Session: State Capitol, Room 30 Juneau, AK 99801-1182 Phone: (907) 465-3873 Fax: (907) 465-3922 Interim: PO Box 1441 Wrangell, AK 99929-1441 Phone: (907) 874-2318 Fax: (907) 874-3470 50 Front Street, Suite 203 Ketchikan, AK 99901 Phone: (907) 225-8088 Fax: (907) 225-0713

Sponsor Statement for SB 324
Public Utilities Exempt from Regulation

An Act providing that a utility or electric operating entity owned and operated by a political subdivision of the state competing directly with a telecommunications utility is not subject to the Alaska Public Utilities Regulatory Act.

SB 324 ensures that the City of Ketchikan retains the ability to set rates for its telephone utility in the event it faces competition from another utility company.

Alaska law provides that where a municipality owns and operates a public utility, the municipality may regulate the terms and conditions governing the provision of that public utility and has the power to set the terms and conditions for the utility services they offer.

Alaska law also provides that if a municipal utility faces competition, all of the municipalities' utilities become fully subject to economic regulation by the Regulatory Commission of Alaska. The RCA may grant an exemption to this rule.

Principles of fairness and regulatory parity provide that this statute should be amended when a municipality faces competition from a telecommunications company. New competitive providers are subject to less regulation by the RCA. Under federal law, some new telecommunications companies are not regulated at all. (Cellular providers) By contrast, if the municipally owned telephone utility becomes subject to economic regulation by RCA, it will be more heavily regulated than the new entrant.

By economically regulating the municipally owned utility while allowing the new entrant to set prices without regulatory oversight, the marketplace is unable to provide the benefits of competition to the public. The new entrant will be able to set its rates based on market forces and competitive need, while the municipally owned utility will be required to set its rates based on its costs through rate cases. These cases can be expensive and time consuming, and sometimes attract input from other interveners.

The unregulated entity has only to price its service slightly under the regulated rates of its competitor to gain market share. Such prices are not necessarily the lowest possible rates, and are not necessarily as low as the rates would be, given unfettered competition.

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