ALASKA STATE LEGISLATURE
SENATE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE
February 15, 2007
3:36 p.m.
MEMBERS PRESENT
Senator Donny Olson, Chair
Senator Albert Kookesh, Vice Chair
Senator Joe Thomas
Senator Gary Stevens
Senator Thomas Wagoner
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 16
"An Act extending the termination date for the Regulatory
Commission of Alaska; and providing for an effective date."
HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 16
SHORT TITLE: EXTEND REGULATORY COMMISSION OF ALASKA
SPONSOR(S): SENATOR(S) THERRIAULT
01/16/07 (S) PREFILE RELEASED 1/5/07
01/16/07 (S) READ THE FIRST TIME - REFERRALS
01/16/07 (S) CRA, STA, FIN
02/15/07 (S) CRA AT 3:30 PM BELTZ 211
WITNESS REGISTER
SENATOR GENE THERRIAULT
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented SB 16 as sponsor
KRISTI CATLIN, Director
Government Relations
AT&T Alascom
Anchorage, Alaska
POSITION STATEMENT: Spoke in favor of SB 16.
KATE GIARD, Chair
Regulatory Commission of Alaska (RCA)
Anchorage, AK 99501
POSITION STATEMENT: Spoke in favor of SB 16.
GEORGE GORDON, Director
Regulatory Affairs
Utility Services of Alaska
Fairbanks, Alaska
POSITION STATEMENT: Spoke in favor of extending the RCA but with
suggested changes.
MARK JOHNSON, Commissioner
Regulatory Commission of Alaska
Anchorage, AK 99501
POSITION STATEMENT: Spoke about the RCA.
PAT DAVIDSON, Auditor
Division of Legislative Audit
Alaska State Legislature
POSITION STATEMENT: Explained the RCA audit outcome and process.
JAN WILSON, Commissioner
Regulatory Commission of Alaska
Anchorage, AK 99501
POSITION STATEMENT: Answered questions about the RCA.
TONY PRICE, Commissioner
Regulatory Commission of Alaska
Anchorage, AK 99501
POSITION STATEMENT: Answered questions about the RCA.
ACTION NARRATIVE
CHAIR DONNY OLSON called the Senate Community and Regional
Affairs Standing Committee meeting to order at 3:36:34 PM.
Senators Olson, Thomas, Wagoner, Kookesh, and Stevens were
present at the call to order. Senator John Cowdery was also
present.
^#SB 16
SB 16-EXTEND REGULATORY COMMISSION OF ALASKA
CHAIR OLSON announced that SB 16 would be before the committee.
3:36:48 PM
SENATOR GENE THERRIAULT, Alaska State Legislature, said SB 16 is
a simple sunset extension for the Regulatory Commission of
Alaska (RCA). The time extension of eight years was recommended
by the auditor.
3:37:39 PM
SENATOR THERRIAULT said four years was once the statutory
default for sunset extensions, but the auditors found themselves
repeating work. Some people have suggested that eight years is
too long, and he is open to a shorter extension, but he warned
that it takes up audit resources. He referred to the audit
report and noted issues of contention regarding decisions and
the timeframe of decisions, and he said that is to be expected.
He said the commissioners of the RCA have been talking to the
governor's office about some statutory changes that are touched
on in the report, and they have requested that the extension not
be tied to any changes in the system. Audit extensions are often
looked at as an opportunity to attach all kinds of things to the
bill, he noted.
3:40:25 PM
SENATOR THERRIAULT said today would be a good time for people to
speak about the process and get the issues on the table.
3:41:35 PM
SENATOR STEVENS asked about the eight-year extension. He said
the term of office is only four years, and a senator may miss
the opportunity to state any concerns.
SENATOR THERRIAULT said a member could suggest changes at any
time. The decision is if the state wants a functioning RCA for
the next eight years. Without the RCA, its duties would fall
into the lap of the legislature.
3:44:00 PM
SENATOR STEVENS said he agrees and understands the point of
keeping the extension separate. But when the extension comes up,
the body begins to think about RCA subjects and topics, so every
four years is an opportunity to review it.
