SENATE LABOR AND COMMERCE COMMITTEE September 28, 1993 1:30 p.m. Anchorage, Alaska MEMBERS PRESENT Senator Tim Kelly, Chairman Senator Steve Rieger, Vice-Chairman Senator Bert Sharp MEMBERS ABSENT Senator Judy Salo Senator Georgianna Lincoln COMMITTEE CALENDAR SENATE BILL NO. 213 "An Act extending the Alaska Public Utilities Commission and the regulatory cost charge." PREVIOUS SENATE COMMITTEE ACTION SB 213 - No previous action to record. WITNESS REGISTER Don Schroer, Commissioner Alaska Public Utilities Commission 1016 W. 6th Ave., #400 Anchorage, AK 99501 POSITION STATEMENT: Supports SB 213 Bob Lohr, Executive Director Alaska Public Utilities Commission 1016 W. 6th Ave., #400 Anchorage, AK 99501 POSITION STATEMENT: Present to respond to questions Dave Hutchens Alaska Regional Electric Cooperative Association 703 W. Tudor Road, No. 200 Anchorage, AK 99503 POSITION STATEMENT: Testified on SB 213 Randy Welker, Legislative Auditor Legislative Audit Division P.O. Box 113300 Juneau, AK 99811-3300 POSITION STATEMENT: Testified on audit recommendations Jack Rhyner Alaska Telephone Association 2121 Abbott Road Anchorage, AK 99507 POSITION STATEMENT: Testified on SB 213 ACTION NARRATIVE TAPE 93-32, SIDE A Number 001 CHAIRMAN TIM KELLY called the Labor and Commerce Committee meeting to order at approximately 1:30 p.m. in the Anchorage LIO conference room. The meeting was teleconferenced to the Fairbanks, Juneau, Kenai/Soldotna, Kotzebue, and Ketchikan teleconference sites. In his opening comments on SB 213 (APUC EXTENSION AND REGULATORY COST CHARGE), Senator Kelly said there has been a lot of discussion throughout the state about the role of the APUC and its rates, as well as complaints about people wanting to opt in or opt out. He said the purpose of the meeting was to give the committee a sense of what those complaints are. He then opened the meeting to public comment. Number 015 DON SCHROER, Chairman, Alaska Public Utilities (APUC), testifying in Anchorage, noted that Bob Lohr, Executive Director of the Alaska Public Utilities Commisssion, and Susan Knowles, a commissioner, were also present at the meeting. He stated the commissions' support for SB 213, although they have several recommended changes to it. Mr. Schroer emphasized the importance of timely decisions from the APUC, and he said in spite of the significant increase in the commission's work load, they are continuing to progress in this area. He pointed out that the commission issued 363 or 12.4 percent more substantive orders in FY 93 than in the previous year, and more than twice as many as five years ago. At the same time, procedure orders have declined 17 percent to 58 in one year and by 63 percent over five years. As a result, the commission has reduced the number of pending cases at the end of FY 93 by 3.5 percent to 165, which is a 15.8 percent reduction over the past five years. Mr. Schroer outlined the following commission recommendations: (1) SB 106 (the intertie bill) transferred the power cost equalization responsibilities formerly handled by the Alaska Energy Authority to the Department of Community & Regional Affairs. However, through a drafting error some references of the commission were inadvertently changed to the department. The bill, as passed, transferred the PCE calculations to the DCRA, but that was not the legislative intent, and a revisor's bill has been prepared to correct this error. (2) The commission agrees with the legislative auditor that refuse collection and disposal should be deregulated at a statewide level and the municipalities should be authorized to regulate this area. (3) The commission is presently applying to the FCC for authority to regulate the basic tier of cable utilities currently regulated by the commission by state law. The City & Borough of Juneau has increased interest in regulating cable, but state law does not allow it at this time, and a change in statute would be necessary to allow local governments to regulate their cable companies. (4) Regulatory cost charge should be made permanent rather than simply extending the repeal date for four years. Utilities have expressed concern about a possibility of over collection of regulatory cost charges beyond the amount of the commission's budget and the APUC has proposed language to ensure that this does not happen. (5) The commission recommends adding a exemption to the Procurement Act to allow it to hire its expert witnesses for cases in a timely manner. The commission has been unable to procure professional services for expert witnesses in a timely fashion. Speaking to recommendations made by the legislative auditor last fall, Mr. Schroer said the commission concurs with the auditor's finding that the commission is meeting its public purposes and supports extension of the sunset date for at least four years. The commission opposes required adjustment of the regulatory cost charge on an industry-by-industry basis. They believe it should kept simple and uniform. The administrative expense of making this change would far exceed any value of individualization of rates. The commission agrees with the need for access for utility customers to opt in or out of regulations. Mr. Schroer said he supports raising the cutoff to either $500,000 or $1 million for economically regulated electric utilities to be eligible for deregulation. The commission agrees that the time keeping system recommended by the auditor is worthwhile to pursue. If accomplished for internal management purposes, the system could be designed relatively economically, however, if the system is required to serve as a basis for billings, it would be considerably more costly. In either case, a fiscal note would be required to carry out this recommendation. The legislative auditor recommended commission access to adequate staff support, and Mr. Schroer said he is proposing in the FY 95 budget to beef up the staff support