Deregulation and Restructuring of the Electric Utility Industry Study Committee Minutes
	October 19 & 20, 1998 First and Second of Five Meetings

MEMBERS PRESENT

MEETING IN BRIEF

Organizational staffing provided by Mark Johnson, Senior Legal Counsel
Minutes prepared by Doug Adkisson, Senior Legal Counsel

1. Procedural Business.
2. Background.
3. Presentations.
4. Next Meeting.
5. Written Materials Filed With the Legislative Service Bureau.

COMMITTEE BUSINESS

1. PROCEDURAL BUSINESS.

Meeting Times. Co-chairperson Rants called the first meeting of the Deregulation and Restructuring of the Electric Utility Industry Study Committee to order at 10:05 a.m., Monday, October 19, in Room 118 of the State Capitol. The Study Committee recessed at 12:50 for lunch and reconvened at 1:20 p.m. Co-chairperson Rants reconvened the Study Committee on the second meeting day of the Study Committee to order at 10:05 a.m., Tuesday, October 20, in the same room. The Committee recessed at 12:05 p.m. and reconvened at 1:00 p.m.

Election of Co-chairpersons. Temporary Co-chairpersons Senator Jensen and Representative Rants were elected as permanent Co-chairpersons of the Committee.

Adoption of Rules. The Study Committee approved proposed Committee Rules.

Adjournment. The Study Committee adjourned at 4:10 p.m, Tuesday, October 20.

2. BACKGROUND.

The Deregulation and Restructuring of the Electric Utility Industry Study Committee was established by the Legislative Council to "[R]eview the action of other states in deregulating and restructuring the electric utility industry and other states' experiences in enacting legislation for this purpose. [The Committee shall] [c]onsider the potential impacts of deregulating and restructuring upon electric utilities and commercial, business, and residential consumers. [The Committee shall also] [d]evelop recommendations regarding deregulation and restructuring of this industry."

3. PRESENTATIONS.

October 19, 1998

Association of Business and Industry. Co-chairperson Rants recognized Mr. James Aipperspach, Iowa Association of Business and Industry. Mr. Aipperspach provided a summary of efforts being made by a group representing eight different entities (referred to in these minutes as the "Tuesday Group") to develop proposed legislation for restructuring and deregulating (herein referred to in these minutes as "restructuring") the electric utility industry. Mr. Aipperspach indicated that this group hopes to complete its work and have draft legislation prior to the convening of the 1999 Legislative Session. He briefly described the process which this group is utilizing to develop their proposal. According to Mr. Aipperspach, the group is composed of Iowans for Choice in Electricity (ICE), the Iowa Association of Municipal Utilities, the Iowa Association of Electric Cooperatives, MidAmerican Energy, Alliant, the Iowa Community Action Association, the Office of Consumer Advocate, and the Iowa Utilities Board. He stated that the issues under discussion are complex. According to Mr. Aipperspach, the group is working to reach a consensus. He stated that as part of this effort, the group is currently trying to develop a glossary and come to an understanding regarding the roles, rights, and responsibilities of entities involved with generating, delivering, and selling electric energy.

In response to questions, Mr. Aipperspach stated that the industry is facing change and Iowa must decide important issues regarding how and at what pace change will take place.

Iowa Utilities Board. Co-chairperson Rants recognized Mr. Alan Thoms, Chairperson, Iowa Utilities Board. Mr. Thoms briefly discussed the process in which the Board has been involved, including conducting town meetings regarding the restructuring of the electric utility industry. He highlighted several issues of which he believes the General Assembly must be cognizant, if the electric industry is restructured. According to Mr. Thoms, these issues include reliability of electric service (e.g., licensing, standards, dispute resolution, privacy), market structure and power (e.g., the future of monopoly structures), customer focus (e.g., ensuring that customers have access to information), public benefits (e.g., providing universal access to all Iowans), environmental assessment (e.g., ensuring that the quality of Iowa's environment is maintained), and transition costs and benefits (e.g., the recovery of prudent and reasonable expenditures). Mr. Thoms stated that the Board has not taken a position regarding the advisability of how restructuring should be accomplished.

