SENATE LABOR AND COMMERCE COMMITTEE February 18, 1999 1:37 p.m. MEMBERS PRESENT Senator Jerry Mackie, Chairman Senator Dave Donley Senator Loren Leman Senator Lyman Hoffman MEMBERS ABSENT Senator Tim Kelly, Vice Chairman OTHER MEMBERS PRESENT Senator Pete Kelly COMMITTEE CALENDAR SENATE BILL NO. 50 "An Act relating to certain boiler and pressure vessel inspections and inspectors; and providing for an effective date." -MOVED SB 50 OUT OF COMMITTEE SENATE BILL NO. 47 "An Act relating to the Alaska Public Utilities Commission; and providing for an effective date." -HEARD AND HELD PREVIOUS SENATE COMMITTEE ACTION SB 50 - No previous Senate action. SB 47 - No previous Senate action. WITNESS REGISTER Mr. Dwight Perkins, Deputy Commissioner Department of Labor PO Box 21149 Juneau, AK 99802-1149 POSITION STATEMENT: Supported SB 50 Mr. Sam Cotton, Chairman Alaska Public Utilities Commission Anchorage, AK POSITION STATEMENT: Supported SB 47. Mr. James Rowe Alaska Telephone Association 201 E 56th Ave #114 Anchorage, AK 99507 POSITION STATEMENT: Supported SB 47. Mr. George Gordon College Utilities Corporation Box 80370 College, AK 99708 POSITION STATEMENT: Commented on SB 47. Mr. Steve Merriam Copper Valley Telephone Cooperative PO Box 337 Valdez, AK 99686 POSITION STATEMENT: Supported SB 47. Mr. Robert Dunn Telalaska 2121 Abbot Rd Anchorage, AK 99507 POSITION STATEMENT: Supported SB 47. Mr. Charles McKee PO Box 243053 Anchorage, 99524 POSITION STATEMENT: Commented on matters of his concern. ACTION NARRATIVE TAPE 99-4, SIDE A Number 001 CHAIRMAN MACKIE called the Senate Labor and Commerce Committee meeting to order at 1:32 p.m. Present were Senators Mackie, Leman, Hoffman and Donley. The first order of business to come before the committee was SB 50, introduced at the request of the Department of Labor (DOL). SB 50-BOILER AND PRESSURE VESSEL INSPECTIONS MR. DWIGHT PERKINS, Deputy Commissioner, DOL, said SB 50 will allow the Department to increase efficiency by better utilizing the skills of existing personnel, who are competent by virtue of their special training, to perform annual inspections of cast iron boilers and domestic hot water heaters, an estimated one-half of the 6,000 boilers overdue for inspection. Limited inspections on a part-time basis should stop the backlog. CHAIRMAN MACKIE asked if the fiscal note shows that $40,000 in receipts will be generated. MR. PERKINS replied $40,000 is anticipated as additional income to the general fund. CHAIRMAN MACKIE questioned why State employees should serve this function, rather than private sector inspectors. MR. PERKINS stated the boiler code limits DOL's ability to delegate authority to municipalities or jurisdictions with a population of less than one million. SENATOR LEMAN asked if passage of SB 50 encourages the hire of more State employees or whether existing personnel will be able to get the necessary certification. MR. PERKINS replied DOL currently has three plumbing inspectors. One has the necessary certification; the other two will require minimal training to receive the certification, therefore no new employees will be needed. SENATOR LEMAN expressed concern that DOL not use this legislation as a means to hire new inspectors. CHAIRMAN MACKIE asked Mr. Perkins if he is aware of any opposition to SB 50. MR. PERKINS stated he is not, and that DOL sees this measure as one that streamlines government. SENATOR LEMAN moved SB 50 and its accompanying fiscal note from committee with individual recommendations. There being no objection, the motion carried. SB 47-ALASKA PUBLIC UTILITIES COMMISSION MR. SAM COTTEN, Alaska Public Utilities Commission (APUC) Chair, said the APUC has an excellent professional staff comprised of CPAs, engineers, tariff analysts, and others, and, despite an increasingly large workload, staff has been able to focus on the tasks at hand. Every state utility commission in the country is experiencing an increased workload, primarily as a result of the 1996 Telecom Act. Last year APUC hired the National Regulatory Research Institute (NRRI) to evaluate APUC operations. At the same time, legislative auditors contracted with a private CPA firm to audit APUC. Both audits came to similar conclusions: one being the need to create a management information system for the APUC to better track applications before it. The APUC also initiated a "bench and bar," in which people who practice in front of the Commission are invited to informal sessions to discuss ways to improve APUC