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Electrical Deregulation and Customer Choice Task Force



MINUTES OF

ELECTRICAL DEREGULATIONS AND CUSTOMER CHOICE TASK FORCE

Wednesday, May 28, 1997 - 9:00 a.m. - Room 303 State Capitol



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. Judy Ann Buffmire
    Rep. Ralph Becker
    Rep. Beverly Ann Evans    
    Rep. Kevin S. Garn
    Rep. J. Brent Haymond
    Rep. David Ure

    
        



Staff Present:
    Brian Allred,
        Research Analyst
    Mark Andrews,
        Research Analyst
    Patricia Owen,
        Associate General Counsel
    Bob Rees,
        Associate General Counsel
    Beverlee LeCheminant,
        Legislative Secretary
    Wendy Bangerter,
        Legislative Secretary

Note:    Names of others present and copies of information distributed at the meeting are on file in the Office of Legislative Research and General Counsel.

1.    Introduction of Task Force Members and Staff - Chair Fox called the meeting to order at 9:08 a.m. She welcomed everyone to the first meeting and emphasized that the purpose of the task force is to preserve and enhance the low electricity rates that Utahns enjoy from our vibrant and healthy utility. Task force members and staff introduced themselves.

2.    Task Force Responsibilities and Schedule - Rep. Fox reviewed the schedule of meetings for the interim.

3.    Background and Overview of the Electrical Power Industry in Utah -

    a. Introduction/Overview - Mr. Brian Allred, Research Analyst, reminded the task force that proposed study plans must be submitted to task force staff no later than Wednesday, June 4th at 5:00. The task force will encourage interested individuals and groups to provide written comments and briefing papers to the committee on specified subjects. Those submitting written comments must provide 20 three-hole punched copies to task force staff by a specified date, who will then forward

them to the task force. Beginning May 29th, electronic mail comments may be sent by interested individuals who may not be able to attend task force meetings through the Legislature's web page.

    b.    Power Providers - Mr. Brian Allred presented an overview of electrical power providers in Utah. He provided committee members with hard copies of his slide presentation.

    c. Regulators - Mr. Bob Rees, Associate General Counsel, presented an overview of electrical power governmental entities in Utah. He provided committee members with hard copies of his slide presentation.

    d.    Customers - Ms. Patricia Owen, Associate General Counsel, presented an overview of electrical power consumers in Utah. She provided committee members with hard copies of her slide presentation.

    e. Summary/H.B. 313 - Ms. Owen also presented an overview of H.B. 313. She provided committee members with hard copies of her slide presentation.

4.    Presentations from Power Providers, Regulators, and Customers -

    Representative of Utah Power and Light - Mr. Doug Larson distributed material regarding the background of Utah Power and reviewed the material with the task force members. He indicated that one of the critical issues facing the task force is that of fairness. He explained three critical issues relating to fairness: 1) customers in all locations throughout the state should have access to safe, reliable, and fairly-priced electricity; 2) a plan needs to be developed which will provide customers with the opportunity to have a choice of electric suppliers; and 3) shareholders need to be allowed the ability to recover whatever stranded costs there are determined to be.

    Mr. Ted Rampton, Government Affairs Manager, Utah Associated Municipal Power Systems (UAMPS), distributed some profile information about UAMPS membership and some of the projects UAMPS is involved with. He stated that UAMPS does not necessarily favor deregulation or restructuring, however, UAMPS can see what is happening in the industry and knows that some form of restructuring is inevitable. UAMPS has three concerns with restructuring that it would like to have the task force address: 1) stranded costs recovery; 2) system reliability; and 3) making sure the economic benefits of restructuring are passed on to all customer segments. UAMPS believes that municipalities have a role in protecting the consumers and all municipalities should be involved in the restructuring process to ensure customer protection, to promote economic development, and to allow the consumers to have the advantages of the deregulated market. UAMPS proposes that the task force look at a concept called "aggregation" which would allow municipalities to join together for the benefit of combining loads for market power.

    Mr. Richard Judd, General Manager, Utah Municipal Power Agency (UMPA), distributed some background information about UMPA. He stated that UMPA would like to see the task force analyze the work that has been done by the Public Service Commission (Commission). The Commission has put in a lot of time and effort to make sure that the restructuring process is reflective to all concerned. Although stranded costs are important to UMPA, Mr. Judd said that the task force should also be focused on what market power is and how it affects the availability to have competition within an area; the obligation to serve; reliability; and that everyone benefits and has access to the availability of low-cost electricity. UMPA believes that it is essential to have low-cost electricity and other fuels to make sure that Utah's economic growth and competitive nature continues.

