Electrical Deregulation and Customer Choice Task Force

administrative law standard known as substantial evidence. If a party does not like the outcome of the PSC case, the party has a direct appeal to the Utah State Supreme Court. The Supreme Court reviews the PSC's order and the record on the administrative law standard and if the Supreme Court concludes that there is no substantial evidence or not enough evidence to warrant what the PSC did, it will overturn the PSC as having been arbitrary and capricious and remand on those issues where it finds the PSC arbitrary and capricious. It is a contested proceeding and the PSC does not limit the number of issues.

    Commissioner Mecham stated that the Legislature can pass laws and policies addressing rate making, but if customer representatives feel that they have not been given the chance to show how the utility rates have come down, they will take legal action to claim that it is an unconstitutional statute. If rates are frozen or expenses go up in ways that no one could have anticipated, then the utility will sue under the Fifth Amendment of the Bill of Rights and argue that it has been deprived of its property without due process. He recommended proceeding with a rate case and that it not be limited or the Legislature will face constitutional challenges. He also indicated that he is not sure if stranded costs can be determined if a thorough examination of the utility's costs has not been done.
    Task force discussion followed.

4.    Public Comment - Sen. Blackham informed the task force that it would now hear from interested individuals who have previously requested to speak to the options that are outlined in the proposed options sheet and what their recommendations are regarding the following: 1) a target starting date for retail competition; 2) extending the rate freeze; 3) conducting a rate case; 4) scope of potential 1998 legislation regarding PacificCorp, municipals, and rural co-ops; 5) stranded costs determination and mechanisms for recovery; 6) ways to mitigate market power; and 7) any other relevant issues

    Mr. Ted Rampton, UAMPS, said that much information has been presented to the task force and UAMPS believes that the task force needs to consider that information before it moves on. UAMPS urges the task force to continue its study before any legislation is recommended because the public is owed this kind of analysis so a credible, thoughtful, and thorough product can be reached.

    Mr. Tom Broderick, PG&E Energy Services, said he has reviewed the options and offered some suggestions for improvement to Option #3. He stated that Option #3 is a good start, however, it must clearly declare which services are to become competitive or clearly empower the PSC to make that determination. PG&E would propose that, in addition to declaring generation competitive, that the task force include the services related to metering, billing, customer information and customer services, and standard offered default services. He indicated that Option #3 must require unbundling and bundling of prices and service offerings for the utilities under the jurisdiction of the PSC. It must require the creation of open access distribution tariffs and the PSC must be empowered to determine which costs belong in regulated versus unregulated aspects of their offerings. He discussed market power and the affiliate issues, which is the separation of companies and which is

distinct from unbundling and indicated that market power is multi-faceted and an ISO is an aspect of solving the market power issue.

    Ms. Beverly White, Committee of Consumer Services (CCS), indicated that CCS prefers Option #1 and recommends that the task force adopt it as part of its 1997 interim report for the following reasons: 1) it is consistent with the two-year study plan identified in HB 313; 2) it rescinds the rate freeze and allows a PacifiCorp rate case to proceed; and 3) while it does not expressly address the disposition of stranded costs issues, it leaves the door open for stranded cost issues of definition. As part of the task force's 1998 study plan, CCS recommends that: 1) hourly simulation modeling of both the WSCC market and the Utah market be performed; and 2) alternative measures to mitigate market power be fully investigated. She provided the task force members with printed copies of her presentation.

    Mr. Kent Bateman, CCS, emphasized that there is not enough knowledge or information available to the task force to make a decision on this issue.

    Mr. Mike Peterson, Utah Rural Electric Association (REA), said that REA recommends Option #1. REA believes Utah is in an excellent position to fashion customer choice legislation in a way which meets the task force's objective to preserve and enhance Utah's low electric rates. He reiterated that the coops are not opposed to customer choice and going forward, but feel that this issue needs to be clearly understood. He indicated that through a specific study plan, Utah should be able to take the best of what has been produced across the country, avoid the pitfalls, and develop model customer choice legislation.

    Mr. Curt Winterfeld added that the rural coops do not see stranded cost recovery as a barrier to competition.

    Ms. Betsy Wolf, Salt Lake Community Action Program (SLCAP), said SLCAP supports Option #1 because there are still questions that need to be answered before the task force can propose legislation which moves restructuring toward implementation dates and specific recommendations. She also indicated that Option 1 would allow the rate freeze to expire and a rate case to proceed. She provided task force members with a printed copy of her presentation.

    Mr. Ric Campbell, Division of Public Utilities, said the Division is supportive of Option #1, and feels comfortable with Option #2. He indicated that the Division believes the generation of electricity is becoming increasingly competitive and competition is an economically efficient way to set prices. The Division believes, however, that the task force should proceed cautiously.