operations. A second recommendation suggested the APUC's backlog be clearly identified; that project is underway at this time. Despite improvements the APUC has initiated, it needs more help, he said. The APUC approved an increase of nine staff members last fall, a process that required OMB approval. Those positions remain vacant because of the hiring freeze. APUC, in coordination with Senator Leman, has commissioned a study on electric industry restructuring; that study is in progress. MR. COTTON stated APUC members need to take more individual responsibility for the speed and quality of their work. He urged committee members to support SB 47. CHAIRMAN MACKIE asked Mr. Cotton to describe APUC's backlog and the current staffing situation regarding vacancies. MR. COTTON replied the APUC has 41 staff members but is authorized to have 55. The nine new positions that were recently approved have not been filled; the other five vacancies are not professional positions. One of the vacancies is for a new engineer to assist APUC's four engineers who are at least a few months behind. The engineers review all applications and make recommendations to the commissioners. The consumer protection section has two staff members and needs one more. The communications section accounts for a large part of APUC's workload and is understaffed. Three people are designated as common carrier specialists who handle the ground breaking issues that APUC deals with in the field of telecommunications. MR. COTTON said the identification of APUC's backlog has not been completed at this time, but he would provide it as soon as it is. CHAIRMAN MACKIE asked Mr. Cotton to respond to complaints that APUC is unable to decide matters in a timely manner. MR. COTTON admitted problems have occurred during meetings due to personality conflicts, however he hopes they will be minimized in the future. Number 256 SENATOR LEMAN stated his appreciation for APUC's cooperative stance taken in its work with the Joint Electric Utility Restructuring Committee. He asked Mr. Cotton if he is aware of any changes that could be made to the APUC's structure that might reduce its cost and size. MR. COTTON replied some commission members would suggest a smaller commission, or that the whole function be transferred to a line agency. Most states have a commission about the same size as the APUC. Much of APUC's work needs to be done by commissioners so fewer commissioners would require a larger workload for each, which would increase the backlog. The APUC has only one hearing examiner who is primarily responsible for writing orders once decisions have been made. No commissioner has individual staff, which would help to monitor the paper flow. Implementing the recommendation from both audits for more electronics will help the APUC do a better job without adding personnel, Mr. Cotton said. The APUC needs more professional staff right now. The promise of the 1996 Telecom Act is that APUC's workload should decrease in the future because more competition will decrease the need for regulation, but APUC is in a transition period which has increased its workload. SENATOR LEMAN asked if some functions can be transferred to local governments, for example refuse regulation, to free up some of APUC's time to deal with the more contentious issues. MR. COTTON said, in his personal opinion, he believes that is a great idea, however controversy exists about how that would take place. He believes local governments could probably make better decisions than the APUC about local garbage regulation as well as water and sewer regulation, although water and sewer regulation is a small part of APUC's business. SENATOR LEMAN encouraged Mr. Cotton to pursue that route because cost of service studies are expensive for the regulated entities. Number 332 SENATOR PETE KELLY joined the committee to participate in the APUC discussion. He asked about regulations promulgated by the APUC last year regarding universal services and access charges. MR. COTTON replied APUC has some other regulatory projects in progress, but the APUC identified those two areas as needing completion by this session of the Legislature. SENATOR PETE KELLY asked if those regulations have been completed. MR. COTTON said they have. SENATOR PETE KELLY asked if an applicant were to reapply to the APUC today, such as GCI, how long the application period would take. MR. COTTON stated the APUC is required by federal law to make decisions within 120 days of