In response to several questions, Mr. Thoms discussed issues involving reliability and lessons learned from the experience of other states. Mr. Thoms noted that the Board's role would change if restructuring occurred, but that the Board would consider issues involving consumer protection and licensing.

In response to a question by Co-chairperson Rants, Mr. Thoms stated that the Board would forward the Study Committee a copy of a model prepared by the staff of the Board which analyzes restructuring.

Panel Presentation (Iowans for Choice in Electricity). Co-chairperson Rants recognized the panel presenters representing Iowans for Choice in Electricity, including Mr. James Henter, Iowa Retail Federation and President of Iowans for Choice in Electricity (ICE); Mr. George Anderl, Genecor International, representing the Large Energy Group (LEG); Mr. Jerry McKim, Iowa Community Action Association; and Ms. M.J. Dolan, Iowa Association of School Boards (IASB).

Mr. Henter informed the Committee that 17 states have implemented restructuring. He indicated that 31 states have lower residential rates and that 24 states have lower commercial rates. He stated that restructuring will create an environment of lower costs for Iowans. He stated that Iowa is currently not a low-cost state, particularly for residential customers.

Mr. Anderl explained that the Large Energy Group (LEG) is a group consisting of approximately 30 members who are primarily large industrial and commercial electricity users. He stated that the goal of the LEG is the implementation of restructuring of the electric utility industry. He also indicated that protections for residential customers must be included in the restructured environment. He strongly supported protections for residential consumers while supporting consumer choice.

Mr. McKim indicated that residential customers must be engaged in the discussion of restructuring. He stated that this class of user is not represented in the current ongoing discussions. He identified a number of questions to ask during the process, including why restructuring is occurring, what are the benefits and risks, what changes in reliability will occur, and how will the public be properly informed.

Ms. Dolan discussed the Iowa Joint Utility Management Program (IJUMP) which is a program designed to provide more dollars for instruction as a result of saving through pooled purchasing of energy. She indicated that all 150 participating entities saved money through lower energy costs during the 1997-98 heating season. She also indicated that 500 school facilities have enrolled and will be participating during the 1998-99 heating season. Ms. Dolan stated that IASB supports restructuring so that IJUMP and individual schools can save additional dollars through lower energy costs which can then be used for student instruction.

Members of the Study Committee had a number of questions for the panel, including questions regarding protections available for residential users. The panel members stated that no specific answers could be provided at this point. In response to a question by Representative Chapman, Ms. Dolan stated that the IASB would become an aggregator after restructuring. Representative Metcalf and panel members discussed the availability of consumer choice in rural areas. It was suggested that organizations representing rural residents could serve as aggregators. Members of the Committee and the panel members discussed issues involving stranded costs and energy efficiency.

Mr. James Maret, Consumer Advocate. Co-chairperson Rants recognized Mr. James Maret. Mr. Maret voiced concern regarding restructuring. He opined that restructuring is not inevitable and that there is no need to rush to implement a new system immediately. He noted that the restructuring which has occurred around the country has primarily been in high-rate states and that Iowa is a relatively low-rate state which may not benefit from such restructuring. Mr. Maret mentioned a number of concerns that the Committee should consider, including reliability and protections for residential and small consumers. He was skeptical that utility prices will fall at the same time utility companies enjoy higher profits. Mr. Maret expressed concern that residential ratepayers may pay more under restructuring.

Mr. Maret and Committee members discussed a number of issues, including issues relating to educating consumers about their options. Senator Lundby expressed concern regarding elderly customers. Representative Brand wondered about marketing strategies and the ability of consumers to compare options. Committee members expressed concern that companies would engage in "cherry picking" of the most profitable consumers. In response to a question by Senator Lundby, Mr. Maret stated that the Office of Consumer Advocate would make recommendations regarding any proposal regarding restructuring.