    Mr. Mike Peterson, representing Utah Rural Electric Association, said that the decision the task force will make regarding deregulation differs in some degree from decisions that have been made to deregulate other industries because it's decision will affect everyone's wallet, the service that's rendered, and the reliability and safety of that service. Up to this point, the organizations that operate the rural electric cooperatives in the state have seen no evidence to suggest that deregulation would benefit their rural customers any more than the current operating situation. The association is not opposed to customer choice as it was the principle of customer choice that created the rural electric cooperatives.

    Mr. Stephen Mecham, Chair, Public Service Commission, stated that the two points the Commission believes are critical to this issue are: 1) to ensure that customers are satisfied; and 2) the need to be able to determine that the generation portion of this industry can be competitive over the long-term. A question the Commission has is that when moving to a competitive market place, will the incentives be there to build and what will happen to the surplus? In a truly competitive market, the surplus will evaporate which will put upward pressure on prices.
    
    Rep. Fox pointed out that one of the task force's first assignments will be to adopt a definition of stranded costs. She asked that if anyone has a definition of stranded costs to submit it to the task force. Mr. Mecham suggested having Mr. Artie Powell, an economist at the Division of Public Utilities, report to the task force the different definitions of stranded costs and what the impact is of each definition.

    Mr. Ric Campbell, Director, Division of Public Utilities (Division), distributed a handout listing nine functions and four objectives of the division. He indicated that the Division is supportive of the move to deregulation where effective competition can occur. It is the Division's view that customers should have a choice of their electricity supplier and customers and suppliers should have access to this grid on a nondiscriminatory basis to have a level playing field in establishing the rules of the market place. The division also believes that the stranded costs issue is a key one and that the rules of the transition need to be carefully written to assure that competition actually develops.

    Mr. Roger Ball, Administrative Secretary, Committee of Consumer Services, said that the Committee has a concern about how the task force's decisions will impact the expectations of those people represented by the Committee. The Committee suggests that vertically integrated generation, distribution, and transmission should be divided. Some issues the Committee has concerns about are: Who is it that wants change? What do the people who want change stand to gain? To what extent does the technology exist to affect change and choice? What actual experience has there been to bring choice to residential consumers? How do we keep the balance as the market power of the suppliers is liable to vastly outweigh the market power of the small consumers.
    
    Ms. Betsy Wolf, Salt Lake Community Action Program (CAP), stated that some of the questions CAP suggests that the task force consider as it begins the process of deregulation are: What are the benefits of deregulation? Who benefits? What are the risks? Who is likely to bear those risks? What are the costs and who pays both in the near term and in the long run? What are the costs of disintegrating a vertically integrated system? Is it possible to add the costs of maintaining an independent operating system and the profits of power marketers and come up with power that is less expensive than what we have today? What assurances will there be that residential customers will continue to have access to low-cost power? The issue of stranded costs is a big one with estimates varying widely by billions of dollars. Who pays those costs if there are any and are they assessed fairly across all customer classes. What assurances do we have that residential customers will continue to have access to low-cost power that we now enjoy. HB 313 suggests looking at a policy that would continue protections for low-income consumers only during a transition period and CAP suggests that it's important to consider maintaining those protections for the longer term until they are certain there is no longer a need for them. CAP's final concern is that HB 313 presumes a transition from a highly-regulated monopoly to a totally competitive market and CAP suggests that perhaps there are some gray areas in that.

    Mr. Rick Anderson, Energy Strategies, Inc., indicated that Energy Strategies feels deregulation is important for the state's economy and suggests that the task force look at ways to move the industry in the state forward consistent with a set of principles that will provide fair and equitable access to consumers, protection to the consumers, and choice. Mr. Anderson provided examples of how the cost of power might affect the competitiveness of Utah industries.
    
    Rep. Fox pointed out that anyone who would like to be on the mailing list for the agendas and minutes of the task force should contact Beverlee LeCheminant in the Office of Legislative Research and General Counsel.

5.    Adjourn

     MOTION: Rep. Ure moved to adjourn at 1:00 p.m. The motion passed unanimously.     


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