application. SENATOR PETE KELLY asked if APUC has already opened a docket on the PTI sale. MR. COTTON said five dockets are running a parallel track: three pertain to the acquisition application by ALC to purchase PTI, TUA, and TUNI; two pertain to the purchase of ATU and ATU Long Distance. SENATOR PETE KELLY asked if it is possible to "piggyback" the issue of a rural exemption in those dockets. MR. COTTON said it is possible, however there may be legal questions. The issue of removing the rural exemption is actively in front of the APUC at this time and an order should be produced relatively soon on that question. There has been a motion by those parties to affirmatively define the issues in that case, and other interested parties have responded to that motion. SENATOR PETE KELLY asked what the rural exemption, in practical terms, will do to the 120 day time frame. MR. COTTON replied he expects a decision to be made on those dockets in less than 120 days. APUC has scheduled a hearing within the next five or six weeks. The applicant does an initial filing to which interested parties have 30 days to respond. The applicant must reply within a certain amount of days, and then a hearing is held. SENATOR PETE KELLY referred to a decision which placed the burden of proof on an existing phone company to prove that competition would create a burden on it, and asked whether APUC can act on that case before it comes back from court or the company reapplies. MR. COTTON said one or the other would have to happen. SENATOR PETE KELLY asked what mechanism the court uses. MR. COTTON replied the court would remand to the regulatory body. He explained APUC made a ruling on GCI's application regarding the burden of proof. GCI appealed the ruling to the Superior Court, that case is under consideration at this time. Meanwhile, the FCC promulgated rules requiring the burden of proof to be with the incumbent. The U.S. Eighth Circuit Court overturned that rule and gave the states the power to make their own rules. APUC then chose to assign the burden on the competitor. The United States Supreme Court recently overturned the Eighth Circuit Court decision and stated the FCC was correct. It is likely the Alaska court will remand the GCI case to the APUC. SENATOR PETE KELLY asked Mr. Cotton how long the remand might take. MR. COTTON said he did not know. The APUC, or any of the parties, could request a remand but the APUC has elected not to do so. Also, the judge could independently choose to remand the case. CHAIRMAN MACKIE asked if the APUC could act on the case now. MR. COTTON said he could not comment on the case at the moment because the APUC is about to issue an order. CHAIRMAN MACKIE asked if the APUC can make no ruling until the court remands or a new application is filed. MR. COTTON said that is correct. He added if the case is remanded to the APUC, he would anticipate an almost immediate pre-hearing conference during which a new procedural schedule will be set. CHAIRMAN MACKIE asked if the APUC will have to hold another hearing and place the burden of proof on the incumbent. MR. COTTON said that is what he anticipates. CHAIRMAN MACKIE asked if the incumbent would have to prove the competition would provide an undue economic hardship. MR. COTTON said yes. He noted some people might continue to argue the issue of a 25 day time period for argument as the U.S. Supreme Court decision travels back to the Eighth Circuit Court. CHAIRMAN MACKIE asked which method would be more expeditious: reapplying to the APUC, or going through the remand procedure. MR. COTTON said he thought the time period would be about the same if both were before the APUC at the same date. He repeated that although the Telecom Act allows the APUC 120 days to make decisions, it does not necessarily take that long. Number 441 SENATOR PETE KELLY asked why the APUC chose to place the burden on the challenger when it made its ruling, since it seems more difficult to prove. MR. COTTON said he could not recall the rationale for that ruling and would have to check the record. SENATOR PETE KELLY said he thought it was unfair to ask the APUC to make that call because determining whether competition is in the best interest of the state is a policy question, not a regulatory issue. SENATOR DONLEY asked if anything would prevent APUC from moving ahead with the decisions on competition now. MR. COTTON replied only in that no petition to remove the rural exemption is in front of the APUC right