SENATOR THERRIAULT said, "We changed the statute so the default
is eight years, but we certainly preserve the right to shorten
it." If the committee is considering shortening the extension,
he suggested input from the auditor so that all sunsets do not
come due in the same year.
3:45:07 PM
CHAIR OLSON asked if the RCA audits have changed from year to
year. The RCA is important and there are a lot of controversies.
SENATOR THERRIAULT suggested that Pat Davidson speak to the
content of the audits. The battle often overshadows anything
that is in an audit. The current audit may focus more on RCA
following through on previous legislative recommendations. The
RCA has attained some of its goals and not quite others.
3:46:42 PM
KRISTI CATLIN, Director, Government Relations, AT&T Alascom,
said she was available to answer questions.
CHAIR OLSON said some exciting issues have come up with the
regulatory commission, and he asked for her input.
MS. CATLIN said she supports a six-year extension with an audit
every two years. Eight years is too long, and four years is too
short, she said. Her company is quite pleased with how the
commission has cleaned itself up and followed the directions of
the legislature. "We believe the commission is intellectually
honest, the commissioners are well-informed, [and] they educate
themselves on the issues. We don't always agree with every
decision, which is not expected, but this particular commission
has moved from being more old-monopoly-heavy-regulation mindset
into a commission that understands business, understands the
need to get investment into Alaska, is very concerned with
consumer welfare, and seems to be able to mesh all of those
varying needs together."
3:49:14 PM
CHAIR OLSON said more competition weeds out those who are least
able to survive, and then the pendulum swings back to a
monopoly. He asked her if that is a concern.
MS. CATLIN said that if that is the way it is going it will not
be the same monopoly carrier that it once was. She said that
will likely not be the case because there is a healthy
competitive environment in Alaska. There is heavier competition
in the interexchange and local market.
3:50:13 PM
KATE GIARD, Chair, Regulatory Commission of Alaska, said the
reauthorization of the RCA will be looked at in the federal
arena. There are important matters before the Federal Energy
Regulatory Commission (FERC) on the sovereignty of Alaska over
pipeline rates. It should be conveyed to the federal agencies
that the RCA is going to be extended, the decisions that the RCA
has made and the process of regulation in Alaska is going to
continue, and the RCA is the right agency for Alaska.
MS. GIARD said there is a petition by the TAPS [Trans Alaska
Pipeline System] carriers to have FERC set intrastate pipeline
rates instead of the RCA, so it is a matter of sovereignty and
jurisdiction. "Then I look at what is a benefit to the utilities
and pipeline carriers that come before us from reauthorization…
It's their opportunity to communicate to you the need for the
RCA as a regulatory body to be far more responsive, or to
incorporate changes in technology or incorporate changes in the
way we do business. Or in the case of the rewrite of the
telecommunications act that you asked us to do last time, to
move on and respond to the changing market dynamics that are in
Alaska."
MS. GIARD said, "Sometimes they [sovereignty and benefits to
carriers] conflict with one another because they can get
commingled, and you can say, well, we really want the RCA to do
things differently, but that's different from [asking if] we
want an RCA to exist." She said she asked the public how it
would like the RCA to change. At the end of that public-comment
process, she summarized all the requests and took them to the
governor for "administrative improvements to the RCA." The
governor will be introducing legislation in that regard. She
said in that way "we can bifurcate what's really important," by
separating the opportunity for the utilities and pipeline
carriers to say how they want the RCA to work, and whether the
RCA should exist.
3:55:22 PM
CHAIR OLSON asked if there has been much public response.
MS. GIARD said there are some very exciting changes, including
asking the governor to put a 12-month statutory timeline on all
4205 cases, which relate to the public utility statute.
Currently only some types of dockets fall to the existing
timelines. The public said they want 12 months, and the RCA has
a new computer system and new judges so it supports the request.