Mr. Michael Coverdale, Iowa Community Action Association. Mr. Coverdale explained that the Iowa Community Action Association serves to ensure services to low-income Iowans. He noted that low-income households are least likely to withstand a rate increase or price fluctuation. He stated that the goal of his organization is to protect current protections (including continuing the "moratorium" which protects low-income households from having utilities shut off during months of severe climate). Mr. Coverdale recommended the establishment of a $24 million fund in order to assist low-income households in managing their energy bills. He noted that low-income households pay a disproportionate amount of their income for energy.

Committee members discussed several issues with Mr. Coverdale. Senator Lundby asked what percentage of Iowa's population lives on a fixed income. Mr. Coverdale promised to forward that information to the Committee. Co-chairperson Rants and Mr. Coverdale discussed financing of the fund, including the amount that customers would have to pay in order to support the fund.

Mr. Dan Holub, Iowa Brotherhood of Electrical Workers (IBEW) Local 204. Co-chairperson Rants recognized Mr. Dan Holub. Mr. Holub stated that the IBEW is not opposed to restructuring, but cautioned that it would be unwise to rush into implementation. He indicated that the General Assembly should consider the impact of restructuring on employment levels, stranded costs and the manner in which such costs are accounted, benchmark levels for service and reliability, safety issues, local control over service standards, and requiring out-of-state electricity providers to provide adequately qualified workers. Mr. Holub presented a short videotape to the Committee which outlined possible problems associated with restructuring, including health and safety issues.

Mr. Charles Gassmann, Iowa Alliance for Fair Competition. Co-chairperson Rants recognized Mr. Charles Gassmann. Mr. Gassmann indicated that small heating contractors may be at a disadvantage as restructuring occurs, if utility companies attempt to enter into their business, noting that MidAmerican has become a large real estate brokerage firm and that Alliant has entered into the home products business. Mr. Gassmann stated that utilities should be prohibited from entering into these markets by using financing revenue generated from regulated services.

Ms. Lisa Cook, Iowa Citizen Action Network. Co-chairperson Rants recognized Ms. Lisa Cook. Ms. Cook indicated that if restructuring is to occur, it must be implemented responsibly. She stated that consumer rights, environmental concerns, and energy efficiency and renewable energy resource development must be considered during this process. She recommended that under any plan, a firm commitment to renewable energy resources must be made, and that commitments must be made to low-income programs, renewable energy research, and programs at the University of Iowa and Iowa State University. She discussed the need to increase investment of energy generation using wind power and biomass products.

Ms. Cook and Committee members discussed her concerns, including the competitive disadvantages resulting from Ms. Cook's recommendations. Ms. Cook discussed other states which have instituted similar requirements, and proposals considered by the federal government, including H.R. 4798.

Mr. Jon Muller, Iowa Farm Bureau. Co-chairperson Rants recognized Mr. Jon Muller. Mr. Muller stated that restructuring is not inevitable, but that there is a strong trend. He indicated that in a restructured environment, reliability of service must be maintained and universal access guaranteed. He noted that overall, prices should decline due to competition rather than as a result of artificial shifts. He indicated, however, that this would not necessarily mean that all customers would benefit from lower rates. Mr. Muller noted that choice is a prerequisite for any restructured system to work.

In response to questions by Committee members, Mr. Muller noted that while there are a number of concerns associated with restructuring, including universal access and prices, restructuring offers a number of opportunities by introducing efficiencies into the system. He noted that restructuring does not mean the industry would not be regulated.

October 20, 1998

Ms. Eileen Doherty, National Conference of State Legislatures. Co-chairperson Rants recognized Ms. Eileen Doherty. Ms. Doherty provided information concerning restructuring activity in other states, and briefly discussed issues including rate freeze versus rate reduction, tax issues, market power, stranded costs and securitization, establishment of independent service operators, renewable resources and energy efficiency, environmental concerns, and consumer education efforts.

