She indicated that staff has asked a panel to present information under two scenarios: widespread
restructuring in the western region in which Utah participates; and restructuring by only a few states
in the western region in which Utah does not participate or postpones its participation. The three
questions the panel is to address under these two scenarios are: 1) What will Utah prices be as
compared regionally? 2) What factors impact those prices? and 3) Will the price impacts differ by
class?
b. Mr. J. Alan Beamon, Energy Information Administration (EIA), U.S. Department of Energy, presented some information from a report on retail electricity pricing under regulation and
competition the EIA has put together. He also discussed the update the EIA is currently working on.
He indicated that the key price drivers are: efficiency improvements and cost reductions; fuel prices
in existing and new stock; and movement from average costs to marginal costs. Mr. Beamon said
that some of the uncertainties are: treatment of nonfuel O & M and general and administrative costs
of competition; the degree of market power that will evolve; competitive prices for various customer
classes; the degree to which competition induces additional efficiency improvements and
technological innovation; cost of capital under competition; potential for efficiency improvements
in transmission and distribution costs; and timing of restructuring. He summarized his presentation
by stating that while many areas of the country may see lower electricity prices in general, the
northwest is likely to see somewhat higher prices. The exact level of prices is uncertain, but will be
driven by the utilities' ability to make efficiency improvements and consumer response to price
changes. The impacts will also vary significantly among regions and among utilities within regions.
c. Discussion Panel
PacifiCorp - Mr. Doug Larsen made some comparisons between Utah and California. He
indicated that California's market opened up in theory in April of this year, but the real savings that
will occur in that market will not occur until the year 2003 when the transition charge phases out.
Mr. Larsen stated that even though customers have choice in California, the state is doing a market
credit approach on customer's bills where it takes a four-week average of the price of power out of
the power exchange which is then credited against a customer's generation cost or their bill. To the
extent that the customer wants to go into the competitive market and either contract with someone
or buy power at the exchange, then they can do that to the extent that it can be done for less than
whatever that market credit is. Some of California's large marketers have essentially pulled out of
the residential sector and PacifiCorp has decided that it will not market on a retail basis in California
because there is not any savings until the transition charge is gone.
Mr. Larsen said that in regard to the question of how a power system works in figuring out
whether or not prices will be higher or lower in one region or another, that in a regulated or
deregulated environment units are dispatched basically on a variable cost basis. He concluded by
saying that once the stranded costs in California have been recovered, the state will be on a pure
market basis and, once that occurs, it is his belief that customers will benefit from lower prices.
Mr. Gene Coyle Committee of Consumer Services, stated that all the transmission in Utah
is controlled by PacifiCorp and that is going to be an important factor in how the markets work out.
The owners of transmission, even though there are open access rules with FERC, are in a position
to control the market. They can reserve that capacity and can run power plants that are not
economical in order to occupy the transmission reserve space audit and keep others out. He
indicated that the major hole in our knowledge is how that transmission is going to work. Prices are
not going to be marginal cost and the recovery of stranded costs raises prices by itself.
Mr. Coyle said with regard to whether or not price impacts will differ by customer classes
is going to depend on the institutions and the structure that is set up, but very likely small businesses
and residential customers are going to be adversely impacted. One of the key elements to be figured
out is how to either reserve some of the low cost generation for the small customers or set up a way
in which the customers do not automatically become part of PacifiCorp's customers.
Ms. Becky Wilson, Division of Public Utilities, distributed copies of her presentation to the
task force members and stated that although the impacts of widespread restructuring on Utah prices
is uncertain, Utah's annual retail generation price should lie somewhere between the highest and
lowest of currently regulated generation costs. She also stated that if a few states restructure retail
generation but Utah postpones or refrains from participation, Utah's annual retail generation price
will continue to lie somewhere between the highest and lowest of currently regulated generation
costs.
Mr. Richard Anderson, Utah Electric Deregulation Group, distributed copies of his
presentation and reviewed it with the task force members. He stated that regional averaging is not
always a bad thing. The Public Service Commission has now issued its interjurisdictional allocation
and went to an averaging of rates and in doing so, Utah ratepayers are going to see somewhere in
the neighborhood of a $50 million rate reduction.
Task force questions and discussion followed.
4. Discussion of Task Force 1998 Study Plan - The task force considered a proposed study plan. Sen. Blackham reviewed and proposed a task force study plan with the task force members.
Rep. Haymond said that the way the meeting schedule is set up, the task force will be
repealed before it has a chance to consider its recommendations. He asked if the task force is
working towards legislation and if it is, it should have some draft legislation to review in one of the
October meetings.
Sen. Blackham said that having legislation is an option, but that there may not be enough
time in October to discuss legislation.