She said it is important for the RCA to have. It is important
for the RCA to be accountable, "and those timelines make us
accountable, and it provides the utilities and the pipeline
carriers with certainty." She said there is an opportunity for
the existing timelines to be modified, although that was not
actively expressed in the docket. The RCA is not opposed to that
and looks forward to the discussion.
3:57:34 PM
CHAIR OLSON asked about safeguards for protecting commissioners
from political repercussions from unpopular decisions, and how
is the public protected from commissioners not looking out for
the public's interest.
MS. GIARD said there are a number of ways that carriers and
utilities can respond to an order by the RCA. The statute allows
a company that is unhappy with a decision to appeal it to the
Superior Court after asking the RCA to reconsider. There are a
number of cases before the Superior Court, and some cases
regarding telecommunications go to federal court. She said there
also should be an open public discussion with the legislature
about the decision-making process. If the Superior Court does
not uphold the RCA, it either makes a different decision or it
remands. If there are frequent remands, "then you know you have
commissioners that need some work."
CHAIR OLSON asked how many cases have been to Superior Court.
MS. GIARD said there are 26 cases pending before the Superior
Court, there has been one remand on a pipeline case, and the
pipeline carriers may appeal that remand to the Supreme Court.
The volume of cases before the Superior Court is much higher
than with the previous commission. The RCA is now making
decisions on telecommunication entry and competition, which has
created a vast number of dockets and cases of first impression.
Such cases haven't been decided anywhere else in the country and
normally always go to Superior Court. There are no rate cases in
Superior Court now; they are mostly market-based cases.
CHAIR OLSON asked why Alaska is on the cutting edge.
4:01:18 PM
MS. GIARD said, "You have the great privilege of having the
highest competitive telecommunications market in Alaska than
anywhere in the country, anywhere in the United States." That is
because of local exchange carriers that are highly competitive.
"We started out faster and we've grown faster and we have very,
very competitive markets," she stated.
SENATOR STEVENS said this is a wonderful forum and chance to
chat face to face. The RCA sounds formidable, and it is good
that the public can tune in to Gavel to Gavel and see all the
commissioners and see that they are real people. Doing this on a
regular basis is a darn good idea, he stated, and a short
extension allows it to happen more often.
4:02:45 PM
SENATOR KOOKESH said, "As one of those Senators who have gone
through the wars, I would really like to see you less than
more."
SENATOR WAGONER said an eight-year extension doesn't mean the
commission can't come back for a presentation every two years.
There could be a more frequent report, but he likes the eight-
year extension because he likes stability. The RCA has been very
unstable, he noted.
4:03:58 PM
MS. GIARD said the RCA recommends a six-year extension because
it has made significant process, but she understands the need to
hold the RCA's feet to the fire because it affects the bottom
line of almost $1.5 billion of revenue. An audit done every
other year is a good way to see if the commission is keeping to
its timelines. She also suggested benchmarks because the
utilities want more than a timeline. The RCA would report the
benchmarks in its annual report to be audited. "You want us to
regulate in fairness…and be timely about it," she said.
4:05:40 PM
MS. GIARD said she is grateful that the auditor recommended an
eight-year extension; it was recognition of how hard the RCA has
tried. She feels that the RCA is only 65 percent of where she
wants it to be, so she is comfortable with a six-year extension.
4:06:52 PM
CHAIR OLSON said the two-year audits consume time and money, and
he asked how that is justified in light of the RCA's success.
MS. GIARD said it is worth the cost to know that problems will
be picked up early. "It will help avoid the telephone wars that
Senator Kookesh talked about that happened as a result of the
agency not being as transparent or as accountable as you
wanted." She said the audit shouldn't take the four months it
took for a sunset review. The audit will look at the data that
is reported to the public in the annual report and the
benchmark. The benefit justifies the cost, she opined.
4:08:14 PM
CHAIR OLSON said he was told there were too many utilities so
they fight to capture a portion of the residents. He asked if
there was any move to consolidate the utilities.
