Electrical Deregulation and Customer Choice Task Force

and consumer protection concerns are customarily dealt with by licensing and that it may be necessary to create classes of licenses. He indicated that with respect to dispute resolution, those disputes will be resolved within the tariffs by the regulatory commission with whom those tariffs are filed. In the future, there will be contract disputes and the customary vehicles for solving contract disputes will be available. He provided the task force white papers on consumer protection and reliability, the regulatory compact, the Legislature's ability to require divestiture of investor-owned utilities, rural electric cooperative issues, and municipality issues.

    Mr. Gene Coyle, Committee of Consumer Services (Committee), said the Committee's first consumer protection is to preserve for the customers a portfolio of assets and power plants it has supported and paid for over the years. He also discussed his concerns regarding customer safety, system safety and reliability, and educational programs.

    Mr. Ted Rampton, Utah Association of Municipal Power Systems, said that when this process began, the municipals brought three major concerns to the task force: 1) stranded cost recovery; 2) uniform services; and 3) system reliability. He indicated that the municipals believe that because of increased competition, maintenance services may decrease which will increase the problems with system reliability. Customers need to have the assurance of a reliable electric system and municipalities and the municipals believe that municipalities have a role to play in providing this assurance. They can and should be able to make some kind of a guarantee or assurance that the electric providers will give their consumers a guarantee or alliance on electric service for safety and health reasons.

    Mr. Doug Larsen, PacifiCorp, said that PacifiCorp supports public education as an important piece of the restructuring process and that it is a joint effort between PacifiCorp and the Public Service Commission. PacifiCorp feels that reliability is an important issue and from the generation side, PacifiCorp is working with the Western Systems Coordinating Council to help establish standards that need to be in place. He indicated that for transmission, PacifiCorp sees FERC and the independent system operation carrying out those functions of reliability standards. The Public Service Commission should continue to make sure the distribution system is safe and reliable. He stated that there are current rules in place at the Public Service Commission to deal with disputes, and PacifiCorp supports the tariff process to have rules in place for disputes between customers and suppliers. He said those rules that are in place would dictate how the utility would respond to customer issues or complaints.

    Mr. Carl Albrecht, Garkane Power Association, told the task force that customer protection, safety, and reliability have always been high priority issues of the cooperatives. The cooperatives are subject to the rules of the Public Service Commission applicable to customer protection, safety, and reliability and they have maintained a high service level in these areas because of the relationship that exists from serving their own member owners. As the deregulation process moves ahead, the cooperatives see dispute resolution as an area where they may have to tell consumers that the problem is with the power supplier. He stated that the cooperatives have concerns with the speed

at which the restructuring process is moving, and that cooperatives are doing what they can to prepare for the changes.

    Mr. Ken Powell, Division of Public Utilities (Division), said that there have been two sets of circumstances where the conditions are such that government regulation of utilities appears to be justified: 1) price conditions because of inadequate competition; and 2) power quality conditions. With increasing competition, the price problem may go away, but there is reason to think that the quality of service problems will increase as providers begin to cut corners, costs, and revenues. Power quality is measurable at three levels: generation, transmission, and distribution. If the electrical industry is restructured, all three levels need to be looked at individually. He indicated that the Division feels that the rules need to be developed on a consistent basis, taking into account urban and rural differences, customer expectations, and the cost and benefit of deregulation.

    Task force discussion followed.

     B.    Societal and Environmental Issues - The panel included the following participants: Doug Larson, PacifiCorp; Rick Anderson, Industrial Consumers; Richard Judd, Municipals; Jeff Burks, Office of Energy and Resource Planning; Rich Collins, Public Service Commission; and Betsy Wolf, Consumer Advocate.

    Mr. Rick Anderson, Utah Electric Deregulation Group, said that from the industrial standpoint, although they see a line of bifurcation between the problem of low income versus the problems of conservation and renewables, all of these are problems in market failure. The industry does not see solutions to the low income problem lying in the electricity industry, but there is strong support that low-income programs should continue at a level no less than what they are today. The industry believes there is value in energy conservation and the development of renewable resources and what it would like to see as the electricity industry changes to one of less regulation is that those renewable programs are transitioned to their own market base.

