Electrical Deregulation and Customer Choice Task Force
Members Present:
Sen. Leonard M. Blackham, Chair
Rep. Christine R. Fox, Chair
Sen. Lorin V. Jones
Sen. Eddie "Ed" P. Mayne
Sen. Millie M. Peterson
Sen. Michael G. Waddoups
Rep. Ralph Becker
Rep. Beverly Ann Evans
Rep. Kevin S. Garn
Rep. J. Brent Haymond
Rep. David Ure
Members Absent:
Rep. Judy Ann Buffmire
Staff Present:
Brian Allred,
Research Analyst
Patricia Owen,
Associate General Counsel
Beverlee LeCheminant,
Legislative Secretary
Note: Copies of information distributed during the meeting are on file in the Office of Legislative Research and General Counsel
1. Welcome - Approval of Minutes of October 23, 1997 - Sen. Blackham called the meeting to order at 9:20 a.m.
MOTION: Sen. Pet erson moved to approve the minutes of October 23, 1997. The motion passed unanimously. Rep. Ure was absent for the vote.
2. Task Force Business - Rep. Fox resigned as co-chair of the task force and read a statement explaining her reasons for resigning (copy on file if the Office of Legislative Research and General Counsel).
A. Report of the League of Cities and Towns
Sen. Blackham reminded the task force of its request to hear from the League of Cities and Towns (League) regarding motions recently adopted by the Legislative Policy Committee of the League. He indicated that a representative from the League is at the meeting to present that information to the task force.
Mr. Dave Spatafore explained to the task force that the League enacts policy in two ways. The first is through the League's Board of Directors and the second is through a Legislative Policy Committee (Committee). At the Committee's October 20th meeting, representatives from Utah Power and Light, as well as Utah Associated Municipal Power Systems (UAMPS), were invited to make a presentation on electrical deregulation. Following their presentations, the Committee adopted two motions. The first motion was that the Electrical Deregulation and Customer Choice Task Force use the entire two-year period authorized by the legislation to make its final report to the Legislature for the following reasons: 1) the League is concerned that adequate time be taken to address all the pertinent issues; 2) the League has consistently been supportive of a two-year study
period; 3) there is no compelling argument to enact legislation now; and 4) legislation should not
be enacted with a future effective date. The second motion was that municipal governments be given
the authority to serve as the exclusive aggregator for electrical service. This motion focuses on
preserving the role that municipalities now play. If that role is given through legislation, some
municipalities may not want to exercise this authority and some might, but that decision should rest
on the local elected officials. He indicated that municipalities are also concerned that actions by the
Legislature can strip them of their responsibilities to provide other public services so it is important
for the task force to proceed slowly and respect the responsibility and role that municipalities have
had throughout the years. Mr. Spatafore provided written comments after the meeting, a copy of
which is on file.
Task force discussion followed.
B. Review of Draft Task Force Report
Sen. Blackham told the task force that the chairs asked staff to prepare a summary of the
work the task force has done and the issues that have been presented. He distributed a copy of the
Draft Report Outline and proposed to the task force members that they look at each of the issues and
discuss them to see if there is consensus among the task force on their findings or if they feel they
do not have a finding. He indicated that the task force need to summarize some of the work it has
done this year so it can move forward in its second year in completing the work assigned to the task
force.
1. Stranded Costs
Sen. Blackham distributed a draft table on stranded costs of Utah utilities and asked staff to
review the table.
Ms. Patricia Owen, Associate General Counsel, indicated that the table preliminarily
summarizes figures presented to the task force regarding stranded costs subject to further
confirmation. Unless otherwise indicated, the numbers are calculated on a 1998 net present value
assuming the calculation of stranded costs should begin in 1998. However, differences may result
from use of different discount rates, levelizing , and different end years. She informed the task force
that the footnotes add clarity on some of the issues.
The task force discussed stranded costs and recommended the following:
* Stranded cost recovery for municipals and rural electrical cooperatives should be addressed differently than recovery for PacifiCorp. Under a restructuring plan where
municipals and rural electrical cooperatives could voluntarily participate in competition,
the Legislature should consider establishing mechanisms to assist municipals and rural
electrical cooperatives in recovering stranded costs.
* The Legislature should provide for the recovery of regulatory obligations after: (!) the regulatory obligations that legitimately should be included have clearly been determined;
and (2) the utility has mitigated the obligations where possible.
* The Legislature should only proceed forward if there is agreement that stranded costs related to generation assets are less than or equal to $0.
* If stranded costs are negative, i.e., PacifiCorp will be able to receive more revenue under market pricing than under regulation, the Legislature should not require that customers
receive refunds.
* The task force recommends that the Legislature take no action if they do not agree that their stranded costs related to generation assets are less than or equal to $0.
* The task force recommends that the Legislature consider directing the PSC or similar entity to determine the amount of stranded costs associated to generation assets with the
following guidance.