available to the commission on regulatory policy issues. The commission is proposing to upgrade one position and create one new slot to serve as the commissioner's policy analyst. The commission supports the recommendation for staggering commissioner's terms, but a statutory change would be needed to correct this. Number 115 Addressing recommendations made by the Alaska Rural Electric Cooperative Association (ARECA), Mr. Schroer said the language "liberally construed" in AS 42.05.141, does not confer upon the APUC any jurisdiction outside of its powers listed in the statute. He added the commission has only discussed the issue of liberally construed nine times in all orders they issued during their first 25 years on the job. Many times the use of liberally construed helps aid the utility in matters such as extensions of time, temporary operating authority, and tariff approvals. ARECA's second issue is negotiated rule making. Mr. Schroer said he thinks it is an interesting idea from the federal government that bears close examination. However, under the constitution it cannot mean delegation of ruling powers of the commission to another body. He added that if this becomes an issue, much more research will be necessary. ARECA's third issue is lower RCC rates for electric utilities. Mr. Schroer said the commission expended significant resources in developing regulations and procedures to make the program work, and the program is in place and is running smoothly. However, the commission cannot support the recommendation to require itemization of the rates under the RCC program by a utility or pipeline carrier. Although in theory the recommendation has some merit, it is not clear to the commission that it would be either practical or cost effective to attempt to implement it at this time. Number 200 SENATOR KELLY asked if it is the general procedure that the administration introduces the legislative recommendations from the APUC. MR. SCHROER acknowledged that it was the general procedure. Number 210 RANDY WELKER, Legislative Auditor, testifying from Ketchikan, pointed out that this is their fourth sunset audit of APUC, and their overall report conclusion is that the Alaska Public Utilities Commission continues to operate in a efficient, effective manner and they should be reestablished. The report recommends a 10-year renewal period to June 30, 2003. Mr. Welker spoke to the following primary recommendations that were addressed in their most recent audit: (1) The repeal date should be deleted on the regulatory cost charge, and they are recommending that the commission give consideration to adjusting the RCC based more on where the cost is originated. (2) While Mr. Welker is sensitive to the commission's concern over the cost benefits of implementing a time keeping system, he thinks that over the long term, the implementation of a time keeping system would give them an indication of where their effort and which utilities the efforts of APUC is focused on. (3) The audit report recommends making it easier for utility customers to either opt in or opt out of economic regulations. Mr. Welker said the limitations in statute have been in place for quite some time without reconsideration and he believes that it is probably time to reconsider those dollar limit. He also thinks it would be better if the opting in or out procedure was modeled after the deregulation statutes which allow an election to be held if roughly 10 percent of the subscribers sign a petition. (4) The audit report also recommends that the commission continue to consider ways of providing themselves with adequate staff support. Mr. Welker said the legislature recognizes the extreme demand the utility regulations places on those individuals. He agrees with Mr. Schroer that it may warrant revisting the Procurement Code to find ways of enhancing their ability to act in a timely manner. (5) Finally, the audit report recommends adjusted language which helps accomplish the staggering of the two seats on the commission that will expire on October 31. Number 310 SENATOR KELLY asked Mr. Schroer if staggered terms has been an issue in the past. DON SCHROER answered that he doesn't know of any opposition to the staggered terms. He added that it would make it much more convenient being chairman of the commission. Number 330 DAVE HUTCHENS, Alaska Rural Electric Cooperative Association, testifying in Anchorage, referred to an August 2 letter he sent to the committee outlining the position ARECA has on three recommendations they've made for provisions to the APUC. Speaking to the "liberally construed" issue, Mr. Hutchens said the commission has identified eight or nine cases in which the term "liberally construed" has been used by the court, however, they are aware of several others. He said he agrees with the commission that most of the time their use of "liberally construed" is not a matter of great concern, however, there are times when the issue is extremely important and the use of "liberally construed" could permit them to go astray into areas that the legislature clearly has not given them. He cited a case that has been appealed to the state courts which basically rests on the interpretation of "liberally construed." Mr. Hutchens read into the record the following statement: "We are not concerned that the current commission is likely to make an outrageous expansion of its powers. Neither would we contend that expanded powers for the commission necessarily work to the disadvantage of utilities. However, we do strongly believe that when expansions of authority for the commission are sought by an interested party it should be the legislature, not the commission or the courts, who makes that decision." Mr. Hutchens said ARECA's second issue is negotiated rule making. In an earlier era the commission followed a practice of informally communicating with interested parties on proposed rule