Electrical Deregulation and Customer Choice Task Force

both fixed and variable cost market alternatives at the current time;
    .     the value of these assets over time will be determined by the revenue stream produced from the volume of sales of energy and reliability services times the prevailing market price for those products at the time of sale; and
    .     small and reasonable changes in assumptions about the future made today can cause the expected market worth of these assets to swing from positive to negative.

    A printed copy of Ms. Wilson's remarks was distributed to the committee.

3,    Municipal Power Providers -

    Mr. Ted Rampton, Utah Associated Municipal Power Systems, presented an overview of constitutional, aggregation, stranded costs, and tax issues. He provided task force members with printed copies of his slide presentation.

    Mr. Leon Pexton, Chief Financial Officer, UMPA, presented an overview of stranded costs concerns. He summarized his remarks by stating that:

    .     obligation to serve and stranded costs are interwoven;
    .     obligation to serve should allow all stranded costs to be recovered both in investments and long-term contracts;
    .     municipals and IOUs recover costs differently; and
    .     what may work for PacifiCorp will not work for municipals.
    
    A printed copy of Mr. Pexton's slide presentation was distributed to the task force.

    Mr. Richard Judd, UMPA, gave an overview of UMPA's concerns about stranded costs.

    .     the obligation to serve;
    .     market power;
    .     competition; and
    .     universal service.
    
    A printed copy of Mr. Judd's slide presentation was distributed to the task force.
    
4,    Rural Electric Cooperatives - Mr. Glenn English, Chief Executive Officer, National Rural Electric Association (Association), told the task force that the Association feels that each state should make its own decisions as to what works in the state's best interest and it has been urging Congress to wait and see what the states are able to develop before it moves ahead. He indicated that deregulation has also been called re-regulation as any time the rules of the game are changed, there will be winners and losers. It might be helpful for the task force, in the beginning, to determine what

impact it will have on the people who will be affected by deregulation. He stated that another important factor for the task force to keep in mind is that for the past ten years electric utility rates have been dropping and now are among the lowest in the world. The system has been working well and if it becomes messed up, the economy of Utah will be damaged. He said there are some critical issues the task force may want to look at: 1) "retail wheeling"; 2) universal service; 3) competition; and 4) stranded costs. He encouraged the task force members to become experts on the electric utility industry before they act. They also need to find out what impact it will have, what segment of the population is going to be impacted, and how that population will be impacted.

    The task force recessed for lunch and reconvened at 1:45 p.m.

    Mr. Curt Winterfeld, Deseret Generation and Transmission, stated that the stranded cost recovery needs to be fair and reasonable. To reach a fair outcome, the context and regulatory environment in which obligations are undertaken by utilities and their investors should be understood and given consideration and there should be some regard for the rule of unintended consequences. In moving toward competition at retail, care must be taken so as to not allow the level and the method of stranded cost recovery to replace transmission access as a strategic tool that is used by some to diminish rather than promote vigorous competition at retail. Deseret Generation and Transmission believes that it has already taken every reasonable step to mitigate its stranded costs and are committed to continue to do so. A second issue of stranded cost is the description of eligibility. Eligibility for recovery as a stranded cost should include, in addition to the generating plant, three categories: 1) power supply cost; 2) certain transmission facilities associated with generation; and 3) transition cost. Deseret Generation and Transmission believes that any change in the electric industry should also be measured by the results and terms of the benefits to the consumers in the form of lower prices and the level of service.

5.    Strandable Costs - Mechanisms for Recovery - Ms. Anne Eakin, Vice President of Regulation, PacifiCorp, gave an overview of UP&L's transition plan guiding principles, the price freeze, stranded cost sharing, the provider of last resort, and the impacts of UP&L's plan. Ms. Eakin provided task force members with printed copies of her slide presentation.

    Mr. Lowell Alt, Manager of the Energy Section, Division of Public Utilities (Division), stated that the Division does not have a position on this issue, but are expressing their views and concerns.

    Mr. Artie Powell, Utility Economist, Division of Public Utilities, gave an overview of stranded cost recovery mechanisms and some pros and cons of various methods and alternatives. Mr. Powell provided task force members with printed copies of his slide presentation.

    Ms. Georgia Barker, Utah League of Women Voters (League), indicated that some of the issues the League is addressing is that Utah ratepayers should not be required to pay for PacifiCorp's

investments in other states and should not have to pay for investments that PacifiCorp made that was done without being mandated by the Public Service Commission. She stated that the League does not favor a five-year rate freeze. If there was a freeze, it would allow companies to hide their assets and to put some of their generation over into transmission. She said that the task force also needs to take into consideration that PacifiCorp has been positioning themselves for several years to move to competition. They have already cut their operations and the quality and level of service that was provided before is not being received now. The League would like the task force to set the principles and criteria and then let the Public Service Commission set the procedures.

    Ms. Claire Geddes, United We Stand America, stated that her organization believes that PacifiCorp's approach to evaluating and recovering strandable costs by merely freezing rates for a several year period would be a violation of the "regulatory compact" with customers to provide just and reasonable rates. If it is determined that there are stranded costs, those costs should be allocated fairly among the customer classes and stockholders. If a rate freeze were in place, those strandable costs would be shifted to customers rather than stockholders. She encouraged the task force to consider this and to proceed cautiously.

6.     Adjourn

     MOTION: Rep. Ure moved to adjourn at 4:05 p.m. The motion passed unanimously. Sen. Waddoups and Mayne and Reps. Fox and Haymond were absent for the vote.