THE MONTANA ELECTRICITY UTILITY INDUSTRY
RESTRUCTURING AND CONSUMER CHOICE ACT

SB 390

SUMMARY

(provided by Alan Davis, Montana DEQ and John Hines, NW Power Planning Council)

Customer choice. On or before July 1, 1998 investor owned electric utility customers with loads greater than 1000 kilowatts, or a customer with with loads greater than 300 kilowatts per meter that aggregate to 1000 kilowatts or greater, must have the opportunity to choose an electric supplier.

  1. As soon as administratively feasible, but before July 1, 2002, all remaining investor owned utility customers must have choice.
  2. The Public Service Commission (PSC) may extend the date for 2 years if it finds that it is not administratively feasible or that there isn’t workable competition.
  3. Beginning July 1, 1998, utilities must run pilot programs offering customer choice for residential and small commercial customers.
  4. Montana Dakota Utilities may defer choice until 2006.

Investor owned utility transition plan filing. Investor owned utilities must file a transition plan with the PSC 1 year before any customer is entitled to choice.

  1. The PSC must hold a contested case proceeding on the plan and afford all parties the opportunity for a hearing before issuing a final order either approving, modifying, or denying the plan.
  2. The PSC must make a decision on the plan within 9 months, unless waived by the utility.
  3. The transition plan must contain: an outline for an orderly transition to choice for all customers, a method for assigning customers that do not chose suppliers, an educational program for their customers, and a plan for implementing universal system benefits programs.

Investor owned utility functional separation. Investor owned utilities must functionally separate the utility’s electricity supply, transmission , distribution and energy services operations.

  1. The utility must make its transmission and distribution facilities available for all electricity suppliers and customers on a nondiscriminatory and comparable basis.
  2. The utility must adopt and comply with a code of conduct consistent with the Federal Energy Regulatory Commission’s code of conduct.

Investor owned utility power supply during the transition. On the effective date of the PSC’s order implementing a transition plan, an investor owned utility must remove its generation assets from rate base.

  1. During the transition to choice, the utility may offer cost-based supply service for those that do not have choice or have not chosen.
  2. If the transition period is extended, so is the cost-based supply contract.
  3. If an investor owned utility intends to be an electricity supplier through an unregulated affiliate, the affiliate must be licensed as a supplier.

Investor owned utility transition cost recovery. The PSC shall allow recovery of transition costs. The costs that may be recovered include:

  1. The unmitigable above market costs of qualifying facility contracts, including buy out or buy down costs;
  2. The unmitigable costs of energy supply related regulatory assets and deferred charges; and
  3. For a 4 year period, the unmitigable costs of investor owned utility owned generation and power purchase contracts.
  4. The utility must make reasonable efforts to mitigate the costs
  5. Upon PSC approval, the transition costs are to be recovered through a non bypassable charge on all customers, except for new loads of 1,000 kilowatts or greater first served by the utility after December 31, 1996.

Investor owned utility rate moratorium. An investor owned utility shall institute a rate cap during the transition to competition.

  1. Beginning July 1, 1998 there is a 2 year rate moratorium for all customers.
  2. After June 30, 2000, rates for customers that do not have choice on July 1, 1998 cannot be increased, except for transmission and distribution rates subject to PSC approval. Power supply costs are capped for these customers until June 30, 2002.
  3. There are moratoriium exemptions for: increased universal systems benefits charges in excess of current revenues; for an extraordinary event resulting in a 4 percent or more increase in annual revenue requirement--8 percent of power supply costs in the last two years of the rate moratorium, and for increases or decreases in state and federal taxes in excess of rates of inflation.
  4. During the transition, public utilities may not charge rates or collects costs higher than they would reasonably expect to recover in rates if the current regulatory system had remained intact.

Rural electric cooperative option of choice. Rural electric cooperatives have the choice of opting in or out of offering their customers choice.

