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Electrical Deregulation and Customer Choice Task Force

MINUTES OF

ELECTRICAL DEREGULATION AND CUSTOMER CHOICE TASK FORCE

Thursday, July 16, 1998 - 9:00 a.m. - Room 303 State Capitol


Members Present:
    Sen. Leonard M. Blackham, Chair
    Rep. Beverly Ann Evans, 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. Christine R. Fox-Finlinson
    Rep. J. Brent Haymond
    Rep. David Ure


Members Excused:
    Rep. Kevin S. Garn

Staff Present:
    Mr. Brian Allred,
        Research Analyst
    Mr. Robert H. Rees,
        Associate General Counsel
    Ms. Patricia Owen,
        Associate General Counsel
    Ms. 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 18, 1998 - Rep. Evans called the meeting to order at 9:20 a.m.

     MOTION: Sen. Peterson moved to approve the minutes of the June 18, 1998 meeting. The motion passed unanimously. Sen. Blackham and Sen. Mayne were absent for the vote.

2.    Task Force Business - Sen. Blackham stated that during the June 18th meeting the task force discussed the following three options: 1) taking the position of recommending no legislation this year; 2) establishing a pilot program; and 3) allowing a limited classification of customers to move to competition. He stated that since that meeting the chairs have met with the various stakeholders to explore that discussion and see if there was some consensus among stakeholders related to the issue. From those meetings, the chairs have come to the conclusion that there is not a consensus at this time.

    Sen. Blackham told the task force that it is the recommendation of the chairs that due to the complexity of the issue, the necessary structure and infrastructure that would be necessary to move to competition, the need for the formation of an independent system operator (ISO), and the problem of classifying which customers could move to competition, the task force should not proceed with deregulation this year, but should continue to study the issue and watch what is happening in other states who have deregulated, and encourage the formation of an ISO.

    Sen. Jones asked what stakeholders the chairs have met with. Sen. Blackham noted that they met with the representatives of municipalities, Utah Power & Light, Rural Electric Association, the Committee of Consumer Services, and industrial users.

    Rep. Fox-Finlinson said she appreciates the efforts of the chairs in meeting with these different groups, but she is uncomfortable with taking a position on what the task force is going to do. She stated that she does not feel comfortable in limiting the focus of the task force.

    Sen. Blackham said he does not feel that they are limiting the task force's possibilities, but the chairs are recommending that the task force does not proceed with the creation of legislation this year that would do anything specific to deregulate. He also recommended that the task force consider holding only one meeting a month for the remainder of the interim.

    Rep. Becker said he is in favor of the chair's recommendation as the task force can continue to spend its time becoming better educated on what is happening in other states and what its options are with the whole range of issues.

3.    Impact of Electric Industry Restructuring on:

    a.    State Government - Aggregation

    Mr. Jeff Burks, Director, Office of Energy Resource Planning, gave an overview of the state's experience with aggregation in purchasing natural gas; a description of electricity usage at state facilities; an identification of major state loads in non-UPL service areas; opportunities for state savings through aggregation; and the potential use of aggregation as a tool for public policy objectives. He concluded his slide presentation by stating that: 1) the electric industry deregulation will materially impact operations of state and local government; 2) state and local government entities should be given the opportunity to aggregate electricity loads; and 3) Utah's tax payers stand to save millions of dollars in reduced energy expenditures. He provided task force members with printed copies of his slide presentation.

    b.    Utah's Coal Industry

    Mr. Jeff Burks, Director, Office of Energy Resource Planning, gave an overview of the potential impact of restructuring on the coal industry in Utah. He provided task force members with printed copies of his slide presentation.
    
    Mr. Richard Pick, President, Canyon Fuel Company, addressed the following points: 1) impacts of utility restructuring on the coal industry; 2) stranded cost recovery; 3) environmental riders; and 4) percentage mandates on renewables. He said that with regard to the impacts of utility restructuring on the coal industry, Canyon Fuel Company believes that utility restructuring should represent a short-to-intermediate term opportunity for the coal industry and, in many circumstances, a long-term opportunity for natural gas. With regard to stranded cost recovery, Canyon Fuel Company supports state control of the stranded cost issue and would encourage Utah to fill the void in this area at an early date by allowing the recovery of prudently incurred, legitimate, and verifiable

stranded costs. With regard to environmental riders, he indicated that his company and the coal industry in general fundamentally oppose environmental riders. With regard to mandates on renewables, he stated that his company and the coal industry in general do not oppose and, in fact, support efforts to seek additional renewable electrical generation in this country and support increased research and development efforts for renewables.
    