    Mr. Rich Collins, Public Service Commission PSC), said the PSC has been studying restructuring issues for nearly two years. He indicated that he chaired a systems benefit workgroup which tried to identify those system benefits that are currently associated with the current regulation, which benefits would be at risk, and what kinds of mechanisms that could be instituted that would protect those services. He told the task force that the workgroup found that regulated utilities provide a whole host of services besides electricity and those services will be at risk when moving to a competitive retail access environment. He stated that there are two mechanisms that can be instituted that would preserve these benefits: 1) all providers of electricity would be required to provide these services; 2) a funding mechanism would be created to help pay for the services; and 3) market mechanisms would be developed. He said that it is going to be the Legislature's responsibility to decide which services to keep and how to create a mechanism to preserve them and that this issue should be addressed at the time of the initial legislation or these benefits will be lost.

    Mr. Richard Judd, Utah Municipal Power Agency (Agency), said that the Agency believes electricity is an essential service and not a luxury commodity in today's environment. The agency also believes there is a benefit for society as a whole for environmental projects and that there should be some balance between the economic concerns and the ability to have clean air. He stated that if retail wheeling comes about that there should be some percentage in the resource mix to make sure these goals are achieved.

    Mr. Doug Larson, PacifiCorp, said PacifiCorp supports programs to take care of the low- income and elderly. PacifiCorp believes that disconnections are the responsibility of the local distribution company and that the procedures established at the PSC will be the procedures used to either connect or disconnect a customer. PacifiCorp accepts the responsibility to be the provider of last resort to all customers in their certificated service territory. PacifiCorp supports funding renewables through a system benefit charge. PacifiCorp believes there will be a competitive market for green power.

    Mr. Dave Fair, Mt. Wheeler Power, said that they are concerned that social and economic impact that is built in the rural areas might be disrupted in the deregulation process. They also feel that some agricultural interests could be harmed. He cautioned the task force, as they consider stranded costs, social benefits, and environmental concerns, that they recognize the harm that could come to the rural players.

    Ms. Betsy Wolf, Consumer Advocate, said that consumers are concerned that the benefits currently provided by the regulated system will be stranded and disappear under restructuring unless it is specifically addressed in statute and regulation. Ms. Wolf explained that is imperative to protect and maintain what the state currently has in the restructuring process and additional protection is necessary to safeguard vulnerable customers in a competitive market place. She indicated that everyone needs to be served at a reasonable cost. Possibilities to explore to accomplish this include: 1) protecting native loads; 2) requiring certificated companies to carry a percentage of low-income load; and 3) creating a lifeline or universal service fund. She stated that under regulation we have had low cost electricity, but consumers are afraid that if electricity is deregulated, prices will rise. She urged the creation of a fund which, should the need arise either through increased prices or a down turn in the economy, would assist people unable to afford critical energy needs.

    Mr. Jeff Burks, Director, Office of Energy and Resource Planning, stated that he believes there is a legitimate public role to be provided in ensuring that energy efficiency and renewable energy programs are not lost during the transition to competitive markets. He outlined a set of guidelines for the task force's consideration to ensure these programs survive the transition to competitive markets: 1) consumers must have choice; 2) informed customers and suppliers are an essential ingredient to make competitive markets work; 3) it is important that our programs be focused on market transformation activities; 4) public funding mechanisms for these programs must be broad based, nonbypassable, competitively neutral, and small in proportion to total systems

revenues; and 5) the programs and the design of these programs must be focused on institutions that can provide the most efficient delivery of services in a cost competitive environment.

    Task force discussion followed.

     C.    Legal Issues - The panel included the following participants: Tim Hunter, PacifiCorp; Bob Reeder, Industrial Consumers; Matthew McNulty, Municipals; Sandy Mooy, Public Service Commission; David Crabtree, Rural Electric Association; and Ken Bullock, Utah League of Cities and Towns..

    1.     Background

    Ms. Patricia Owen, Associate General Counsel, discussed the legal issues and restructuring of the electrical industry. She indicated that the four potential issues are: 1) Was a regulatory compact created that requires payment of stranded cost? 2) What powers does the Legislature have to mandate divestiture or other market power mitigation measures? 3) What powers can the Legislature exercise to incorporate rural electrical cooperatives into an electrical restructuring plan? and 4) What powers can the legislature exercise to incorporate municipal power into an electrical restructuring plan? She provided the task force with printed copies of her remarks.