MS. GIARD said she has not heard of any move to consolidate. The
telecommunications competition is good for the ratepayers. Any
change of a service area "where you redefine and you give one
utility a greater service area…would come before us in a docket,
and everyone would be hearing about that as we move through that
process, but we don't have it before us today."
4:09:32 PM
SENATOR THOMAS asked how many decisions have been appealed,
remanded, and before the court.
MS. GIARD said that information will be released today, and she
believed there were over 200 substantive decisions in 2006 and
about 27 appealed. It is proportionately very few.
SENATOR THOMAS said some people believe that the RCA timeframe,
15 months, is too lengthy.
4:11:08 PM
MS. GIARD said the RCA has 45 days to look at a case, and then
it decides to accept, reject or suspend it for investigation. It
allows a 30-day comment period, which often brings up issues
from ratepayers and so then it gets suspended. Once it gets
suspended, the deliberative process of all the interveners takes
about 10 months. Then the RCA holds a hearing and issues an
order, "and we have about three months." Of the 15-month period,
the RCA has about four months of work. The middle piece is the
other ratepayers and the discovery process. The RCA can do it in
a shorter time, but the important deliberative process has to be
completely renovated so the due process of all ratepayers is
protected. The RCA is headed down that path and may ask for
statutory revision. It may need to appoint settlement judges
upfront and make parties settle. She said she can shorten the
timeframe but needs time to make sure there is a structure.
4:13:12 PM
GEORGE GORDON, Director, Regulatory Affairs, Utility Services of
Alaska, said his company provides administrative service to
Golden Heart Utilities and College Utilities Corporation, which
provide service to about 8500 customers in the Fairbanks area.
He said he is in favor of extending the RCA; however, the audit
did not go as far as it should have. The statutory time for
reviewing rate cases should be reduced to nine months. Other
states do that, he said. "Utilities need to have rates in effect
during the timeframe when expenses are matched, and that's
really difficult when you have 15-month timeframes." Discovery
during rate cases needs to be limited, he stated. Currently
discovery by various parties is unlimited. He spoke of a case
with 65,000 pages of discovery. He believes that the Regulatory
Affairs and Public Advocacy (RAPA) section needs to be under the
oversight of the RCA. It is currently independent without much
oversight, he said, and it doesn't have a lot of direction. He
also requested that the qualifications of the commissioners
should be raised to a higher standard and they should be paid
more. The pay should start at the superior court judge level for
the work that they are required to do and the knowledge they are
required to have. He also proposed a staff position in the RCA
that would act as chief of staff, so the utilities could have
contact when commissioners are not available.
4:17:06 PM
SENATOR STEVENS asked what qualifications he is suggesting.
MR. GORDON said, "Utility CEOs are highly qualified
individuals." The commissioners make decisions on $1.5 billion
revenues, and they should have MBAs or be licensed professional
engineers or CPAs. They should have the highest qualifications
that can be found, he said, so complex issues can be dealt with.
SENATOR STEVENS asked for specific suggestions in writing.
SENATOR WAGONER suggested that engineers and other technical
experts should make up the staff, not necessarily the
commission.
4:19:11 PM
MR. GORDON said both should be qualified and knowledgeable.
MS. GIARD said Mr. Gordon's letter speaks to the changes she
would like to make in the rate case and rate filing process. She
doesn't disagree with anything he said. The RCA has to lower the
cost of rate cases. "We want the utilities to come in and feel
like when they make a business decision that they need a rate
adjustment that they don't have to…take a million dollars off
their bottom line." She said some of the money is returned in
increased rates, but it comes in over time. The RCA is also
proposing specific commissioner qualifications "that came
through the public process" to the governor. The RCA now has the
most accredited commission ever: two lawyers, two CPAs, and a
master's degree.
MARK JOHNSON, Commissioner, Regulatory Commission of Alaska,
said the RCA has heard the complaints about the discovery
process. It is mentioned in the audit, and the RCA is trying to
develop additional regulatory rules for the process. It looks
forward to working with industry to make rules that make sense
for everyone and enables cases to move forward. It is one of
RCA's major initiatives, he noted.