Panel Presentation (Utilities - General Views/Perspectives). Co-chairperson Rants recognized a panel of presenters representing utilities who discussed general views and perspectives), including Mr. Brent Gale, MidAmerican Energy; Ms. Julie Smith, Iowa Association of Municipal Utilities; Mr. Kent Holst, Traer Municipal Utilities; and Mr. Kim Colberg, Linn County Rural Electric Cooperative (REC).

Mr. Gale provided an overview of the roles, rights, and responsibilities of retailers in a restructured market, explaining that the segments of the industry could be divided into three main components, including generation or production (the wholesale distribution of electricity), transportation (the transmission of electricity), and delivery to customers (the retail sale of electricity to customers). He explained that restructuring will affect the generation and retail delivery of electricity, but not the transmission of electricity. He emphasized that service will be maintained by the firms responsible now for maintenance of the transmission.

Ms. Smith discussed the role of municipal utilities. She noted that the Tuesday Group is building a consensus and that her organization is committed to seeing the product work. Mr. Holst emphasized the historical role that municipal utilities have played in the state, and supported the move from regulation to competitive markets, understanding that the goal of restructuring must be to benefit customers. He noted that locally owned utilities are subject to many more rules than required by privately held utilities.

Mr. Colberg stated that the RECs have participated in the process to reach a consensus. He emphasized that cooperatives enjoy a close relationship with their customers, and that the RECs are not-for-profit.

In response to Committee questions, panel members made a number of observations. Mr. Gale stated that rural providers such as the Iowa Farm Bureau Federation could provide service to rural customers. Mr. Colberg noted that the RECs do not generate electricity. Mr. Holst stated that he believes that most municipal utilities want to participate in the process. Co-chairperson Jensen discussed costs associated with transmission of services. Mr. Gale assured him that maintenance would continue to be regulated. Representative Brand expressed concern about "cherry picking" and reimbursement to the RECs by competitors using the REC's transmission lines. Mr. Colberg stated that the RECs would establish rates for use of their facilities. Committee members noted that customers may generate their own electricity. Senator Gronstal inquired about the establishment of duplicate lines. He also expressed concern that companies would sell off electricity to other states such as Illinois.

Panel Presentation (End-users). Co-chairperson Rants introduced a panel of presenters discussing issues affecting end-users, including Mr. James Henter, Iowa Retail Federation; Mr. George Van Damme, Deere and Co.; Mr. Bill Serbousek, PMX Industries; Mr. Mike Coverdale, Iowa Community Action Association; and Mr. Ron Polle, Office of Consumer Advocate.

Mr. Henter stated that restructuring should move ahead as soon as possible.

Mr. Van Damme expressed strong support for restructuring and provided a list of conditions necessary for restructuring to occur, including that all customers must benefit, there can be no cost-shifting, utility companies must be stabilized, there must be universal service (including service to low-income customers), and rural customers cannot be harmed. He stressed that safety and reliability are key.

Mr. Serbousek stated the benefits of competition in a restructured environment include lower prices and that an appropriate balance must be found between competition and regulation. He noted that competition will increase the level of innovation in the marketplace.

Mr. Coverdale stressed the need for equal access to electric service and indicated that expensive access is not really equal access. He noted that costs to vulnerable markets must be mediated.

Mr. Polle indicated that customer choice must involve meaningful customer choice for all customers. He noted that end-users are a diverse group and that different classes of customers may be affected differently. He expressed concerns that Iowa may pay more costs and that electric distributors may sell energy to out-of-state customers. He expressed concern that companies may not rush in to serve residential customers.