    Ms. Clair Geddes, United We Stand, urged the task force to adopt Option #1 for the following reasons: 1) it would rescind the rate freeze which would, in turn, provide the information needed to evaluate the stranded costs of PacifiCorp; and 2) it would allow a rate case to proceed. She provided task force members with printed copies of her presentation.
    Mr. Rick Anderson, Utah Electric Deregulation Group (UEDG) and Utah Industrial Electric Consumers (UIEC), stated that UEDG and UIEC support electric deregulation legislation in the 1998 session and would recommend Option #2 or #3. UEDG and UIEC feel there is merit in declaring that the state is going to move forward and that there is merit in declaring a date. He indicated that a date is important to the industrials for two reasons: 1) it gives them a certainty as to where they are moving to; and 2) it caps some type of stranded cost recovery. He concluded by saying that the longer the task force delays more and more larger blocks of power will be taken off the market and the bids contracted to people in other states.

    Mr. Jeff Fox, Crossroads Urban Center; said he supports an end to the rate freeze and an immediate rate hearing. He indicated that the task force should ask the PSC to determine all stranded costs, not just regulatory stranded costs, and reimburse rate payers for the negative stranded costs associated with generation assets. He urged the task force to learn from the experience of other states and not to move forward with undue haste.

    Ms. Lisa Manwell, Utah League of Women Voters (League), said the League supports Option #1. The League would like to see the rate freeze expire so that a full rate case can proceed. She indicated that the League believes there are significant questions and issues that still need to be discussed and understood prior to moving to any type of legislation and no date should be established for implementing deregulation. She provided printed task force members with copies of her presentation.

    Mr. Jeffrey Burkes, Office of Energy and Resource Planning, said the agency believes that competitive energy markets are preferable to deregulation and believes that Utah's best course of action at this time is to recognize the changing structure of Utah's electric industry and develop a plan of action that addresses the unique needs of Utah's citizens, its economy, and the electric utility industry. He suggested some key elements to ensure a competitive electric market in Utah that provides a range of services, fair prices, and protections: 1) to establish a date certain when all customers should get choice; 2) to provide all customers get fair and nondiscriminatory access to competitively priced electricity and retail services; 3) to create an industry structure that promotes competition; 4) to create a fair and open process for determining stranded costs; 5) to draft legislation recognizing the differences between cooperatives and municipal utilities; 6) to make sure to preserve public services; 7) to provide licensing for all electricity suppliers; 8) to ensure that customers are educated; and 9) to make sure to provide for the maintenance of the historic reliability that the electrical system in Utah has provided.

    Mr. Doug Larson, PacifiCorp, said PacifiCorp has had the opportunity to review proposals from interested parties for a phased into competition approach and some of the proposals demonstrate how an orderly transition to competition might occur. He stated that PacifiCorp has concerns with some of the proposals for the following reasons: 1) they do not contain the amount of a price freeze that would be established at the front end of the proposal; and 2) the open date in these proposals. He indicated that PacifiCorp feels that the suggestion to invite them and other

parties to participate in negotiations in hopes of finding a negotiated settlement would eliminate the potential need for a full-blown rate case. If the Legislature is comfortable with the outcome from the negotiations, then PacifiCorp would support legislation in the upcoming session. He concluded by saying that if there is going to be a rate case, the Legislature should wait and see what the results of that rate case are before deciding what the best method of transition to competition is.

    Ms. Sally Bell, American Association of Retired Persons (AARP), said AARP supports Option #1. AARP feels electrical deregulation is an issue that will affects consumers of all ages and large and small businesses. She indicated that the Utah State Legislative Committee supports the task force's study of the necessity of the implementation and regulation of restructuring electric generation in Utah and in assuring quality of service while controlling potential increased costs. She provided task force members with printed copies of her presentation.

    Ms. Sue Ashdown said that as a public citizen and a small business owner she is concerned about the attitude she sees toward the public witnesses. She thinks it is instructive to compare the rapt attention that is given to someone from PacifiCorp to when other witnesses are speaking. She thinks that gives the public the impression that the task force has made up its mind. She also thinks that it would be good for the people who have conflicts of interest on this task force to resign.

5.    Task Force Options for Recommendation to 1998 Legislature -

    Sen. Blackham opened up the meeting for a discussion of Options #1, #2, and #3. As part of that discussion, Sen. Blackham presented a proposal on Option #3 (copy on file in the Office of Legislative Research and General Counsel).

     Rep. Evans distributed two potential motions of the task force for purposes of discussion. (Copies on file in the Office of Legislative Research and General Counsel). The first motion would require the drafting of a joint resolution for introduction in the 1998 General Session as outlined in the motion.

    Rep. Haymond spoke against the motion, explaining that he is opposed because it is a general statement and the task force should formalize the issues it will deal with. He proposed that the task force address a bill that puts into law the specific study issues rather than giving a general statement.

     Rep. Evans indicated that the more detailed statement was included in the second motion distributed under which the task force invites interested parties to submit draft legislation for consideration by the task force in its 1998 interim study.

