News Analysis

Fortnightly Magazine - November 15 1998

Hurdles loom in 10 states eyeing deregulation.

Lawsuits and delayed deadlines. A "go slow" approach and more studies. Stranded cost debates and commission reports that make recommendations but avoid concrete action.

With a new wave of states addressing electric competition, these are a few of the themes that have emerged in 1998. In most states, the process has been slow, though the start of competition does, in fact, appear closer in many.

Here are 10 states that have largely stayed out of the headlines but have made at least some movement in 1998 toward retail choice for electric customers.

Arizona (em Too Much, Too Soon? At press time, settlement talks were in progress on lawsuits filed in September by the state Attorney General and Tucson Electric, challenging emergency rules %n1%n finalized on Aug. 10 by the state corporation commission that would speed up the pace of electric competition through a more rapid phase-in than originally approved in December 1996.

A dissenting opinion issued Aug. 12 by Arizona commissioner Carl Kunasek highlighted the controversy. Kunasek criticized the new rules as "too much, too soon," and predicted that most consumers won't know what to do when retail choice becomes available for all on Jan. 1, 2001, two years after the rules begin to phase-in retail choice for larger customers. He also complained that the new rules reached "no real decision" on stranded costs, since they would have the utilities either divest generation or seek some level of transition revenue yet to be decided. Kunasek saw it all as a formula for litigation.

"The time for resolving stranded investment issues starts well before competition begins," he noted. "To date, we've solved nothing."

Nevertheless, according to ACC spokesman Perry Baker, if a settlement is reached in the Tucson case, the Attorney General would probably drop his lawsuit as well. The commission, for its part, says it doesn't anticipate that its Jan. 1 startup date will be affected by the lawsuits. That target marks the date to begin the phase-in plan for retail competition, by which all customers would be eligible by Jan. 2001. (On May 29, the Governor had signed HB 2663, which called for competition for 20 percent of system load on Jan. 1, 1999 and 100 percent on Jan. 1, 2001.)

The two options on stranded costs have prompted different strategy choices by Arizona utilities. Under the first option, utilities may recover 100 percent of stranded costs determined by auctioning all generation assets. They would be able to keep 50 percent of auction proceeds above book value. Should a utility choose not to divest, the second option provides for a 10-year guarantee of sufficient revenues to maintain financial integrity. Tucson Electric announced on Aug. 21 that it planned to divest, %n2%n while Arizona Public Service was seeking regulatory approval to recover approximately $533 million of stranded costs from ratepayers. %n3%n

Under the rules, customers who have access to competitive generation service will also have the option of competitive metering and billing. The rules also call for a 3- to 5-percent rate cut for those customers not eligible for competitive services during the transition period, as well as a controversial mandatory solar portfolio standard, which Kunasek has also questioned:

"The [portfolio] requirement at full build out will require more solar than is currently available in all of the Western U.S."

Arkansas (em A Retreat on Metering. On Oct. 1 the Public Service Commission issued the final version of its Report on Restructuring the Arkansas Electric Utility Industry, %n4%n referring the issue to the Joint Interim committee on Insurance and Commerce, which is scheduled to report to the full House and Senate by Jan. 1999. The PSC report, which makes several recommendations on a wide range of topics, notes many issues that still must be resolved before competition can begin. It suggests a target date no later than Jan. 1, 2002. To achieve that goal, it calls on the legislature to take action during the 1999 session.

The PSC also asks for authority to decide on recovery of stranded costs and, if needed, to initiate a securitization program. Meanwhile, Entergy Arkansas says that state lawmakers should require the PSC to allow utilities full stranded cost recovery in any new restructuring law. Entergy warned that if utilities received only partial recovery, the state could expect legal delays, which would threaten the 2002 target date.

With respect to metering and billing, the Oct. 1 report retreats a bit from the draft version issued in Aug.. After reviewing comments, the PSC decided to delay competition for metering and billing at least until the market retail supply choice opens up, or even later, as the PSC may deem appropriate.

Georgia (em Will Go Slow. A "go slow" approach appears to be the word in Georgia, according to public service commissioner Bobby Baker, who notes that the state already enjoys low rates. Thus, the PSC is continuing to "evaluate" electric industry restructuring, as was called for in a report issued by the PSC on Jan. 28, 1998, %n5%n after it held a series of public hearings during the summer of 1997.

In December, the PSC is expected to act on a Georgia Power rate case, %n6%n in which the issue of stranded costs figures prominently. After that, the commission will likely move ahead with a plan. A recommendation to the General Assembly is expected toward the end of 1999 in anticipation of legislation in 2000.

