HOUSE SPECIAL COMMITTEE ON UTILITY RESTRUCTURING March 29, 2000 8:02 a.m. MEMBERS PRESENT Representative Bill Hudson, Chairman Representative John Cowdery, Vice Chairman Representative Brian Porter Representative John Davies Representative Ethan Berkowitz Representative Joe Green (alternate) MEMBERS ABSENT Representative Pete Kott Representative Norman Rokeberg COMMITTEE CALENDAR HOUSE BILL NO. 169 "An Act relating to including the costs of expansion activities and political activities in rates of electric cooperatives." - HEARD AND HELD PREVIOUS ACTION BILL: HB 169 SHORT TITLE:ELEC.COOPS:EXPANSION & POLITICAL ACTIVITY SPONSOR(S): REPRESENTATIVE(S)GREEN Jrn-Date Jrn-Page Action 03/31/99 0625 (H) READ THE FIRST TIME - REFERRAL(S) 03/31/99 0625 (H) URS, L&C 04/28/99 (H) URS AT 8:00 AM CAPITOL 120 04/28/99 (H) SCHEDULED BUT NOT HEARD 05/05/99 (H) URS AT 8:00 AM CAPITOL 120 05/05/99 (H) SCHEDULED BUT NOT HEARD 03/15/00 (H) URS AT 8:00 AM CAPITOL 120 03/22/00 (H) URS AT 8:00 AM CAPITOL 120 03/22/00 (H) Heard & Held 03/22/00 (H) MINUTE(URS) 03/29/00 (H) URS AT 8:00 AM CAPITOL 124 WITNESS REGISTER ERIC YOULD, Executive Director Alaska Rural Electric Cooperative Association 703 West Tudor Anchorage, Alaska 99503 POSITION STATEMENT: Testified on HB 169. JEFF LOGAN, Staff to Representative Joe Green Alaska State Legislature Capitol Building, Room 214 Juneau, Alaska 99801 POSITION STATEMENT: Presented information regarding HB 169. ACTION NARRATIVE TAPE 00-7, SIDE A Number 0037 CHAIRMAN BILL HUDSON called the House Special Committee on Utility Restructuring meeting to order at 8:02 a.m. Members present at the call to order were Representatives Hudson, Cowdery, Porter, and Green. Representatives Davies and Berkowitz arrived as the meeting was in progress. HB 169 - ELEC.COOPS:EXPANSION & POLITICAL ACTIVITY Number 0199 CHAIRMAN HUDSON announced the first order of business would be HOUSE BILL NO. 169, "An Act relating to including the costs of expansion activities and political activities in rates of electric cooperatives." [The committee had heard the opening presentation and some testimony at the previous meeting.] Number 0317 ERIC YOULD, Executive Director, Alaska Rural Electric Cooperative Association (ARECA), the trade association for the electric utility industry in the state, came forward to testify. He noted that the state's electric utility industry is made up of about 70 percent electric cooperatives, 20 percent municipal utilities, and 10 percent investor-owned utilities. The cooperatives have done a good job in providing reliable and affordable electricity to Alaska citizens, he said. Nevertheless, he believes that HB 169 appears to be a little bit vindictive toward the industry and attempts to curtail its activities. Specifically, it tries to preclude expenditures for activities related to expansion and political action. MR. YOULD pointed out that political activities already are essentially controlled by both the Alaska Public Offices Commission (APOC) and the Regulatory Commission of Alaska (RCA). Expenditures for political activities are not being put into people's rate base, he stated. He strongly suggested that rather than having it be redundant in law, the committee should delete subsection (I) [dealing with political activity] from Section 1. Number 0481 MR. YOULD said it is of greater concern to the industry that HB 169 is precluding expansion activities. He stated that doing so would hurt cooperatives throughout the state, cooperatives which have provided good service that was not brought by the private sector. He quoted from the bill's definition of expansion activities, "an activity that is intended to attract customers to an electric cooperative who, at the time of the activity, are customers of another electric utility." He said this is aimed strictly at cooperatives, not at municipal or investor-owned utilities. ARECA has unanimously adopted a resolution opposing HB 169. The group thinks that if Alaska is going into some form of competition in the future, "it should not be done with a cocked hat." MR. YOULD explained that cooperatives are allowed to get into other business ventures of like value or of like nature to the electric utility industry. For example, ARECA's largest member utility is in the Internet business. Some members are looking into entering the satellite television business to bring in satellite television with small dishes that otherwise could not come to the state. Still others are considering going into home security systems or two-way radio communication systems. All of these activities involve one utility venturing into another utility's service area and seeking members. The definition he had quoted appears to restrict those activities. "I think there needs to be a very strong rewriting of this particular definition if this particular bill is to go forward," he said, [assuming that] the intent is to restrict one co-op from taking over another co-op, which he thinks was the original intent. Number 0686 MR. YOULD said he has major questions about how the bill would work. Ostensibly, a cooperative gets a vote of its membership concerning which of them are willing to allow a portion of their rates to go toward advertising and expansion activities. He wondered what happens if one utility surreptitiously gets 75 percent of its voters to agree to taking over a second utility, thereby acquiring "a pretty large war chest." When the second utility realizes what is happening, suppose that it goes out and tries to get a vote of its people but only comes up