    Mr. Robert Rees, Associate General Counsel, gave a brief overview of Utah law concerning the power of the Legislature related to cities and towns in an electrical restructuring plan. He indicated that the Legislature has broad authority to regulate cities and towns, but it may be limited by Article XI, Section 5, and Article VI, Section 28, to the extent that it is a determinant to be a municipal function. He provided the task force with printed copies of his remarks.
    
    2.     Panel Discussion    
    
    Mr. Bob Reeder, Industrial Consumers, said that with respect to the regulatory compact, his research reveals that the compact does not serve as a predicate for recovery of stranded costs in any of the cases that have been decided to this point. He stated that with respect to divestiture, he feels that as long as the process for granting someone the right to order divestiture allows for due process, the Legislature has the prerogative of giving that to them. He stated that with respect to rural electric cooperatives, because most of the cooperatives in Utah are now privately funded, the issues of federal preemption are less critical. He stated that with respect to the municipalities, the task force has accurately stated the issues of the law.

    Mr. Matthew McNulty, UAMPS, said Utah municipalities who have their own power systems provide power directly to their citizens. They provide this power faithfully, reliably, and at lower cost than anywhere else in the state. This service is provided and regulated through the municipality's power boards or their city councils. He stated that the Utah Constitution is unique in the sense that it treats cities and towns differently. It provides and guarantees them a core

managerial role where they can set rates and require reliability.

    Mr. Ken Bullock, Utah League of Cities and Towns (League), said that historically Utah municipalities are responsible for providing public services to their citizens that reside within their incorporated boundaries. In the case of electric power, this responsibility can be exercised either through operating their own power systems or by granting a franchise to another provider. However, in either event, there is an exercise of basic managerial decisions which resides within the municipality. The League recognizes that a restructured utility will create some new dynamics and the Legislature may need to establish some basic statewide policies. However, the League is concerned that this process not result intentionally or unintentionally in the erosion of current responsibilities and authorities which now reside with Utah cities. He indicated that municipalities need to be key players in this debate and would appreciate being included in the process..

    Mr. Sandy Mooy, Legal Counsel, Public Service Commission (PSC), said the law implies agreements or contracts based upon the conduct of parties and also the writings that may exist between them, so to determine what the regulatory compact is, over 100 years worth of dealings between public utilities and the state will have to be considered. A regulatory compact may be articulated in the phrase of allowing a utility the opportunity to earn revenues sufficient to cover costs, and those costs include a reasonable return on their capital investment. He indicated that with respect to market power or divestiture, divestiture exists as a remedy in antitrust litigation when there has been found by the court that an antitrust violation has occurred, and that the remedy necessary to ameliorate that problem is only achievable by requiring divestiture. He stated that in the context of electric restructuring, if market power is viewed as an issue that needs to be addressed in relying on market operations in the future, he feels it is possible for the Legislature to inform a company that if it wants to be regulated in a certain way in the future, then it will be required to do certain things.

    Mr. Edward Hunter, Stoel Rives LLP, representing PacifiCorp, said that the most often asked question in debates on the regulatory compact is where is the signed document that memorializes this compact between customers, regulators, and the company. He indicated that there is no single document. There are rules, statutes, and orders from the commission that are the expressions of that compact and there are implied aspects of that compact. The goal of the regulatory compact was to entice utilities to invest specialized investment to provide the infrastructure necessary to provide electric service. The way that was done was to give those firms a reasonable expectation of being able to recover those costs over a long period of time. He stated that the compact has three major elements: 1) entry restrictions; 2) price regulation; and 3) service obligation. He explained that the next most frequently asked question is if there is a compact, why does the compact result in any kind of obligation by anyone to help the investors recover the investment they have made over the last 50 years. The legal reasons that they believe require stranded cost recovery are: 1) the contract analysis; 2) an implied contract; and 3) the taking argument.
    
    Mr. David Crabtree, Rural Electric Association, said cooperatives are financed based on all requirement contracts and Deseret Generation and Transmission (Deseret) secures its financing

through all requirement contracts with their member cooperatives. As a result, their members and Deseret need strong legislative protection in stranded costs in order to maintain their debt service obligations. He emphasized that no one has fought longer or harder than Deseret for fair rates for the rural consumers of Utah. He urged the task force to consider that and make sure that whatever the Legislature does will let Deseret retain the benefits of that restructuring.

    Task force discussion followed.

5.    Adjourn

     MOTION: Sen. Peterson moved to adjourn the meeting at 1:05 p.m. The motion passed unanimously.