDSON announced that he would like to schedule a briefing at the commission in the fall. He also indicated the need for the commission to keep the committee in the loop. For the record, Chairman Hudson noted that the Alaska Rural Electric Cooperative Association (ARECA) does not have any problems with any of the appointees, although there is concern regarding the lack of institutional knowledge with the group. Furthermore, Jim Rowe expressed concern that there is no one from telecommunications which Chairman Hudson believed would be a challenge for the commission. Number 2231 STEPHEN CONN, Alaska Public Interest Research Group, commented that these are extremely complex issues. The learning curve on telephone deregulation and electric restructuring is immense. Therefore, there will be quite a challenge for new people to deal with these issues and receive "centered" guidance, that is to say unbiased guidance. He acknowledged that even he would have a slant, from the rate payer and consumer side. Mr. Conn expressed concern that these new faces will immediately begin to address many issues related to utilities. He said that many of the committee members are vastly more knowledgeable with such issues than the appointees, although he was unsure as to how to remedy the situation. Mr. Conn mentioned that one possibility would be to obtain outside consultants such as CH2M HILL. He suggested and encouraged the committee to underwrite through appropriations, a learning process for the new appointees in order to engage expertise. REPRESENTATIVE ROKEBERG recalled that SB 133 is somewhat quiet regarding consumer protections and therefore, he assumed that existing statute covers those areas. He asked if Mr. Conn would like to suggest any changes to the consumer complaints aspect. MR. CONN commented that Representative Rokeberg's legislation on the consumer's bill of rights for electric restructuring was forthright and a model for complaint resolution. He indicated that Representative Rokeberg's legislation should be given additional emphasis and passed out. There is a tremendous need for changes which would remain even without restructuring. Mr. Conn indicated that utility restructuring and the consumer side must go "hand in glove." He mentioned that he saw how an uncertain mandate regarding consumers prejudiced the work of the old APUC. It should be made clear what is under the commission's jurisdiction. Number 1900 ERIC YOULD, Alaska Rural Electric Cooperative Association, stated that ARECA is pleased with this new commission, in particular with the appointments of Ms. Thompson and Ms. DeMarco. REPRESENTATIVE PORTER pointed out that in this committee's struggle with this issue, the committee "took out professional qualifications and put in a restriction on political affiliations." He said, "For the record, these five represent one Republican, one Democrat, and three non-partisans; precisely what this committee (indisc.)." REPRESENTATIVE ROKEBERG recommended that the new appointees get copies of the NRA report on the commission, the Joint Committee on Electric Utility Restructuring, the CH2M HILL report, the minutes regarding HB 183 and SB 133, and the record of the House Special Committee on Utility Restructuring. That information would provide the appointees with much background. CHAIRMAN HUDSON announced that staff would provide the appointees with a packet. He congratulated the appointees and was excited about working with the new commission. Number 1758 REPRESENTATIVE KOTT moved to forward the names of Wilfred K. Abbott, Patricia Maria DeMarco, James S. Strandberg, G. Nanette Thompson, and Burnell Smith for the Alaska Regulatory Commission. There being no objection, it was so ordered. ADJOURNMENT There being no further business before the committee, the House Special Committee on Utility Restructuring meeting was adjourned at 10:10 a.m.