In response to Committee questions, panel members made a number of observations. Representative Chapman wondered whether comparisons could be made between deregulating this industry and deregulating the airline industry, noting that safety and reliability were affected by restructuring. Senator Lundby inquired as to when the Tuesday Group will arrive at a consensus. Panel members expressed the hope that legislation would be ready for the next legislative session. In response to a question by Senator Lundby, it was acknowledged that no environmental organizations were represented at the meetings. In response to a question by Representative Rants, it was noted that Iowa utilities currently sell excess energy to other states such as Illinois. It was also noted that Iowa utilities purchase power from other states. Mr. Polle expressed concern regarding the current infrastructure that transmits electricity throughout entire regions. Co-chairperson Jensen expressed concern regarding the availability of electricity.

Panel Presentation (Retailers). Co-chairperson Rants introduced a panel of presenters discussing issues affecting retailers, including Mr. Brent Gale; MidAmerican Energy; Mr. Brad Roos, Denison Municipal Utilities; Mr. Dennis Murdock, CIPCO; and Ms. Sue Landwehr, Enron Corp.

Mr. Gale noted that the Tuesday Group is trying to reach a consensus, and that they are discussing the role of retailers. He noted that a number of issues need to be discussed, including the purchase and delivery of service, the offer of alternative energy, certification, environmental standards, consumer education, and liability.

Mr. Roos indicated that independent ownership or operation of transmission facilities is necessary in a restructured environment to prevent an abuse of market power. He stated that municipal utilities face unique obstacles. He noted that it is unlikely that a municipality would compete in another service area. He expressed concern that a company could change a city utility's rate base by taking a large customer's business.

Mr. Murdock expressed concerns regarding limitations on the ability to compete and concerns regarding public "slamming."

Ms. Landwehr stated that Enron is the largest wholesaler of electricity in the United States and that Enron would prefer to see competition in Iowa as soon as possible. She discussed her company's role in providing wind generation.

In response to Committee questions, panel members made a number of observations. Committee members discussed issues regarding marketing practices, including marketing to elderly customers. Representative Chapman inquired about customer privacy. Co-chairperson Rants discussed barriers to marketplace entry by aggregators.

Panel Presentation (Delivering Entities). Co-chairperson Jensen introduced a panel of presenters discussing issues affecting delivery service providers, including Mr. Erik Madsen, Alliant Energy; Mr. Colin Hansen, Iowa Association of Municipal Utilities; and Mr. Dennis Murdock, CIPCO.

Mr. Madsen provided an overview of the roles, rights, and responsibilities of delivery service providers in a restructured market. Mr. Hansen, Iowa Association of Municipal Utilities, stated that local control in setting rates, terms, and conditions should be established. Mr. Murdock also stated his support for providing for local control regarding rates and complaint processes. The presenters discussed a number of issues regarding the maintenance of service in assigned service areas, the recovery of costs, performance-based ratemaking, billing, open access, the establishment of a code of conduct approved by the Iowa Utilities Board, and metering.

In response to Committee questions, panel members made a number of observations. There was discussion regarding the establishment of a universal billing form. It was noted that metering could be installed which charges customers fluctuating rates based on market prices.

Panel Presentation (Generators). Co-chairperson Jensen introduced a panel of presenters discussing issues affecting generators of electricity, including Ms. Sue Landwehr, Enron Corporation; Mr. Bob Haug, Iowa Association of Municipal Utilities; Mr. Dennis Murdock, CIPCO; and Mr. Brent Gale, MidAmerican Energy.

Ms. Landwehr provided an overview of the roles, rights, and responsibilities of generators in a restructured market. She briefly described the types of generation options currently available, including coal, nuclear power, and natural gas. She mentioned that a number of renewable energy sources are being considered by the industry, including wind, solar, hydro, and biomass sources. She also indicated that a number of persons are relying upon self-generation. Ms. Landwehr expressed optimism regarding new innovations in generation and delivery of electricity.

Mr. Haug discussed types of new generation, including fuel cells, thin-filmed technology, and wind.