     c.    State and Local Taxation

    Mr. Val Oveson, Chair, Utah State Tax Commission, addressed the following state and local taxation issues: 1) the reduced prices and how they will affect taxes; 2) the questionable nexus or connection to the state that could affect where taxes are paid or the state's ability to collect them; 3) reduced values, such as the stranded costs issue, that would reduce the value of the assets that are currently subject to property tax; 4) the changes in definitions; and 5) the unbundling issue.

     d.    County Tax Base

    Mr. Gary Herbert, Utah County Commissioner, reported on how restructuring could impact the property tax base of Utah counties. He said that deregulation has the potential to have a significant impact on counties and county budgets and the potential to have a devaluation in the deregulation which can significantly impact the property tax revenues that counties have as their life stream to operate county government. He indicated that there are three components of electric restructuring that may have significant impacts on property tax valuation: 1) stranded costs; 2) functional unbundling; and 3) competitive generation.

    Mr. Herbert stated that the Utah Association of Counties (UAC) believes that in going forward with deregulation: 1) the assumption should be made that none of the electric generation in Utah has any stranded cost exposure and that the burden of proof of any stranded cost should be borne by the owner of the generation assets; 2) any legislation should include provisions for mitigation of negative impacts on property tax revenues; and 3) if restructuring is going to be implemented on a phased-in process where large customers are allowed to come in early, legislation should provide opportunities for aggregated loads that meet a reasonable threshold. UAC supports the National Association of Counties position on involvement in this important issue and would like to be allowed to participate in future discussions.

     e.    Municipalities in General

    Mr. David Spatafore, Utah League of Cities and Towns (League), said the League has been studying this issue for some time and the League made a presentation to the task force last year encouraging it to continue its study, but to proceed slowly because the League was not sure that electrical deregulation is something the state should get into. The League is still encouraging the task force to proceed slowly in studying this issue. He also told the task force that historically Utah's

municipalities are aggregators of electrical power and whatever the task force recommends to the Legislature or whatever the Legislature does during the next session, the League would encourage that part of the task force's recommendation would be that municipalities should still be considered as the sole aggregators for their constituents.

    Mr. Dave Ion, Policy Development Specialist, Salt Lake City, said that electrical restructuring presents some potential opportunities for reducing expenses on electricity and saving taxpayer dollars spent on the utility; but it provides some potential pitfalls, especially in the area of city revenues. He stated that some fundamental questions the cities in Utah would like to see addressed regarding restructuring are: 1) what would happen to existing franchises; 2) who would be responsible for consumer education and consumer rights and how would they be funded; 3) metering and billing responsibilities; and 4) stranded costs. He indicated that from a city government point of view, the current system of delivering electric power in Utah is characterized by reliability, low cost, and stable revenues, and restructuring introduces uncertainty and potential instability to those areas.

     f.    Municipal Power Providers

    Mr. Chesley Christensen, Mayor of Mt. Pleasant, spoke to the task force about how restructuring could impact the budget of Mt. Pleasant. He indicated that the city has attempted to furnish the citizens of Mt. Pleasant with a dependable source of electricity and that they are afraid that state government would become an aggregator and would buy power for state facilities. If the state aggregates and takes away the state facilities from Mt. Pleasant, it is possible that the city could lose sufficient monies that it would not be able to make its debt service. Mr. Christensen stated that Mt. Pleasant needs the customer base that it has and they are afraid that through deregulation they would lose a portion of that customer base because of aggregation.

    Mr. Tom Hardy, Representative of Bountiful City, distributed an article from Public Power Weekly titled "Wild Midwest Prices Spur Calls for a Price Cap" and an article from the Wall Street Journal titled "Soaring Prices for Wholesale Electricity Prompt Calls for Slower Deregulation." He indicated that the task force's decision not to move forward with deregulation is an appropriate course of action. Bountiful City has 14,000 electrical customers and only one customer has asked him about electrical deregulation. Each city is different, so to try and work out a system that would work for all cities would be almost impossible.

    Mr. Reid Nelson, Salem City Councilman said the potential loss of revenue to their departments could be impacted. Potentially, their property taxes would have to be raised up to 143% of current levels which would not be fair to many home owners in their cities. He indicated that the citizens of Salem would rather have the surplus revenues go back into the cities for reduced taxes, more services, and local control than to go to a corporation or stockholder outside of its boundaries.

    Mr. Leon Pexton, UMPA, stated that deregulation brings the uncertainties of artificially increasing taxes, shifting the cost of government, and shifting the impacts to those people who can least afford it and have the least market power.

4.    Task force Discussion -

     MOTION: Rep. Ure moved to cancel the August 6th meeting. The motion passed unanimously. Sen. Mayne was absent for the vote.    

5.    Adjourn -

     MOTION: Rep. Ure moved to adjourn the meeting at 11:55 p.m. The motion passed unanimously. Sen. Mayne was absent for the vote.

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