- the Legislature should establish both the time market pricing will begin in Utah and the time period during which stranded costs could be recovered;
- the Legislature should establish elements for the PSC to consider.
- the determination of stranded costs should be determined incrementally to reflect actual impacts of market pricing; and
- there should be a proceeding that provides a benchmark regarding basic issues such as permitted costs and allocation.
2. Municipal Power Providers and Rural Electrical Cooperatives
The task force discussed municipal power providers and recommended the following:
* The Legislature should not challenge municipals' assertion of constitutional authority, either through a franchise or the operation of a utility, to provide electrical power to its
citizens or the cooperatives' assertion of federal preemption. Therefore, the Legislature
should not require a municipality that operates a utility to allow competition within its
boundaries, or a cooperative to allow competition in its service area, but should provide
a mechanism for voluntary participation.
3. Aggregation of Purchasers
The task force discussed aggregation of purchasers and recommended the following:
* The Legislature should take no action on aggregation of purchasers and it needs extensive study by the task force next year.
4. Electric Power Marketers
The task force discussed electric power marketers and recommended the following:
* The Legislature should direct the PSC to draft potential rules addressing:
- the licensing of power marketers (including any qualifications concerning financial stability and reliability of service); and
- any other necessary customer protections.
* The PSC should present the potential rules to the task force during the 1998 Interim for its review.
5. Obligation to Serve or Connect
The task force discussed the obligation to serve or connect and recommended that this issue
needs extensive study next year.
Sen. Blackham pointed out that issues "b" through "g" under "Additional Issues Introduced
to the Task Force" in the task force draft report fit in the same category as the obligation to serve or
connect and need to be studied next year for extensive analysis and determination of the issues.
6. Market Power
The task force discussed market power issues. Sen. Blackham suggested that generation,
transmission, and distribution be separated. Several options exist to accomplish a separation,
including divestiture, company spin offs, and functional separation. The task force determined that
additional study was needed before a decision could be made.
Sen. Blackham suggested that some kind of safety net mechanism be established whereby
the Public Service Commission could take appropriate steps to ensure effective competition if it was
determined that it did not exist.
The task force recommended the following:
* An interstate independent system operator (ISO) is essential to a competitive environment and should be established. The ISOs should establish contractual standards
to ensure the reliability of all power provided by users of transmission lines. Other
recommendations were discussed but not approved.
C. Legislative Options
Sen. Blackham distributed a handout containing four options that the task force could consider in finalizing its work during this year. He also distributed an option suggested by Rep.
Haymond. He suggested that the task force discuss these options and see if any of them can be
eliminated from the list because the task force is not ready to act on them.
Sen. Peterson said she would recommend Option #1. She explained that as the task force members have discussed what issues for which they have a consensus, they have found that they need additional information on many issues and she does not feel that they can recommend legislation on these issues until they receive more information.
Sen. Blackham said Option #4 is not a consideration for the task force this year and he would recommend Option #3.
Rep. Fox stated that she feels the task force owes it to the rest of the Legislature, to themselves, and to all the people who have contributed to the task force to at least move to Option #3.
Sen. Mayne commented that by adopting Option #3, the task force basically decides to go ahead with deregulation and competition. He stated that he thought the task force's objective was to paint a picture of what deregulation would look like in the state and then adopt a program similar to it. He indicated that if a decision has to be made now to go into deregulation, then he could not accept Option #3 because he wants to know what is going to happen to the people in the state and he does not feel that the task force is there yet.
Sen. Blackham explained that choosing Option #3 would not be an absolute that the state would be going into a free market. It would be a target date with the establishment of the prerequisites that would be necessary for deregulation.
Rep. Ure said the problem he has with Option #3 is that any time there is a target date, it changes the trend of thinking. It allows people some kind of leverage because they know it is going to play into their court and may require people to give up the ground that they do not want to give up.
Sen. Waddoups said he agrees with Sen. Mayne on several points he has made, but he is inclined to go with Option #3 because of the willingness of the chair in today's meeting to eliminate issues that the task force did not agree with. He indicated that the task force needs to explore the issues and Option #3 is a method that puts them into the decision-making process.
Rep. Becker suggested leaving Option #3 on the table and having the task force continue to talk through the issues at the next meeting.
Sen. Blackham recommended that the task force continue to work on the issues as outlined in the draft report and leave Options #1, #2, and #3 on the table, recognizing that there is no commitment on the part of members of the task force. He also recommended that the task force consider holding an extra meeting in November to hear additional testimony on these issues. The task force members were unable to concur on a date for an extra meeting in November. Sen. Blackham indicated that the task force will still meet on November 13th and if the members feel they
need another meeting after that, the chair will ask the Legislative Management Committee for an
additional meeting in December.
MOTION: Rep. Ure moved to adjourn the meeting at 1:05 p.m. The motion passed unanimously. Rep. Haymond was absent for the vote.
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