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The Electricity Debacle

The Electricity Debacle. Mission Statement: The UTC protects consumers by ensuring that utility and transportation services are fairly priced, available, reliable, and safe. What happened, Why it happened, and What we should do?. Marilyn Showalter, Chairwoman, WUTC September 2001.

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The Electricity Debacle

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  1. The Electricity Debacle Mission Statement: The UTC protects consumers by ensuring that utility and transportation services are fairly priced, available, reliable, and safe. What happened,Why it happened, andWhat we should do? Marilyn Showalter, Chairwoman, WUTCSeptember 2001

  2. Compare Market Prices vs. Cost-of-Service Rates

  3. Retail Rate IncreasesAverage Of All Rate Categories Seattle City Light 42%* Tacoma City Light 58%* Snohomish PUD 35%* Clark PUD 24%* Avista 37% (requested) Puget Sound Energy 18% (requested) BPA 46% *BPA’s October 46% increase may further affect these rates. Percentage increase enacted or announced by 7/1/01

  4. B Utility-Owned Generation Residential S F Commercial Non-Utility Generation (Independent Power Producers) Utility A M Industrial 3 BPA/Federal Generation & Transmission DSIs (Aluminum) Electricity System Overview Federal Regulation FERC State Regulation WUTC, Local Govs/Boards Generation Retail Transmission Distribution h ~ 4

  5. Physical Connected from turbine to light bulb Connected west-wide (including Canada) Electrons can’t be stored (hydro a semi-exception) Demand peaks in morning and at dinner hour Economic Large capital investment Requires lenders Requires retail payers Legal Federal jurisdiction over wholesale and transmission State jurisdiction over retail and distribution Public utilities governed by local governments and PUDs SCL, Tacoma, SnoPUD, and Grant Co. PUD Investor owned utilities regulated by WUTC PSE, Avista, PacifiCorp Canada supplies wholesale electricity Electricity System is Physical, Economic, Legal

  6. Why does WUTC Regulate Investor-Owned Utilities? • They are monopolies. • They are privately owned. • They provide essential services.

  7. Electricity—Big Debate Competition vs. Cost-Based Rates Market Design Supply Demand (Big Debate)

  8. Market-based Competition Pros Drives prices to cost Spurs innovation Achieves efficiency Minimal government Cons More volatile Market dysfunction Higher risk costs $ Ignores social equity Complex policing Cost-based Rates Pros Predictable prices More stable, lower risk Can incorporate social goals Avoids market-power abuse Cons May not produce lowest price May overbuild Discourages innovation Inefficient, cumbersome process Market-Based Competition vs. Cost-Based RatesTheory

  9. Elements of Cost-of-Service Regulation • Utility obligated to serve its customers. • Utility obligated to plan for resources sufficient to serve its customers. • Rates set by WUTC. • Rates must be fair, just, reasonable and sufficient. • Rates cover cost of providing service plus a fair return on investment.

  10. Electricity Averages and Restructured States  = Restructured states. Please note, however, that even though restructuring bills passed in Arizona, Nevada, New Mexico, and Oklahoma, deregulation is delayed or on hold in those states. Oregon’s “trigger” has not yet been pulled.

  11. Electricity—What Can We Do? • Maintain regional preference rights to BPA power. • Conservation efforts/incentives. • Recognize regional/West Coast nature of wholesale electricity supply. • Approach restructuring skeptically; electricity is a fundamental public service. • Public policy choice: group insurance versus private risk.

  12. Current Action on Electricity Regulation • Congress: Bingaman Bill would fundamentally alter the traditional regulatory system • FERC: struggles to reconcile desire for deregulation with the resulting adverse consequences • State Legislature: quiescent • WUTC: thoughtful, well-reasoned, innovation

  13. Market-indexed vs. Cost-of-service RatesWhich do you want?

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