MSFEDCOM.docx

Prepared Remarks of Idaho Public Utilities Commissioner Marsha Smith
for presentation before
U.S. SENATE ENERGY AND NATURAL RESOURCES COMMITTEE
Competitive Change in the Electric Power Industry —
Is Federal Legislation Necessary?
Good morning. I would like to thank Committee Chairman Murkowski and Senator Craig for this opportunity to address the United States Senate Energy and Natural Resources Committee. My intention this morning is to provide information about what has and is currently transpiring in Idaho in regards to electric restructuring. Perhaps in presenting Idaho’s concerns as well as her efforts in the legislative, regional and commission arenas, we may arrive at some conclusions to the Committee’s principal inquiry in this hearing: Is Federal Legislation Necessary?
I’ll begin with a description of legislation the Idaho Legislature passed just this past week. House Bill 399 (Attachment A) requires that electric costs be separated or unbundled not only for investor-owned utilities, but for consumer-owned cooperatives and municipals as well. This measure was adopted by the Idaho Legislature as the “first step” in helping the public, legislators, Public Utilities Commission and our governor understand the implications of electric utility deregulation. In short, it requires all of Idaho’s electric utilities to provide their customers — as well as the governmental entities I just mentioned — with an actual breakdown of costs for energy generation, transmission, distribution and other cost categories that may be designated. This is an important beginning to what we already know will be a long and complex journey. I think it important to note that we have taken this first step under emergency clause making it effective immediately. Equally as important, this measure includes the public power entities, not otherwise subject to commission jurisdiction. Their inclusion was done with their cooperation in recognition that they will be part of the coming competitive market.
Secondly, the Idaho Legislature this year has passed legislation (Attachment B) that establishes a joint committee to study electric restructuring. In the tightest budget year Idaho has seen in many years, the state Legislature appropriated $100,000 to fund this committee’s work and procure the assistance of an electric restructuring consultant; I believe this commitment and the fact the committee will conduct hearings throughout the state rather than only in our capitol city of Boise demonstrates the seriousness with which Idaho is addressing electrical restructuring.
Senate Concurrent Resolution 119 (Attachment C), also passed this year by the Idaho Legislature, supports Gov. Phil Batt’s endeavors at the state, regional and national level to preserve the benefits of Idaho’s low cost hydroelectricity. Idaho’s rivers, however, have provided far more than low-cost electricity alone. Since statehood, Idaho’s river system has literally been the lifeblood that supports our economy and way of life. Later in this presentation I will reference the comments of your former colleague here in the U.S. Senate, the Honorable James McClure, in developing this area of critical concern to Idaho in more detail. Before I do that, however, I will draw your attention to a presentation by the Idaho Water Users Association, Inc. to Idaho’s legislative committee. In its February 1997 report entitled Deregulation of the Electric Utility Industry: Some Basic Water Related Issues (Attachment F), it is pointed out that approximately sixty percent of Idaho’s electricity comes from hydroelectric generation. However, in Idaho, as well as much of the northwest, electric deregulation cannot be considered as a stand-alone economic issue. The same water used for generating that electricity is also used for agriculture; recreation; domestic, commercial, municipal and industrial purposes; and for sustaining other natural resources such as the state’s resident and anadromous fish populations. Unfortunately, many people involved in deregulation do not understand these additional facets because they do not understand water issues in the western United States.
Electrical deregulation creates the potential for competing interests in Idaho to drastically alter the social, legal and economic foundations of our state. By way of illustration, in 1995 (Attachment F), the average monthly cost of 1,000 kW hours of electricity in Boise for residential users was $48.47. In Coeur d’Alene, it was $46.34. The cost to users in New York for the same period was $124.67, San Diego was $123.44 and San Francisco was $131.15. According to a 1994 report prepared for the Bonneville Power Administration, an annual increase of 1.5 million acre/feet in the flows of the Snake and Columbia rivers would produce an 800 million kilowatt hours in winter and 1.6 billion kW hours in summer. Using values of energy of 45 mills (4.5 cents) for winter energy and 15 mills (1.5 cents) for summer energy, the report estimates an increase value of hydroelectric generation of $60 million annually. Obviously, one way to increase flows is to acquire consumptive use water rights and shift them to non-consumptive uses. Acquiring non-power water rights for use in generation, however, does not come without costs. Producing one million acre feet of water by fallowing farmland — a very real possibility in Idaho under a deregulated scenario given the figures I just quoted — would result in direct (farm related) and indirect (overall economy related) losses in southern Idaho of $500- to $670 million in income and between 10,500 and 14,000 jobs (Attachment F).