Maryland (em Less Ambitious. Delaying its original April 1999 startup date, the Public Service Commission has now targeted July 2000 to begin competition, as provided for in a rehearing order issued on September 10. %n7%n Under the new plan, one-third of customers would participate in competition by July 2000, two-thirds by July 2001, and all customers by July 2002. The delay came after a Rehearing Application was filed by the Maryland Office of Peoples Counsel, which claimed that the schedule under the original December 1997 order %n8%n was too ambitious.

Noting that the 1997 order already defers competitive metering and billing two years, the September order declines an OPC request for further delay on that issue because OPC failed to provide a persuasive reason in support of its request. The commission emphasizes that no third-party billing will occur until it has approved both the qualifications criteria for permitting such billing and the specific entities that will perform the billing.

Nevertheless, the PSC did bow to pressure on one point. Reversing its position from the 1997 order, it adopts a reciprocity requirement in its September decision.

Missouri (em Legislation Unlikely. Legislation is not anticipated in 1999 in Missouri, although the state's Retail Competition Task Force, appointed by the Public Service Commission in 1997, %n9%n filed its report on May 1 of this year. %n10%n

"Retail restructuring should proceed with caution and be completely within the control of the state," the report advises.

"We want to do it right," adds PSC Electric Department Manager Bill Washburn.

While it outlines options on various issues, the report makes no recommendation on such key questions as how the state would best restructure the electric industry as well as the issue of stranded costs. The report, intended to serve merely as a primer for the General Assembly, does, in fact, recommend changing certain laws that may be incompatible with a competitive environment.

The report has been forwarded to the legislature. Washburn states that the Joint Interim Committee has begun its work (two meetings were scheduled for the end of October). Meanwhile, the PSC has announced the formation of an Electricity Roundtable Discussion Group, which will consist of twelve individuals including two commissioners, to examine the future of the industry in the state. An agenda committee, which will set meeting dates, is being put together.

Nevada (em Raising the Bar. In October the Public Utilities Commission reissued proposed rules it first released during the summer %n11%n on competitor licensing and consumer protection, seeking more input before issuing a final ruling, expected in November. In particular, the proposed rules would require that marketing affiliates of utilities must post a bond high enough to cover the cost of two months of "Provider of Last Resort" service, or $250,000, whichever is greater.

"We're setting the bar fairly high in Nevada to assure we get companies who are financially able to meet their obligations to assure their customers get quality service," says Chairman Judy Sheldrew.

Assembly Bill 366, signed into law in July 1997, directs the PUC to establish customer choice no later than 1999.

In the area of distribution tariffs, the PUC has proposed a change which will allow customers whose use of electricity is over 100 megawatts to arrange for their power delivery directly from the distribution company.

In June, after holding three workshops in February and March and soliciting comments on the issue, the PUC voted to classify billing, metering, and customer services as competitive services in addition to aggregation and generation. A hearing was scheduled on the matter for Oct. 28. %n12%n

New Jersey (em Outlook Hopeful. Bills introduced in the Assembly on Sept.17 (A-10) and in the Senate on Sept. 28 (S-5) each provide for customer choice no later than June 1, 1999 with a maximum four-month phase-in should the utility companies need it. Both bills also call for a minimum 5 to 10 percent rate reduction, unbundling of customer bills, and recovery of, and the ability to securitize, stranded costs.

Under the legislation, utilities would be able to recover all stranded costs that cannot be mitigated through "all reasonably available measures." Stranded costs would be recovered through a market transition charge, or MTC, and could include costs for nuclear decommissioning, as well as environmental expenses and BPU-approved social programs.

Elizabeth Ard, GPU Energy's vice president of government and regulatory affairs for New Jersey, while emphasizing the company's desire for the start of competition, has concerns about the legislation. According to GPU spokesman Ron Morano, Ard is referring to potential restrictions on the work that can be performed by utility personnel and employees of their marketing affiliates. GPU Energy is concerned that utilities outside the state will have an advantage.

"Language is the big issue," says Morano. "Let's work on completing this part so we can move on to the next stage."

Meanwhile, the Coalition for Competitive Energy has come out against the legislation, saying that consumers should not have to pay for 100 percent of stranded costs. The Board of Public Utilities is hopeful that legislation will be passed this year, allowing for six months to educate the public. A public education program, however, is already underway.