4:22:45 PM
CHAIR OLSON said Mr. Gordon thinks the discovery process is out
of hand because of the amount of information and the open-ended
process, and the costs get to be exorbitant.
MR. JOHNSON said the RCA agrees with Mr. Gordon. It wants to
make sensible rules that allow the full development of cases
without tramping on anyone's rights but that allow the middle
part to proceed more expeditiously. It is delicate because the
process is similar to the legislative process, but it has a
judicial approach; it's actually adjudicating parties' rights.
CHAIR OLSON asked what the parameters should be for the
discovery process.
4:24:22 PM
MR. JOHNSON said he would be uncomfortable expressing an
opinion. There is an open proceeding on that issue, and there
have been workshops with utility attorneys. It has been
discussed at length, and the RCA does not have formal ideas.
CHAIR OLSON asked about changing the 15-month process to 9
months.
MR. JOHNSON said rate cases are the most complex proceedings
that the RCA undertakes. One problem are the "pancake rate
cases" where the utility will file a rate case for a given test
year and then come back in a very short period of time and file
another case before the resolution of the first case. It creates
considerable processing difficulties, he said. "We can do this
stuff. What it may boil down to is how much resources is the
legislature willing to authorize the RCA to commit to the
problem." The commission could move things along faster if it
had more staff, he stated. But he reminded the committee that
rate cases are very complex and require a lot of discovery.
4:26:47 PM
CHAIR OLSON asked about raising the qualifications of
commissioners to require a master's degree or PhD. Someone like
that may be out of touch with the common person trying to pay a
utility bill, he noted.
MR. JOHNSON said there are five members of the RCA and there are
probably five opinions on that. He is an attorney and thinks
that is a good qualification. But the RCA needs an array and
range of skills.
4:28:02 PM at ease until 4:28:17 PM
Senator John Cowdery joined the hearing.
MR. JOHNSON said it is important to provide the governor with
choices and not be too restrictive. In addition to the technical
qualifications, it is important that everyone can work
cooperatively. The process is painstaking and complex. He said
he thinks Alaskans get good value for the energy that the
commissioners put into the cases. They are focused on their jobs
and bring skill and commitment to the table, but they are not in
the business of just making people happy.
4:30:13 PM
CHAIR OLSON said figures don't lie but liars can figure, and
lawyers try to make black look white and white look black and
everything look grey.
SENATOR COWDERY said he recommends an eight or six-year
extension. He said he was in the House when the RCA was created,
and it used to be the Public Utilities Commission. He has known
many commissioners and they do a good job.
4:32:35 PM
SENATOR STEVENS said the bill is merely an extension and asked
if the governor will introduce legislation regarding statutory
time for rate cases, commissioner qualifications, and salary.
MS. GIARD said the RCA has asked the governor to consider the
results of the public process and the proposals. Some comments
made today were not in the public process, including changing
the 15 months to 12 and the issue of an executive director. She
explained that the discovery process and the documents do not
come to the commission; it happens in the 10-month period
between the adversarial parties, and that is why the commission
has not been aggressive in putting in controls. It's not a
process that the RCA is involved in except when there is a
discovery dispute amongst the adversarial parties.
4:34:52 PM
SENATOR THOMAS asked about getting a response to the letter by
George Gordon from Ms. Giard.
MS. GIARD said she is going to write a response, and it will be
in the public record, along with what the RCA is asking the
governor to do.
4:36:09 PM
PAT DAVIDSON, Auditor, Division of Legislative Audit, said
during her review she looked at the cases that had been filed
and decided by the courts. In three to four years, 26 had been
decided by the Superior Court, and three of those had been
remanded back to the RCA. Four cases had gone to the Supreme
Court, and one was remanded back to the RCA.
MS. DAVIDSON noted that in statute there are 11 audit criteria
for any sunset review, and they deal with the question of if the
agency should continue to exist. It is an analysis of public
need. When changing the extension date, the audit commonly
suggests eight years if everything is working pretty well. The
RCA sunset review made recommendations for establishing
timelines for discovery. Another concern that came up was
determining the point at which the clock starts, which is too
fluid. But without any substantial deficiency, the auditors
recommended an eight-year extension, but it is up to the
legislature, she said.