Sen. McClure (Attachment G) reaffirms these conclusions in stating that electric energy cannot be considered an isolated product of Idaho’s river system; electric energy is simply too fully integrated into all other resource values of Idaho’s river system. River governance, Sen. McClure has stated, will become “one of the most complex and difficult political and mechanical difficulties” of electrical deregulation because of its potential economic, legal and social impact on irrigation, agriculture, water rights, land uses, federally mandated protection of endangered species and other areas of everyday life in Idaho. The Idaho Public Utilities Commission shares Sen. McClure’s concerns that addressing these complex issues may take more time and resources than the federal government is willing to grant.
The Idaho Legislature also this year introduced two bills for possible consideration in 1998. The first of these two bills to be studied this summer by the joint electrical restructuring committee I mentioned earlier establishes an Idaho Domestic and Rural Power Authority. Senate Bill 1215 (Attachment D) seeks to ensure that the citizens of Idaho benefit from the hydro resources of the Columbia River and its tributaries during this uncertain era of federal deregulation initiatives. This Domestic and Rural Power Authority, under provisions of the bill, would be subject to regulatory oversight of the Idaho Public Utilities Commission, however it would be authorized to contract for power either from within or outside the United States, purchase generation, transmission and distribution facilities, approve rates, administer contracts and determine how public utilities may expand their services. This bill has some other, far reaching initiatives contained within its language but rather than list these in detail I would merely refer this committee to Attachment D, which includes the measure’s statement of purpose, provisions and anticipated fiscal impact.
The last legislative measure I would like to draw your attention to, House Bill 381, was also printed by the Idaho Legislature this year for additional consideration by the interim committee. H381 (Attachment E) directs the Public Utilities Commission to establish unbundled retail and wheeling rates by July of this year for industrial customers whose aggregated loads exceed 1 megawatt of demand. However, under the provisions of this bill, the Commission may elect to offer the same competitive supply options to customers whose aggregate demand is less than 1 megawatt. The bill, of course, has many other provisions, allowances, deadlines, etc., but the industrial customer/non-industrial customer stipulations are perhaps its most noteworthy characteristics.
I would like now to address some of the regional actions involving and/or affecting electric deregulation in Idaho. Early in 1996, the governors of Washington, Oregon, Idaho and Montana directed the formation of a regional body to review regional restructuring issues. This group’s report was presented to and accepted by the governors in December. An examination of the Regional Review Draft Plan is critical to evaluating to what extent federal involvement in the west is necessary, or desirable. Briefly, that report concluded that a subscription process must be developed for the Bonneville Power Administration; conservation, renewable resources and low-income provisions must be developed in accordance to the region’s characteristics and requirements; retail choice and access must be available by July 1, 1999; and a process for making transmission access available must be developed. A steering committee continues to operate to coordinate the implementation of these recommendations throughout the region.
A relatively new development on the regional level is IndeGo (Independent Grid Operator). This proposed organization would operate the western transmission grid system in the Idaho, Oregon, Washington and Montana as well as parts of Nevada, Utah and California. Utility companies are working to establish IndeGo and would likely retain ownership of transmission facilities, but would be prohibited from serving on the organization’s board of directors. While this organization is still in the preliminary planning stage, it illustrates the western region’s desire and ability to determine and craft this element of electric deregulation in a manner best suited to meet the unique requirements and unavoidable realities of providing and delivering deregulated energy in the west. The Bonneville Power Administration is an important participant in these initial discussions, but has expressed reservations about its ability to fully participate without congressional action allowing federal transmission resources to be part of this effort.
I would now like to discuss a few actions recently taken by the Idaho Public Utilities Commission. Just last week, the Commission solicited public input on a pilot program proposed by the Washington Water Power Co. that would enable the company’s non-industrial customers to choose the type and provider of their energy resources. WWP’s More Options for Power Service (MOPS) pilot program will involve approximately 900 of the company’s Idaho customers as well as about 1,900 customers in Washington state. The company hopes the MOPS pilot program will assist WWP, the Commission and the public in determining benefits and risks for small use customers of alternative energy, information on products, pricing and services offered by alternate providers, factors considered by customers in choosing an alternate energy provider, customer protections which may be necessary in a restructured (deregulated) market, implementation issues and costs, and accounting, administrative, power, operation, rate design, legal and other issues relevant to a deregulated industry and marketplace.