     MOTION: Sen. Mayne moved that the task force adopt Option #1.

    Rep. Evans proposed to include her motions as part of Sen. Mayne's motion with the elimination of (b) and (c) on her second motion.
    Sen. Mayne amended his motion to include the specifics of the motions distributed by Rep. Evans with the elimination of (b) and (c).

    Rep. Fox asked that the task force divide the motion.

     The task force voted on the portion of Sen. Mayne's motion endorsing Option #1. The motion passed with Rep. Fox voting in the negative.

    The task force voted on the portion of Sen. Mayne's motion to include the statement in the joint resolution that the Legislature supports the electrical industry restructuring in the state of Utah. The motion passed unanimously.

     The task force voted on the portion of Sen. Mayne's motion to include the statement in the joint resolution that the Legislature supports the free enterprise system and that electrical industry restructuring would be a long-term benefit to the citizens of the state of Utah. The motion passed unanimously.

     The task force voted on the portion of Sen. Mayne's motion to include the statement in the joint resolution that the Legislature directs the task force to prepare legislation for the restructuring plan to be introduced in the 1999 General Session. The motion passed with Reps. Fox and Haymond and Sen. Mayne voting in the negative.

    The task force next received motions on the details of the study plan.

     MOTION: Rep. Becker moved to add to the study plan for the 1998 interim: universal service fund, taxation implications including the impact of revaluation of plants on local government property tax revenue, customer education and protection, licensing program for energy marketers, aggregation methods, and end user self-generation or co-generation preservation. The motions passed unanimously.

     MOTION: Sen. Waddoups moved to add impact on residential, commercial, and industrial customers to the study plan for the 1998 interim. The motion passed unanimously.

     MOTION: Sen. Waddoups moved to change the language on (e) to read "stranded cost evaluation and add: (i) types; and (ii) stranded cost recovery mechanisms. The motion passed unanimously.

     MOTION: Rep. Haymond moved that the task force authorize a meeting of everyone concerned with the rate issue to come up with a recommendation of a fair and equitable price and to consider a price freeze to move the task force forward. The motion failed.

     MOTION: Sen. Mayne moved to add to the study plan for the 1998 interim: reliability and safety; and environmental impacts. The motion passed unanimously.
     MOTION: Sen. Mayne's motion as amended by previous motions was then voted on by the task force. The motion was as follows:

1.     A recommendation that the rate freeze created 1997 General Session H.B. 313 should be allowed to expire and that a full Public Service Commission rate hearing on PacifiCorp should be allowed to proceed;

2.     Support of electric industry restructuring in the state of Utah;

3.     A statement that the Legislature supports the free enterprise system and that electric industry restructuring would be to the long term benefit to the citizens of the state of Utah;

4.     Direction to the Electrical Deregulation and Customer Choice Task Force to prepare legislation for the restructuring plan to be introduced in the 1999 General Session

5.     Adoption of a specific study plan for the1998 interim outlined as follows:

    a.     All interested groups or individuals are invited to submit draft legislation for consideration by the task force in its 1998 interim study. The submitted draft legislation should:
        i.     be provided to task force staff no later than April 30, 1998;
        ii.     be in bill draft form, not as an outline or conceptual proposal;
        iii.     include as an attachment, a summary outline of the proposal; and
        iv.     at a minimum either: a) address each of the following elements in the legislation; or b) affirmatively recommend not to include as an element in the legislation:
            (1)     a target starting date for retail competition
            (2)     scope of legislation re: PacifiCorp, Municipals, and Rural Co-ops
            (3)     stranded cost evaluation
                (a)     types
                    (i)     generation assets
                    (ii)     regulatory assets
                (b)     stranded cost recovery mechanisms (if stranded costs are determined)
                    (i)     rate freeze
                    (ii)     exit fees
                    (iii)     customer transition charges
                    (iv)     securitization
            (4)     market power mitigation measures
                (a)     divestiture of generation assets
                (b)     functional separation
                (c)     company spinoffs
                (d)     repeal of anti-trust exemptions
                (e)     creation of Independent System Operator
                (f)     price bands
            (5)     Aggregation
            (6)     Universal service fund
            (7)     Obligations to serve or connect
            (8)     Taxation implications including the impact of revaluation of plants on local government property tax revenue
            (9)     Customer protection and education
            (10)     Impact on all classes of customers (residential, commercial, and industrial)
            (11)     Licensing programs/regulation of providers and marketers of electric power
            (12)     End user self-generation or co-generation preservation
            (13)     Safety and reliability
            (14)     Environmental impact
            (15)     Any other relevant issue

    b.     All submitted draft legislation received by April 30, 1998 will then be reviewed and considered as a starting point for the task force's study in 1998 and could potentially become the basis for recommended legislation in the 1999 General Session.

The motion passed with Rep. Fox voting in the negative.

    MOTION: Rep. Garn moved to adjourn the meeting at 1:50 p.m. The motion passed unanimously.