Utah Legislature 70710EDT

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Electrical Deregulation and Customer Choice Task Force

MINUTES OF
ELECTRICAL DEREGULATION AND CUSTOMER CHOICE TASK FORCE
July 10, 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. Ralph Becker
    Rep. Judy Ann Buffmire
    Rep. Beverly Ann Evans
    Rep. Kevin S. Garn
    Rep. J. Brent Haymond
    Rep. David Ure

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 June 26, 1997

    Rep. Fox called the meeting to order at 9:10 a.m.

     MOTION: Senator Peterson moved to approve the minutes of June 26, 1997. The motion passed unanimously.

    Rep. Fox presented the chairs' recommendation that the task force meetings, starting with the July 22nd meeting, be held from 9:00 a.m. to 12:00 noon, with an hour and a half break for lunch, and then continue from 1:30 p.m. to 4:00 p.m. The task force members accepted the recommendation.

2.    Strandable Costs

    Ms. Patricia Owen, Associate General Counsel, gave a brief overview of the issues to consider, approaches in other states, and methods for determination. She provided task force members with printed copies of her slide presentation.

    Mr. Artie Powell, Utility Economist, Division of Public Utilities, presented an overview on the disposition of stranded costs in other industries, the definitions of stranded costs, stranded costs estimation strategies, and advantages and disadvantages of estimation procedures. He provided task force members with printed copies of his slide presentation.

    Mr. Rodger Weaver, Director, Profitability and Regulatory Administration, PacifiCorp, presented an overview on the competitive market price projection. He stated that market price projects are an indicator of benefits to customers and are one of two "moving parts" in stranded cost calculation. He indicated that PacifiCorp uses two approaches in market price projection: 1) market price trends capped by cost of new generation when needed; and 2) the cost of serving load with existing and eventual new generation. He provided task force members with printed copies of his slide presentation.

    Mr. Doug Larsen, Director, Regulatory Policy, PacifiCorp, presented an overview of PacifiCorp's calculation of regulatory assets and provided task force members with printed copies of his slide presentation.

    Mr. Jeffrey K. Larsen, Manager, Revenue Requirement, PacifiCorp, presented an overview of PacifiCorp's calculation of its stranded costs and of industry estimates of stranded costs. Mr. Jeffrey Larsen provided task force members with printed copies of his slide presentation.

    Mr. Ric Campbell, Director, Division of Public Utilities (Division), said that the Division does not advocate any one correct method to determine the amount of stranded costs, but it does feel that similar results from different methods should raise confidence in the validity of any numbers that come out of stranded cost discussions. The Division takes seriously its charge to advocate positions that maintain the financial health of the utility and past regulatory policies have contributed to the excellent financial health of PacifiCorp today. The Division is also charged with advocating just and reasonable rates and while the Division has not yet concluded what PacifiCorp's stranded costs are, it believes there is weighty evidence from respected and independent organizations suggesting that PacifiCorp's stranded costs are small.

    Mr. Lowell Alt, Chief Engineer, Division of Public Utilities, said that the Division wants the definition and the determination of stranded costs to be fair to both utilities and consumers. It does not want the utilities to be financially harmed nor does it want the utilities to be able to get windfall profits at the expense of consumers during the transition to effective competition. He indicated that the Division believes that strandable costs are those costs representing prudent investment and generation where associated regulatory assets made by utilities and funded by its investors which have not yet been fully recovered where, because of a change in state policy, the shareholders' prior reasonable expectation of recovery may not be met. The Division also feels that it is useful to compare the results from different methods of determining stranded costs and look for similar results.

    Mr. Richard Anderson, Utah Electric Deregulation Group, stated that if the goal of the task force is to feel comfortable with a defined number of stranded cost, it will not find the defined number. The number will, at best, be an estimation drawn from several different approaches and is going to have to be subjective to the value of the assumptions that go into generating it.

    Mr. Robert Reeder, Parsons Behle and Latimer, presented an overview of the basis for stranded costs.

    .     The utilities have no legal or constitutional right to recover stranded costs.
    .     Fairness demands they be allowed to recover some costs, but the burden should be shared among all stakeholders.
    .     Stranded costs are one tool to motivate the electrical utilities to restructure themselves to allow the benefits of competition.
    .     The question of the amount of stranded costs a utility is entitled to recover is a policy question and not an accounting question.

    He stated that the recovery of stranded costs should:

    .     avoid granting a windfall to the utilities;
    .     minimize the costs to the rate payers; and
    .     fairly reward the utility for restructuring.

    He provided task force members with printed copies of his slide presentation.

     Mr. Roger Ball, Administrative Secretary, Committee of Consumer Services (Committee), distributed comments and recommendations of the Committee on the recovery of stranded costs. He asked the task force to think about the concept that Utah's consumers actually have an ownership state in some of the assets of Utah Power. He also indicated that the Committee feels the task force needs to establish what the potential stranded costs are in Utah and make some assumptions of what market price should be.

    Ms. Claire Geddes, United We Stand, stated that in dealing with the issue of stranded costs, the task force needs to determine whether or not it will help create a competitive market. She suggested three factors that need to be determined before evaluating strandable costs:

    .     determining current rates from which to base evaluations
    .     the allocation of company costs
    .     the impact these costs will have on state and local taxes

     MOTION: Rep. Buffmire moved to adjourn at 1:12 p.m. The motion passed unanimously.

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