Electrical Deregulation and Customer Choice Task Force

and market power. They addressed three conclusions the Division has reached in its perspective regarding PacifiCorp's stranded costs and market power: 1) effective competition could benefit customers; 2) stranded cost determination is important because it has a real impact on customers and communities; and 3) while the Division agrees with many of the assumptions used by Monitor Company, it has significant concerns about key variables and the reliability of their overall approach. They addressed issues of: market price and the variables that impact it; PacifiCorp's costs; stranded cost allocations; methodologies; market power; and reality checks and policy implications. They provided task force members with printed copies of their slide presentation.

    Task force discussion followed.

    C.    Committee of Consumer Services (Committee) - Mr. George Sterzinger, EER Consulting, presented an overview of EER Consulting's findings and recommendations regarding PacifiCorp's stranded costs after conducting a study requested by the Committee. He addressed stranded cost exposure, generation costs, market price estimates, and generation cost-market price pairings. He also suggested three policy recommendations: 1) the task force should request the Public Service Commission (PSC) to open a formal proceeding to make a determination of PacifiCorp's stranded costs in Utah; 2) because of uncertainty relating to future market prices, the task force should instruct the PSC to examine alternative stranded cost true-up mechanisms so that the recovery of negative stranded costs by ratepayers, or positive stranded costs by PacifiCorp, is accomplished in a fair and efficient manner; and 3) the task force should instruct the PSC to examine proposals that allow for customer choice without fully deregulating generation assets. He indicated that it is important for the task force not to lose sight of the overall question and that question is: Can they offer customer choice and competition in a way that benefits both the people who can take advantage of it and the people who cannot? He provided task force members with printed copies of his slide presentation and supporting material.

    Task force discussion followed.

    D.    Monitor Company Response - Mr. Eyring indicated that he feels there has been a unanimity of opinion in the discussion that has taken place that competition is coming and is probably going to be a good thing overall. The question is: Can the Legislature get there and can it get Utah there in a fair and equitable way without knowing exactly what the stranded cost number is? He believes the answer is yes. He told the task force that the thing to focus on in the stranded cost debate is that it is not a debate about one economic model versus another. It is a question of how Utah will move into what will inevitably be a deregulated environment and what is the right way to make that happen which will give equitable treatment to shareholders and ratepayers. He stated that the issue of certainty is a critical one and the greatest risk in this area is that in the process of attempting to be fair to both shareholders and ratepayers, the Legislature could be unfair to both.
    Task force discussion followed.

    E.    Panel Discussion -

    Mr. Rick Anderson, Utah Electric Deregulation Group, said large industrial users he represents do not believe the stranded costs number is excessive. They believe that natural gas prices are going to remain fairly constant, and that new technology can offset the increment to hold those prices down in the future. He stated that if there are stranded costs, there is room for argument as to why there should be some recovery and that recovery should be over a transition period that is fairly short in duration. Large industrial users think there are reasons for the Legislature to begin now to position Utah for a future in competition. They believe that the Legislature can direct the policy of the state to move forward on deregulation by the year 2000 and, in doing so, set up the conditions by which the state will move forward. He also indicated that perhaps a price freeze is justifiable as it would give some amount of recovery to PacifiCorp if the stranded costs are there.

    Mr. Gene Coyle, representing consumer advocate groups, said that the rate freeze idea is giving stranded costs without ever trying to find out what they are and he would support the idea of a prompt rate case where they could find out some of the stranded cost numbers. He indicated that in terms of the examples of deregulation from Monitor, prices and costs are not the same thing and even if costs were flat, it does not mean that consumers benefit from them. He stated that one of the big flaws in Monitor's presentation is that it did not identify what plants would be stranded. What is going to get shut down are the worst plants and those are the old gas-fired steam plants, not PacifiCorp's coal plants. He also stated that the EPA is talking about some new rules for emissions requirements that will not hit PacifiCorp, but will hit competing companies, so if those other plants get shut down or retrofitted at great expense, PacifiCorp is a much better competitor and the value of their plants is going to jump and that should be considered in the stranded cost calculation.

     Task force discussion followed.

    F.    Public Comment -

    Mr. Fred Finlinson, representing IHC and Central Valley, told the task force that groups interested in the deregulation issue have been meeting to discuss the issue and their message to the task force is that there is a way to create and bring to the Legislature for their consideration a deregulation bill that can deal with this issue in a fair way that will be sound policy for the state. These groups have submitted to the task force an identified concept that can become the basis for that deregulation approach. He indicated that two critical issues that need to be dealt with as the Legislature looks at deregulation are: 1) the date to start the competition; and 2) how to deal with stranded costs. He stated that there are ways to deal with the issues of what will be the market power and whether the state can move into this new concept in a way that will create a fair playing field for those who want to come in and compete. These groups have been discussing these concepts and have included them in the documents they have submitted to the task force.

    Ms. Clair Geddes, United We Stand, said the state has no competition, but will now have a freeze and will be stuck with frozen rates. She stated that Utah has low rates and does not have anything to gain to be the first one to deregulate and ruin its economy.

4.    Adjourn -

    A motion was made to adjourn the meeting at 1:00 p.m. The motion passed unanimously. Sen. Peterson and Rep. Evans were absent for the vote.