making, however, for quite some time, they have had not any informal meetings to try to define the issues and learn about how best to do the job before proposing some regulatory language. What ARECA is proposing in the negotiated rule making would not in any way transfer the regulatory authority to some non-governmental entity. The commission would convene a panel of interested and informed parties to do some negotiations on the issues involved in that subject area and then come up with a draft of what is would say in the proposed regulation. Speaking to the regulatory cost charge, Mr. Hutchens said ARECA agrees with the legislative auditor that there is no present relationship between the way the charges are levied and the workload of the commission. Further, ARECA thinks the commission's costs should be paid for out of the general fund, but if the regulatory cost charge is going to be made permanent, they urge that it be made fair, which will require some kind of reallocation of those costs among the different kinds of utilities. Number 500 Turning to the power cost equalization issue, Mr. Hutchens said ARECA agrees there was a mistake made in the drafting of the legislation and it is the view of their group that the most sensible thing to do is divide it. The utilities who are regulated by the APUC should continue to have their PCE rates set by the APUC. Utilities that are not regulated by the APUC should go to the Department of Community & Regional Affairs. In years past, ARECA has had complaints from its members that the commission has tended to use control over the PCE rates as a back door way to reregulate cooperatives whose members have voted for deregulation, and they would solve that problem by transferring that PCE authority to DCRA. Number 555 SENATOR KELLY asked when the regulatory cost charge went into effect in Alaska and if he has noticed any major increase in the budget or growth of employees. DAVE HUTCHENS answered that it is in the second year and that he has not seen any increase in the budget. SENATOR KELLY inquired as to how many people are currently employed by the APUC. DON SCHROER responded there are 41 employees, including the five commissioners. They are all classified employees except the five commissioners, the hearing officer and the executive director. Additionally, they have three people that they contract with in the Department of Law. Number 635 SENATOR SHARP stated his concern with the "liberally construed" language and the commission's comment that it has only happened eight or nine times in 25 years. Each time it has happened the consumer pays both sides of the legal challenges through rates on the utility's legal costs when fighting that challenge and also through increased budgeting of the APUC for the assistant attorney general assigned to that. He said he thinks it is something that requires a look at in the future because everybody pays no matter what the outcome. SENATOR SHARP asked what the current RCC rate is. DON SCHROER answered that it will be established at .4 this year. SENATOR SHARP stated he continues to have a concern on the discriminatory impact on utilities that have very high costs of power. TAPE 93-32, SIDE B Number 001 JACK RHYNER, President & General Manager of Tel-Alaska, testifying in Anchorage said that he was testifying in his capacity as chairman of the Legislative Affairs Committee for the Alaska Telephone Association. Mr. Rhyner said because of the ongoing upheaval in the field of telecommunications it may well be critical for the people of Alaska to reorganize the Alaska Public Utilities Commission at this time. The commission must become able to respond to change within the industry on a more timely and efficient basis. The innovation provided by personal communication systems (PCS) will bring with it an ever increasing pressure for competition at the local loop level. Recent court decisions with regards to cross ownership of cable television systems and telephone companies could well produce situations where telephone companies and cable companies will be competing by providing both services. Mr. Rhyner related that a federal joint board is at this time addressing changes in the Universal Service Fund. This is a mechanism which provides support to local exchange companies (LECs) to help keep monthly reoccurring rates for service affordable. The USF provides $30 million a year to the Alaska LEC, and the loss or even the reduction of these funds would put upward pressure on local rates which would then force the LEC into rate cases. Mr. Rhyner said the FCC's common carrier bureau believes that many elements of the intrastate access charge system are obsolete and they are planning to make changes. He said the Alaskan intrastate access charge system created by the APUC must be revamped. The process has developed into an annual rate case for every LEC in the state which costs millions of dollars annually and produces nothing but higher regulatory costs, he said. Mr. Rhyner, speaking to the structure and operation of the APUC, said the Alaska Telephone Association believes that the staff should be separated from the commission, so that it would not be directed or influenced by commissioners. MR. Rhyner said their association also has some problems with the "liberally construed" language, which the commission has historically used to be able to say that it does not set a precedent. Both utility management and the general public are placed in a precarious situation when they are unable to rely on past decisions of the commission to determine proper conduct in relationship to any particular issue, because the commission feels free to develop differing interpretations to similar conditions on a case-by-case basis. There being no further witnesses wishing to testify on SB 213, SENATOR KELLY closed the public hearing and adjourned the meeting at approximately 2:30 p.m.