now. SENATOR DONLEY asked if the other obstacles in place last year have been removed. MR. COTTON said the APUC identified some obstacles, and made an effort to remove those. The case still has to be brought back and heard before the APUC can determine that the test has been met to remove the rural exemption. SENATOR DONLEY asked whether the APUC's position on the presumption issue was done by regulation or by a decision. MR. COTTON replied that was done via a decision. SENATOR DONLEY asked if the U.S. Supreme Court's decision will require the APUC to formally change anything, such as a regulation. MR. COTTON said no, the APUC will be guided by the FCC regulation upheld by the U.S. Supreme Court. SENATOR DONLEY asked what the APUC's position is on competition. MR. COTTON said the APUC does not begin to review a case with a position on that question. It is guided by statute and federal law as to how it is to operate and receive petitions and make decisions. CHAIRMAN MACKIE announced he would take public testimony. Number 489 JAMES ROWE, Director of the Alaska Telephone Association (ATA), a trade association representing the incumbent in the aforementioned case, stated ATA supports SB 47. A lot of work has come along with the deregulatory Telecom Act. The APUC has spent a lot of time on the changes required by that act, and the dockets completed this year were time consuming for everyone. Many behind-the-scenes workshops were held. He stated the APUC is understaffed, and he would like activities to move in a more timely manner. He stated Alaska has more utility work to do than most other states, given the number of rural communities. He asked the Legislature to recognize the importance of the work done by the APUC. GEORGE GORDON, President and CEO of College Utilities Corporation and Golden Art Utilities, stated industry has been somewhat frustrated about getting orders and work out of the APUC. Industry participants are often reluctant to voice their frustrations for fear of negative repercussions from the APUC and/or Legislature. He commended the NRRI report, specifically the statement on page 19, that said, "Many APUC members referred, with dismay, to a lack of timeliness in the decisions, a concern that staff felt was shared by the regulated industries." He stated the Legislature has a strong role to play in the sunset review and reauthorization of the APUC and can help the APUC do its job better. He urged the Legislature to exercise its oversight authority over the APUC because it is the only body that can do so, especially in the arena of providing adequate resources including staff. He suggested giving Chairman Cotton the authority to hire and fire staff. He noted a number of APUC seats will become vacant, and his utility suggests that the Legislature find hardworking, knowledgeable commission members. He encouraged the Legislature to exercise its oversight ability on the Governor's appointments. TAPE 99-4, SIDE B Number 000 STEVE MERRIAM, Commercial Manager of Copper Valley Telephone Cooperative, testified in support of SB 47. The Cooperative believes APUC is uniquely qualified to analyze complex technical and regulatory issues brought about by the Telecommunications Act of 1996. No other neutral organization has personnel knowledgeable about those issues. He felt assured the APUC will view changes from a pro-competition and pro-consumer perspective. Number 556 ROBERT DUNN, a regulatory analyst with Telalaska, testified in support of SB 47. The importance of reauthorizing the APUC is evident in the ever increasing amount and complexity of telecommunications issues coming before it. The applications before the APUC have grown from adjudicating annual intrastate access charge filings, local rate cases, and tarriffing of new services to extremely important issues, such as local competition, access charge reform, local market structure, and universal service funding. The Telecom Act of 1996 has created an enormous amount of work and new obligations for all public utility commissions to deal with. CHARLES MCKEE, representing himself, testified on issues of personal concern regarding intellectual property rights. Number 530 SENATOR DONLEY asked Chairman Cotton for his personal suggestions regarding restructuring of the APUC to improve its functions. MR. COTTON said he does not have any other recommendations at this time. He felt Mr. Gordon's comments were good, and that the Legislature can examine future nominees for commission