JOHN A. KITZHABER
GOVERNOR
OFFICE OF THE GOVERNOR
STATE CAPITOL. SALEM 97310-0370
(503) 378-31 11 FAX (503) 378-4863 TDD (503) 378-4859
STATEMENT OF PRINCIPLES
FOR RESTRUCTURING THE ELECTRIC UTILITY INDUSTRY
December 12, 1996 -
Oregonians have benefited from electricity prices that are among the lowest in the nation. Nonetheless, the technological and market forces that are revamping the electric utility industry nationally will change the industry in Oregon as well. Legislation will very likely be introduced in the 1997 session to open the retail market for electricity to competition among electricity suppliers. If crafted with care, the move to the new competitive environment can benefit all consumers in the state without diminishing our environmental quality.
The overriding objectives of any comprehensive restructuring should be the following:
Any efforts to restructure the electric industry in Oregon must adhere to the following principles:
Principle 1. All Oregonians must have the option to choose their electricity supplier and be provided the information necessary to make an informed choice.
While some customers may have opportunities to choose among electricity suppliers sooner than others, eventually the option to choose must be accorded to all customers. In order to benefit from a competitive market, customers will need reliable information about suppliers' prices and services as well as information on their sources of power supply and the environmental impacts of those sources. With good information, customers can make choices that are best for them.
Principle 2. All Oregonians must have access to basic electricity service at a reasonable price.
Some customers, particularly large-volume purchasers, will be more attractive to electricity suppliers than others, especially in the early stages of developing full-scale competition. Other customers could be left without a choice of supplier, or with only a choice that comes at a premium cost for basic service. Some regulation must be established to ensure everyone has the opportunity to receive basic electric service at a reasonable price. If individual customers, whether businesses or households, wish to join together to take advantage of price discounts or special service options that would not otherwise be available to them in a competitive market, they should be able to do so, regardless of utility boundaries.
Principle 3. The competitive power sales market in Oregon must be a fair one.
Without an open market, Oregon consumers will not reap the full benefits of competition -- lower prices and a wider choice of services. In creating a fair and open market where electricity providers compete on equal footing, Oregon's utilities at a minimum should restructure their organizations to create independent business lines for power generation, sales, transmission and distribution. They should also set separate prices for power, delivery of power and any other electricity services they provide. Access to distribution lines must be priced to reflect solely the cost of delivering the power across those lines. Owners of distribution lines should be financially indifferent to who owns the power resources supplied to customers over their lines. Finally, any regulation of electric service or electricity suppliers established to achieve such aims as environmental protection, fair pricing, reliable service or consumer protection should apply equally to all electricity suppliers competing in the market.
Principle 4. Electricity service to Oregonians must remain reliable and safe.
The move to a more open and competitive power sales market should not jeopardize the dependable flow of power to Oregon homes and businesses. Therefore, the responsibility for planning, operating and maintaining the Northwest transmission system should reside with an independent, federally-regulated entity as many have proposed. For the distribution system, the owners of local distribution lines in Oregon should remain responsible for the safe and reliable delivery of power to retail customers and continue to be subject to regulation or local board oversight. If customers prefer to buy less reliable service because it is cheaper, they should be allowed to do so if that option does not reduce the reliability of service to other customers.
Principle 5. Conserving energy and developing renewable resources are essential in protecting Oregon's environment and sustaining a healthy economy and must continue to be adequately funded.
We have made great strides in achieving conservation and developing renewable resources in large part because of programs funded and run by the electric utilities. However, in an open market where electricity providers compete for sales, the pressure to cut costs and keep prices low will diminish their efforts. We must ensure sufficient funding to sustain a significant level of activity for conservation and renewable resources. The sources of funding and mechanisms for collecting funds should be appropriate for a competitive market and not create inequities among energy providers. At the same time, the responsibility for the design and delivery of conservation and renewable resource programs should reside with entities whose goal is to ensure their success.
Principle 6. Low-income Oregonians must have access to competitive markets, and the energy support services currently available to them must be maintained or enhanced.
Competitive markets could create an environment in which suppliers would charge premium prices to low-income customers for basic services, provide them less than adequate services or choose not to serve them at all. Before the move to competition is fully introduced, it must be ensured that low-income customers will not be redlined, but will receive an adequate supply of electricity at a reasonable price.
In addition, sufficient funding must be ensured to continue energy assistance and weatherization services for low-income households
Principle 7. Utilities should have a fair and reasonable opportunity to recover costs of previous commitments.
Under the current regulatory system, utilities have incurred costs because of their obligation to meet the electricity loads of all customers in their service territories. In a competitive market, some of those costs may be unrecoverable. Any policies which allow for recovery of stranded costs should provide incentives to utilities to reduce those costs, allow for an equitable sharing of those costs and not discourage competition.
Principle 8. Regulation must continue for products and services for which there is no effective competition.
For the transmission and distribution systems, which will remain natural monopolies, oversight and regulation must continue in order to ensure safe, efficient and reliable power delivery. For energy sales, oversight will be necessary to steer the course to effective competition and to protect consumers during the transition to a fully open market. Regulations will be needed to ensure utilities pass on any lower costs to consumers, to ensure new competitors are not unduly disadvantaged by existing utilities and to create a climate that encourages suppliers to compete for residential and small business sales.
Principle 9. Customers must be protected from any unfair or unscrupulous practices of their electric service providers.
In a free market, some suppliers may seek to gain competitive advantage by engaging in unethical practices. Consumer protection regulations should be established to prevent abuses, and every supplier competing in the open market should be registered by the state. In addition, suitable forums should be established where customers can air their concerns and receive prompt resolution of their complaints.
Principle 10. The restructuring of the electric utility industry must not unduly burden local governments.
Some Oregon cities rely heavily on the franchise fees paid by electric utilities to fund essential services. Without alternative sources of revenue, those cities face the loss of millions of dollars if customers choose power suppliers who are not required to pay such franchise fees. Before the shift to a competitive market, there must be in place new or revised sources of revenue for those cities.
Principle 11. Any exemptions to utilities from open access mandates must be balanced with restrictions on marketing outside their service territories and continuation of public purposes funding.
Any legislation should recognize that customer-owned utilities have local boards that are responsible to the citizen customers in their territory. However, if a utility is exempted from providing customer choice, it must not disrupt the competitive market by selling power or marketing energy services to retail customers outside its service territory. Further, it must share in the obligation to fund conservation, renewable resources, low-income programs and other public purposes.