Assigned to CED FOR COMMITTEE

ARIZONA STATE SENATE

Phoenix, Arizona

FACT SHEET FOR H.B. 2663
electric power competition

Purpose

Requires public power entities to open their service territories to competition in the sale of electric generation service and confirms the authority of the Arizona Corporation Commission to open the service territories of public service corporations to competition in the sale of electric generation service.

Background

In late December 1996, the Arizona Corporation Commission (ACC) adopted rules to phase in competition in the electric industry over the next several years, with competition set to begin in 1999. While distribution and transmission services will remain regulated, generation services will be opened to competition. The ACC has regulatory control of public service corporations (PSCs) such as Arizona Public Service, Tucson Electric Power and Citizens Utilities and consumer owned electric cooperatives. As a result, all utilities regulated by the ACC must open their service territories when competition begins in 1999. However, public power entities (PPEs), such as the Salt River Project, cities and towns, electric and irrigation districts and the Arizona Power Authority, which are not regulated by the ACC, require statutory authority to open their service territories to competition in the sale of electric generation service.

Pursuant to rules adopted by the ACC, PSCs will be required to open 20% of their 1995 retail customer load by January 1, 1999, 50% of their load by January 1, 2001, and their entire load by January 1, 2003. This legislation requires PPEs to open 20% of their load by December 31, 1998 and their entire load by December 31, 1999 and confirms the authority of the ACC to require PSCs to open their loads in a similar manner on the same dates as PPEs. Excluded from the requirements placed on PPEs are cities and towns with a population of less than 50,000 that do not elect to compete in the sale of electric generation service, electric and irrigation and water conservation districts and the Arizona Power Authority. Further, H.B. 2663 requires a 10% rate reduction over a 10-year period beginning on any date between January 1, 1991 and the effective date of this legislation for PPEs and confirms the authority of the ACC to require a similar rate reduction for PSCs. The ACC rule does not address a rate reduction.

Transaction privilege tax (TPT) and use tax statutes are also modified to clarify that the same tax base for the utility classification of the TPT will apply after electric generation, transmission and distribution are unbundled. This legislation also stipulates that the surcharge applied to recover all or a portion of the unmitigated stranded costs of electric generation service, costs which cannot be recovered in a competitive market, are not part of the base. Electric distribution utilities, PSCs or PPEs that operate, control or maintain distribution facilities, will collect the use tax.

FACT SHEET H.B. 2663 Page

Provisions

Public Power Entities (PPEs)

1. Excludes a city or town, with a population of less than 50,000 people that does not elect by official action to compete in the sale of electric generation service and power districts, electrical districts, irrigation and water conservation districts, and multi-county water conservation districts, from the definition of "public power entity."

2. Requires public power entities to determine terms and conditions for competition in the sale of electric generation service and to coordinate with the Commission, their efforts in the transition to competition in electric generation service through intergovernmental agreements (IGAs) or reciprocity filings.

3. Requires public power entities to open the service territory currently served by them to competition in the sale of electric generation service in the following manner:

(a) At least 20% of the 1995 retail load by December 31, 1998.

(b) Their entire service territory no later than December 31, 1999.

4. Requires public power entities to maintain their existing service territories for electric distribution service and prohibits them from providing electric distribution services in the service territories of other electric distribution utilities in this state. Subject to legislative review in 2008 to determine if public power entities should retain their existing distribution service territories.

5. Requires electric distribution utilities to provide other services (which includes metering and billing services), not otherwise reasonably available from other suppliers, for the service territories they serve. Subject to sunset review by the Auditor General in 2003.

6. Prohibits public power entities from engaging in any practice that restricts the ability of customers to form associations for the purpose of negotiating lower electric service rates.

7. Stipulates that the existing system of determining electric distribution service territories through CC&Ns, official actions of public power entities or contracts among electric distribution utilities or the manner of setting and regulating electric distribution service prices is not altered.

Electric Distribution Service Prices (PPEs)

8. Requires public power entities to:

(a) Establish unbundled electric transmission and distribution service prices, terms and conditions that are nondiscriminatory and reflect the lowest possible price consistent with sound business principles.

(b) Exclude from consideration, the profits and losses associated with electric generation service in establishing electric distribution service prices, except for the temporary surcharge on electric distribution service prices to pay for the unmitigated stranded costs of electric generation service.

(c) Adopt reasonable terms and conditions governing their obligation to provide electric distribution and other services.