  1. If a cooperative opts in, it must certify to the PSC that it has adopted a transition plan consistent with the provisions of the act, but essentially the same as the investor owned utilities.
  2. If a cooperative opts out, it is precluded from accessing the distribution system, and thus customers, of other utilities that have opened their system up without a preexisting contract.
  3. A cooperative must participate in the universal systems benefits program whether it opts in or out.

Universal systems benefits program. A universal systems benefits program is established as a charge to the meters of all utility customers to ensure continued funding of energy conservation, renewables and low-income energy assistance programs. Program costs shall be recovered through a charge assessed at the meter for each local utility customer.

  1. Beginning July 1, 1999 and until July 1, 2003, 2.4 percent of each utility’s 1995 retail sales revenue is established as the funding level for universal systems benefits programs.
  2. A minimum annual funding requirement for low income energy and weatherization assistance is established at 17 percent of each utility’s annual universal system benefits funding level.
  3. Customers with loads greater than 1000 kilowatts pay the lesser of $500,000 or .9 mills per kilowatt hour purchased.
  4. Utilities and large customers receive credit toward their universal system benefits obligation for their internal programs.
  5. If a utility’s or large customer’s credit does not satisfy the annual funding requirement, then it shall make a payment to the universal systems benefit fund or the universal energy assistance fund.
  6. Cooperatives may collectively pool their credits statewide.
  7. Investor owned utilities and cooperatives must file annual reports to the transition advisory committee created by this bill.

Public Service Commission regulatory responsibilities. The PSC shall continue to regulate the retail transmission and distribution system within Montana after it issues a final order on a utility’s transition plan.

  1. The PSC may find that workable competition does not exist and continue the regulation of electricity supply by distribution services providers as a cost-based supply contract for a period of no more than 3 years.
  2. The PSC must determine whether competition is sufficient to inhibit monopoly pricing or anticompetitive price leadership.

Licensing of electricity suppliers. The PSC shall license electricity suppliers and enforce their licensing provisions.

  1. All electricity suppliers must be licensed by the PSC before offering to sell to customers in Montana.
  2. The PSC must make sure that electricity supply is offered and is adequate in terms of quality, safety, and reliability.
  3. The PSC may suspend the license, impose penalties, or both if the PSC finds the electricity supplier violates the provisions of this act.
  4. Slamming or unauthorized switching of customers is specifically prohibited.
  5. Electricity bills must disclose costs to customers of each cost component.
  6. Reciprocity is required of distribution entities.

Legislative transition oversight committee on electricity restructuring. A legislative transition oversight committee on electricity industry restructuring is created.

  1. There are 8 voting legislative members, two from each house from each party.
  2. There are 12 nonvoting advisory members from industry, customer groups, and other affected interests.
  3. The transition oversight committee shall analyze and report to the Governor and members of the legislature on the status of electricity industry restructuring in the state, the transition to effective competition, the need for further consumer protections in the state, recommend legislation to further promote restructuring, and make recommendations on universal systems benefits programs.

Tax study. The revenue oversight committee is to analyze the tax implications of restructuring and report to the Legislature with legislative recommendations on the statutory tax changes that are necessary as a result of restructuring.

Transition bond financing. Utilities are allowed to apply to the PSC for a financing order to issue transition bonds to recover certain transition costs.

  1. The cost savings from issuing bonds must benefit customers.
  2. The bonds are secured by a non bypassable charge on all customers that creates a revenue stream to retire the bonds.
  3. The bond term must not exceed 20 years. d. Rural electric cooperatives that opt in may also bond for recovery of stranded costs.

Territorial integrity act modifications. The territorial integrity act is modified from who has responsibility to serve loads to who has responsibility to connect the load.

  1. It creates a rebuttable presumption that the nearest line is the least-cost line to build.
  2. There are provisions for the PSC to approve agreements between competing utilities that might serve the same loads.
  3. There are special provisions for dealing with annexed new areas of cities.