4:39:48 PM
MS. DAVIDSON said audit costs vary, but she is looking forward
to the new information management system that the RCA is
creating. If it is reliable, the audits will not take four
months. "If all we're doing is going in and looking at whether
the system is reporting accurately, it's a much quicker audit."
CHAIR OLSON asked how many audits are done by contract.
MS. DAVIDSON said the audits with statutory deadlines have
priority. Another 30 to 40 percent are requests by the
Legislative Budget and Audit Committee. Depending on the budget,
the division can contract with auditors to get more work done in
a shorter timeframe. The division is a service agency of the
legislature, so it does what it is asked to do. She said she
believes that two percent of the audits use a significant amount
of external auditors and less than 10 percent over all.
4:43:25 PM
CHAIR OLSON asked her about a two-year cycle between audits.
MS. DAVIDSON said if it is merely to go in and attest that the
annual reports are accurate, it could be done easily. That would
depend on a good information management system and clear and
identifiable performance measures.
4:44:44 PM
SENATOR THOMAS asked if there are guidelines for agencies so
they know how to adequately prepare for them.
MS. DAVIDSON said 60 percent of the workload is audits required
in statute and performed annually. The agencies know about
those, she said. A sunset review is in statute and may be
discussed a year in advance. The audits requested by the
Legislative Budget and Audit Committee are not as clearly
understood and may not have much warning.
CHAIR OLSON asked if an agency can appeal an audit.
4:47:34 PM
MS. DAVIDSON said there is communication all along. The process
allows the agency to come back and say things have been missed
or misinterpreted, and discussions will follow. But sometimes
the two entities view things differently, and the audit has to
include the response of the agency officials. She noted that the
RCA generally has a nice response, but that is not always the
case. The agency response is not edited, she said.
4:49:06 PM
JAN WILSON, Commissioner, Regulatory Commission of Alaska, said
it is difficult to put qualifications of a good commissioner in
statute. It is important to have someone who doesn't form a
strong opinion before looking at the information. It is
important to have someone who enjoys the work of reading,
studying and thoroughly evaluating all the information regarding
a case and coming to a reasoned decision. A professional
certification or higher degree may indicate that kind of person.
TONY PRICE, Commissioner, Regulatory Commission of Alaska, said
a person becomes a regulatory commissioner by not knowing what
he or she is getting into. In his first few months he was amazed
at how different things are done, the body of regulatory theory,
and the application of all of it. He said it takes a great deal
of dedication and time, but competency eventually comes. A
person learns that there are five viewpoints and it is important
to be able to work together. Being a commissioner has been
rewarding personally and professionally, he said.
4:54:00 PM
MR. PRICE said the issues are very complex. He stated that
experience in utilities, accounting, finance, law, engineering,
and economics are all very valuable.
CHAIR OLSON said people in industry may come with a bias.
MR. PRICE said the commission stays neutral, and it helps to
assume you are not going to get a job with any utility because
everyone will be mad at you. He said the RCA is cloistered and
doesn't mix with the people it regulates. He said RAPA was
removed because the RCA was both judging and prosecuting. Those
are legal issues he said, but "not having the same agency
prosecute and judge is not a bad thing." He said it was removed
from the RCA because people saw it as a conflict of interest.
4:56:46 PM
SENATOR WAGONER commended the commissioners because it can be a
thankless job taking up difficult issues. He said the commission
is a necessary evil, and he is happy things have improved.
4:57:53 PM
SENATOR THERRIAULT said the policy call is if the bill extends
the commission without changes, and he is anxious to see the
product from the administration and how many things are picked
up from the audit. He said the legislature agrees that it
doesn't want the responsibilities of the RCA.
SB 16 was held over.
The Senate Community and Regional Affairs Committee adjourned at
5:00:33 PM.