Ohio (em Delaying Tactics. Bills introduced into the legislature on March 26 by Sen. Bruce Johnson %n13%n and Rep. Priscilla Mead %n14%n call for customer choice to begin Jan. 1, 2000. Under the bills, the state would be divided into temporary retail marketing areas, or RMAs, which are designed to reduce the potential for market power abuse during the five-year transition period. Those electric customers who don't choose a generation supplier would be served by the auction winner of that particular RMA. Both gubernatorial candidates support, at least in principle, the Johnson and Mead bills.

On Aug. 11, however, Ohio's major investor-owned electric companies answered a request by the General Assembly and introduced their own proposal. It would delay customer choice until Jan. 1, 2001.

Senator Johnson doesn't think the utilities' proposal is an improvement over his. "It looks like a plan not to compete," he said.The utility proposal leaves the option open for the companies to securitize their transition costs, so long as the rates to customers don't increase. The proposal includes a five-year transitional rate freeze while consumers become familiar with competition. The proposal also states that tax reform be designed to avoid a decline in utility tax revenues, a primary funding source of school districts. The tax issue remains an important one, as Ohio voters in May decided against a 1-percent sales tax increase, which had been intended to raise money for school districts.

Anticipating competition, the Public Utilities Commission in July approved new consumer protection standards. %n15%n The standards include several service time limits, such as a requirement that companies test a customer's electric meter within thirty days of a request.

Oregon (em Jury Still Out. The past year saw the implementation of two pilot programs in Oregon (em one by Portland General Electric Co., the other by PacifiCorp. PGE opted to let its program end on schedule on Dec. 3, stating it learned what it set out to learn from the project, which achieved a 15 percent participation rate. Meanwhile, PacifiCorp won authority from the Public Utilities Commission in August to extend its program through September 1999, with changes to encourage greater participation. Previously, no schools or industrial customers had participated in its plan, which had attracted a 6 percent participation rate.

PUC spokesman Ron Karten notes that the pilot programs were created to find out whether customer choice is safe and reliable and, secondly, if it's economically feasible. The answer to the first question is yes, according to Karten, but the jury is still out on the second. As Commission Chairman Ron Eachus states, "The pilot was never intended to mirror full customer choice of electricity providers, but it did enable us to test how systems would work and what customer response to direct access to other electricity providers might be."

At press time, the PUC was considering a move by PGE to open all of its territory to customer choice. A decision was expected later in 1998.

Washington (em Waiting for Results. Washington Water Power Co. launched its customer choice pilot program (More Options for Power Service II) on July 1. Under the program, customers may choose from among different "portfolios" of electricity service: monthly or annual market rates, renewable resource rates, traditional energy service, or a standard rate offer for customers who select one of the market rates but desire to return to a more stable energy service rate.

The More Options II program is being closely monitored for its key feature of allowing customers to choose among energy service alternatives without having to change service providers (em an approach considered to be a possible model for state-wide restructuring. Nevertheless, the plan was delayed from its original May 1 start date in hopes of attracting greater participation.

In legislature activity this year, a bill was passed calling for the utilities to submit studies on unbundling their costs, although the legislation was partially vetoed by the Governor on April 2. %n16%n The bill would also require most utilities to prepare a cost, service, quality and reliability report to be presented to the legislature. Each investor-owned utility was to file a report with the state auditor by Oct. 1. By Dec.1, the Commission and the state auditor are to submit to the legislature a joint report on study results.

Carl J. Levesque is an editorial assistant for Public Utilities Fortnightly.

1 Docket No. RE-00000-C-94-0165, Decision No. 61071, filed Aug. 10, 1998 (Ariz.Corp.Comm'n).

2 Docket No. E-01933A-0772 (Ariz.Corp.Comm'n).

3 Docket No. 017734-97-0742 (Ariz.Corp.Comm'n).

4 Docket Nos. 97-451-U, 97-452-U, 97-453-U (Ark.P.S.C.). See also,

5 Docket No. 7313-U, Jan. 28, 1998 (Ga.P.S.C.).

6 Docket No. 9355-U (Ga.P.S.C.).

7 Case No. 8738, Order No. 7456, Sept. 10, 1998 (Md.P.S.C.).

8 Case No. 8738, Order No. 73834, Dec. 3, 1997, 181 PUR4th 185 (Md.P.S.C.).

9 Case No. EW-97-245 (Mo.P.S.C.). See also,

10 See,

11 Docket No. 97-8001, July 24, 1998 (Nev.P.U.C.).

12 Docket No. 98-9038 (Nev.P.U.C.).

13 Senate Bill 237.

14 House Bill 7232.

15 Case No. 97-1578-EL-ORD (Ohio P.U.C.).

16 House Bill 2831.


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