The Washington Water Power Co., by order of both Idaho and Washington commissions, has previously instituted a two-year experimental pilot program allowing twenty-six of the company’s largest retail electric customers to purchase up to one-third of their total power requirements from an energy supplier other than WWP. The DADS program — Direct Access and Delivery Service — was implemented to provide WWP, customers, the Commission and other stakeholders vital information and insight into retail direct access. WWP bills participating customers a rate for delivery across its transmission and distribution system that is equivalent to about half the retail sales rate. The program has been received cautiously with five of the eleven eligible customers in Idaho participating and nine of the eligible fifteen Washington state customers participating. The Federal Energy Regulatory Commission (FERC) last month rejected the DADS tariff without prejudice as not being in compliance with FERC Order No. 888. WWP has served notice it intends to revise its program tariffs to comply with FERC’s understanding of Docket No. ER97-960-000.
This FERC rejection of the DADS tariff, causes us great concern. FERC’s preemption of pilot programs already approved by the state regulatory commission is hindering our progress in gathering information about deregulating Idaho’s electric industry. If Idaho is to move forward in restructuring its electric industry, there must be a clear delineation between state and federal jurisdiction That allows states to continue to serve end use customers in their procurement of retail electric services.
The Idaho Power Co. has requested the Commission to approve its Market-based Pricing Service Pilot Program in which its industrial customers contracting for five- to ten-megawatts may choose between fixed and market variable prices. Market-based load accounts, under the pilot program, may be placed with either The Dow Jones - California - Oregon border (DJ-COB) or with the futures contracts traded on the New York Mercantile exchange (NYMEX) for the California-Oregon border delivery point. Comments on this proposal have been filed and a commission decision is pending.
In 1996, the Idaho Public Utilities Commission issued a Notice of Inquiry initiating an investigation into changes occurring in the electric industry. Subsequent to the issuance of the Notice, a series of workshops was conducted by the Commission staff involving numerous groups that have a stake in the future of Idaho’s electric industry, including the state’s three investor-owned utilities as well as non-regulated electric suppliers such as municipal corporations, cooperatives, independent power producers and out-of-state investor-owned utilities. Other participants included representatives from various customer classes, large industrial customers and a low-income/conservation group. Pursuant to the Commission’s directive a voluntary working group consisting of interested stakeholders was formed and issued a position paper outlining the issues facing the industry. That paper, entitled Report on Changes Affecting the Electric Utility Industry was filed with the Commission. The Commission’s subsequent order pinpointed three concerns of overriding importance to industry and consumers alike: price changes and volatility; service quality; and reliability. These three issues remain our concern today. The Commission also expressed its expectation that the industry would continue to experience a transformation to a competitive market; competition will pertain to energy only and not to local distribution; and the Commission expressed a willingness to explore alternative forms of regulation that meet the needs of consumers and providers alike.
This summer, the Commission will open a docket requiring both investor owned utilities (IOU) and public utilities to unbundled their costs using a consistent methodology as the Idaho Legislature’s recently adopted House Bill 399 requires. In the meantime, our internal PUC staff working group continues to investigate issues and hold regular meetings with the intention of formulating positions on a list of issues, including public purposes, system reliability and safety, IndeGo, hydro relicensing, low rates, alternative views of future electric industry, competitive positioning of utilities in transition to competition, experimental open access programs, stranded costs, shifting of costs among customers, consumer awareness, residential exchange program, municipals and cooperatives, taxes, siting, and the Electric Supplier Stabilization Act. Of course, this process will take into account the fact our sparsely populated, rural state has the lowest IOU rates in the nation, high irrigation loads that translate into the highest per capita water use rates in the nation, and the highest percentage of hydro generation in the country.
I could go on, Mr. Chairman and members of the Committee, but I realize our time grows short. In closing, please allow me to say Idaho has taken a proactive approach to determining what will work best for Idaho industry and Idaho consumers. As you know, we are a fiercely independent sort in Idaho, and while we believe the federal government should address broad principles that are of national necessity, the details of implementing those principles and other matters that are local and regional in nature really belong and must remain under state jurisdiction. We look forward to working cooperatively with the federal government in a manner that is both constructive and beneficial to the citizens each of us serves.
Thank you for this opportunity to address this committee and for your kind attention to the progress Idaho has already made and anticipates making in electric restructuring.
Submitted March 19, 1997
Marsha H. Smith
Commissioner
Idaho Public Utilities Commission
P.O.Box 83720
Boise, Idaho 83720-0074
Telephone: [phone]
FAX: [phone]
e-mail: [e-mail]