with 15 percent to ward off the first utility. The result is an unequal attempt to consolidate. That is not to say that consolidation is wrong, but the playing field is not equal. MR. YOULD strongly recommended that HB 169 be examined much more closely. He suggested that before the committee takes action on this bill, it consider where it fits in with electric utility restructuring, the very issue that this committee is charged with addressing. Number 0799 REPRESENTATIVE GREEN asked Mr. Yould whether he read that "as prohibiting or just conditionally?" MR. YOULD said he reads it as conditionally; however, he thinks there is an effective barring. "It is so difficult to go out and get the members to vote to allow an expansion activity that you have effectively precluded the utility from doing that," he said. He asked how legislators would feel if every time they wanted to make an appropriation to any state program, they had to get a vote of the people to do so, and even then could only do it on a pro-rata basis according to how that vote came out. REPRESENTATIVE GREEN said that was exactly what the legislature did last September [putting before the public the question of tapping the Permanent Fund to help pay for state government]. An issue as large as taking over another utility is not an everyday activity. Only on major issues would a utility be required to secure the informed consent of the people who own the utility. MR. YOULD said he understood that to be the intent, but he does not think the wording of the bill is restrictive enough to that intent. Number 0909 CHAIRMAN HUDSON asked Mr. Yould to specify the areas of the bill that he thinks need rewording. MR. YOULD cited the definition of expansion activities on page 2, line 23, saying it is "extremely broad" and seems to preclude any type of business expansion activity that would attract a customer from another utility. He then cited page 2, line 7, subsection (I), saying the whole discussion on political activities and contributions to political activities is redundant, already being covered by both APOC and RCA. Number 1000 REPRESENTATIVE PORTER asked whether political contributions now are precluded by statute. MR. YOULD affirmed that. In response to a follow-up question from Representative Porter, Mr. Yould said he did not think HB 163 would allow them under certain circumstances. Number 1075 CHAIRMAN HUDSON noted that the committee is a policy committee, and its purpose in looking over HB 169 is to determine whether the concept is right. REPRESENTATIVE GREEN noted that the large costs incurred in "this recent tiff between the two co-ops," have to be paid from somewhere. Although those costs technically may not be in their rate base, the ratepayers ultimately end up paying for it. They should have the right to say, "This is not in your core function" [or to endorse a management proposal to expand] REPRESENTATIVE PORTER said he is still concerned about HB 169 in relation to political activity. If the law currently precludes political activity, the way he reads page 2, line 11, it allows political activity under certain circumstances. He read: "An electric cooperative may only include a charge for political activity in a rate if the cooperative ... [meets the qualifications thereafter specified]." He said he is concerned that this portion of HB 169 provides a method for getting into political activity, and he does not think that is the intent of this legislation. Number 1288 JEFF LOGAN, Staff to Representative Green, Alaska State Legislature, clarified that the language in HB 169 only relates to the rate monies. It does not preclude any political activities from the margin monies. That is an important distinction. REPRESENTATIVE GREEN asked whether the committee members were familiar with margins and base rates. MR. LOGAN explained that the utility commission allows the cooperatives to extract a cost from their members above the cost of providing the electrical service, "a profit, if you will." But because a cooperative is a not-for-profit organization, those monies are called margins. They go into a separate account. REPRESENTATIVE GREEN added that those monies are to be repaid to the members if there is not some other base-core need that arises unexpectedly. He explained that a utility needs to have some funds available to meet costs beyond the budget. When those "rainy day" funds are sufficient, they are returned to the members. Number 1383 REPRESENTATIVE BERKOWITZ noted that HB 169 appears to be somewhat contentious. He wondered if the bill could be set aside to proceed with the scheduled joint meeting with the House Community and Regional Affairs Standing Committee. He said he was concerned that there could be protracted discussion, and that there may be serious problems with the bill. [Several other committee members voiced concurrence.] REPRESENTATIVE GREEN said it sounded as if half of the committee thought there should be more discussion on HB 169. He suggested it would a good idea to hold it over. CHAIRMAN HUDSON moved HB 169 to the bottom of the calendar, saying that it could be discussed if there was sufficient time after the joint committee meeting on power cost equalization. [The remaining time proved to be insufficient, so HB 169 was held over.] [Note: At 8:40 a.m., Chairman Hudson announced the beginning of the joint meeting with the House Community & Regional Affairs Standing Committee and passed the gavel to that committee's chair, Chairman Morgan. A separate set of minutes is available for that meeting.]