Mr. Murdock urged the Committee to not consider divestiture of generation facilities as a requirement of restructuring.

Mr. Gale indicated that electric generation is not a monopoly and that most generation facilities are jointly owned. He also indicated that some Iowa providers currently rely on out-of-state generation to satisfy a portion of the energy demands of their customers.

In response to Committee questions, panel members made a number of observations. Representative Bradley inquired about the availability of natural gas. It was suggested that there is enough natural gas to satisfy demand for up to 50 years. Representative Bradley also discussed repair issues with the panel members. In response to a question by Co-chairperson Rants, Ms. Landwehr noted that Iowa has a sound infrastructure.

Panel Presentation (Regulators). Co-chairperson Rants introduced a panel of presenters discussing issues affecting regulators, including Ms. Lisa Stump, Iowa Utilities Board Staff; Ms. Julie Smith, Iowa Association of Municipal Utilities; Mr. Dennis Murdock, CIPCO; and Mr. Ron Polle, Office of Consumer Advocate. Co-chairperson Rants asked that Ms. Stump provide testimony today and that the panel complete its presentation at the next meeting of the Committee.

Ms. Stump provided an overview of the regulator's role in a restructured market. She briefly discussed issues including reliability of service, market structure, customer education and protection, public benefit programs, and transition costs and benefits. She discussed the role of the regulator and presented a number of options for the Committee to consider, including areas of reliability (e.g., through licensure, the creation of standards, and inspections), market structure (e.g., regulation of distribution functions, site transmission, ensuring there is a provider of last resort, rate unbundling, mergers, and monitoring market development), customer interests (e.g., education, providing a central repository for information, dispute resolution, enforcing disclosure requirements, and policing "slamming" offenses), ensuring public benefits (e.g., overseeing public benefit programs, ensuring universal access, and ensuring consumer protections), and regulation of transition costs and benefits (e.g., overseeing nuclear decommissioning, addressing recovery of start-up costs, and accounting for transition costs).

4. NEXT MEETING.

The next meetings of the Committee were tentatively scheduled for Monday, November 23, and Tuesday, November 24, 1998.

Members of the Committee discussed items of interest for the next meeting, including obtaining a copy of the Iowa Utilities Board staff model, and discussing environmental concerns, federal proposals, consumer protection issues (including "slamming," "cramming," and "jamming"), stranded costs, graduated versus instant transition, elder concerns, computer 2000 issues, and the experience in other states.

5. WRITTEN MATERIALS FILED WITH THE LEGISLATIVE SERVICE BUREAU.

a. Rules as adopted by the Committee, filed by Mr. Mark Johnson.

b. Videotape "Power Switch," filed by Mr. Dan Holub.

c. The pamphlet "Will Deregulation Short-Circuit North American's Electric Power Supply," filed by Mr. Dan Holub.

d. Community Action Agencies in Iowa (1997 Annual Report), filed by Mr. Michael Coverdale.

e. Paper submitted by the Iowa Community Action Association, filed by Mr. Coverdale.

f. Electric deregulation testimony by IASB, filed by Ms. M.J. Dolan.

g. Document describing LEG (Large Energy Group), filed by Mr. George Anderl.

h. Handout describing biomass energy and wind energy, filed by Ms. Lisa Cook.

i. Comparison of Selected Electric Restructuring Legislation (National Conference of State Legislatures), filed by Ms. Eileen Doherty.

j. Handout "Electric Utility Restructuring: An Overview."

k. Handout "Iowa Association of Municipal Utilities Restructuring Working Group," filed by Ms. Julie Smith.

l. Handout "Iowa Electric Industry Restructuring," filed by Mr. Brent Gale and Mr. Erik Madsen.

m. Handout "Iowa Restructuring Legislation, Roles, Rights, and Responsibilities in the End State," filed by Mr. Gale and Mr. Madsen.

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