vacancies. He repeated he is hopeful the function of the APUC will improve in the near future. SENATOR DONLEY asked Mr. Cotton about the conflict between the APUC's neutral position toward competition and the federal pro- competition policy. He questioned whether it would be more consistent for the APUC to recognize and implement the federal policy. MR. COTTON replied there is some logic to that and I don't disagree with it, but we are guided by state statute. The whole act suggests pro-competition. Earlier GCI petitioned to remove a rural exemption. The federal law says, "within 120 days after the State Commission receives a notice of the request, the State Commission shall terminate the exemption, if the request is not unduly economically burdensome, is technically feasible, and is consistent with Section 254," - universal service. One hundred and twenty days is accurate, and secondly, when you place a burden of proof in a sentence like that it's not clear s who ought to have the burden and they made a decision. CHAIRMAN MACKIE commented if somebody petitioned for the removal of the exemption, either that happens, or if it's remanded to the APUC, it will happen within 120 days, unless the APUC rules otherwise. MR. COTTON said the State Commission is to terminate the exemption within 120 days unless the request is unduly burdensome, technically infeasible, or inconsistent with Section 254. CHAIRMAN MACKIE asked what happens if the APUC does not do anything within 120 days because of a backlog. MR. COTTON replied the federal act suggests the applicant could take it to the FCC if the APUC failed to act. CHAIRMAN MACKIE asked if that provision automatically kicks in. MR. COTTON said no. He noted the Telecommunications Act is one of those laws in which one can find an argument in favor or against the same thing. Number 475 SENATOR PETE KELLY asked for clarification of the rural exemption. MR. COTTON explained every applicant starts with a rural exemption, but can petition to remove that exemption. SENATOR PETE KELLY said he wanted to switch his positives to negatives in his previous questions for the record, and that he did not mean to be critical of the APUC's ruling. CHAIRMAN MACKIE asked if the court remands a ruling back to the APUC, that action serves as a notice. MR. COTTON said he would presume so, although it is not clear. CHAIRMAN MACKIE asked if GCI were to reapply tomorrow, a rural exemption would be granted within 120 days unless the APUC ruled otherwise. MR. COTTON said yes. CHAIRMAN MACKIE asked what would happen if the ruling was remanded tomorrow. MR. COTTON said the APUC would immediately hold a pre-hearing conference with the parties to allow those parties to express their opinions about what would have to happen. CHAIRMAN MACKIE asked if it is safe to assume the APUC would take less time to make the ruling since it has had the application before it's ready. Number 429 MR. COTTON said that is possible, but one of thing that happens at a pre-hearing conference is a schedule is agreed to. The parties might not need as much time or the opposing party might request a longer schedule. All of those considerations are discussed. SENATOR HOFFMAN asked Mr. Cotton to comment on a previous witness's recommendation to give the Chairman more authority to hire and fire staff. MR. COTTON replied the APUC statute gives the Governor the authority to appoint the Chairman and commission members. The Commission hires an executive director who handles administrative matters. He suggested the Commission should not be involved in a lot of details, although they have elected to do so in some cases. He would hesitate to add that authority to the bill. SENATOR DONLEY asked Mr. Cotton if he is happy with the level of service the APUC receives from the Department of Law. MR. COTTON said he is. The APUC has two full-time attorneys assigned to it. Some Commission members have made an effort to evaluate the need for additional outside legal counsel, and the APUC is in the process of doing an RFP, which the Attorney General will have to agree to. SENATOR DONLEY asked if any of the APUC's backlog has been caused by a lack of assistance from the Department of Law. MR. COTTON said it has not. SENATOR HOFFMAN requested that committee members be provided with copies of the NRRI report. There being no further business to come before the committee, CHAIRMAN MACKIE announced SB 47 would be held over for further work, and he adjourned the meeting at 2:40 p.m.