(d) Establish a temporary surcharge to pay for all or a portion of the unmitigated stranded costs of electric generation service incurred as a direct result of competition that were incurred by public power entities serving their customers in this state prior to December 26, 1996, that cannot be recovered in a competitive market.

(e) Coordinate, with the Commission, their respective rules and procedures through intergovernmental agreements or reciprocity filings.

(f) Reduce the price for bundled service for electric retail customers, with a peak demand of 20 kilowatts or less, by at least ten per cent over a maximum ten year period. The ten year period can begin on any date between January 1, 1991 and the effective date of this act.

(g) Report its beginning effective date and the proposed apportionment among its customer classes to the Joint Legislative Budget Committee by December 31, 1998.

Consumer Protection (PPEs)

9. Requires public power entities to adopt rules and procedures to protect the public against deceptive, unfair and abusive business practices and to coordinate their rules and procedures through reciprocity filings or IGAs with the Commission, which address at least:

(a) Business practices, including deposit requirements and reconnection fees.

(b) Intrusive and abusive marketing practices and deceptive and untrue advertising practices.

(c) The provision of an ombudsman office to investigate complaints regarding the subsidization of competitive prices by any price or charge for noncompetitive electric service.

10. Stipulates the rules must require plain language in advertising and billing, using uniform words and phrases with the same meanings, so customers can make accurate comparisons.

11. Requires a separate written and dated authorization for a change in retail electricity supplier subject to:

(a) Prohibiting the authorization from containing any inducements.

(b) Requiring the authorization be in legible print with clear and plain language confirming the rates, terms, conditions and nature of the service provided.

(c) Prohibiting the authorization from stating or suggesting the customer must take action to retain their current electricity supplier.

(d) An electricity supplier that submits or executes a change in a customer's electricity supplier, without authorization, must refund to the customer the entire amount of their electricity charges for three months or the period of the unauthorized service, whichever is less.

12. Stipulates customer information, account information and related proprietary information are confidential unless specifically waived by the customer in writing and requires public power entities to adopt rules to ensure confidentiality.

13. Requires contractors employed by a public power entity, either directly or through an affiliate, for interior household energy service to be licensed by the Registrar of Contractors and requires the contractors to comply with all municipal permit and inspection standards and life safety codes.

14. Requires public power entities, with a service territory in this state through certificates of convenience and necessity, resolutions of public power entities or contract or agreements among utilities to act as the supplier of last resort for electric generation service for every customer in their service territory whose peak demand is less than 20 kilowatts or less if other electricity suppliers are unwilling or unable to supply electric generation service and whose service has been discontinued through no fault of the customer. Subject to legislative review by the Auditor General in 2008.

15. Entitles public power entities that provide electric distribution services to recover just and reasonable costs for supplying electric generation service as a supplier of last resort through a distribution charge on retail customers whose aggregated peak load is 20 kilowatts or less.

16. Classifies the failure to comply with the rules regarding deceptive business practice and separate written authorization for a change in retail electricity supplier as an unlawful practice pursuant to consumer fraud statutes and allows the Attorney General to investigate and take appropriate action.

Consumer Outreach and Education (PPEs)

17. Stipulates public power entities are responsible for ensuring and overseeing a comprehensive public education program relating to electric generation service competition, coordinated between the public power entities and the ACC, designed to do the following:

(a) Educate retail electric customers about the changes in the electric industry.

(b) Provide customers with accurate and unbiased information so they may make informed choices when participating in the competitive market.

(c) Encourage public participation in the decision making process relating to establishing a competitive electric industry.

18. Requires public power entities to work with interested parties, including but not limited to community based consumer advocate organizations, to develop and implement an outreach and education plan which must include:

(a) Dissemination of information by means of interactive approaches, as well as brochures and a variety of mass media outlets.

(b) An explanation in clear and plain language of the basic concepts of competitive electric generation service, including specified issues.

(c) Publicized public forums conducted in several areas of this state to obtain public input and provide opportunities for the exchange of questions and answers.

(d) Targeted efforts to reach rural, low income, elderly, nonenglish speaking, disabled, minorities and at risk populations.

Confidentiality of Electric Retail Competition Information (Ppes)

19. Specifies records and proceedings relating to competitive activity, including trade secrets or privileged, commercial or financial information, if disclosure gives an advantage to competitors, are not open to public inspection and cannot be made public except by order of the public power entity's governing body.

20. Specifies the information protected is any information similar to information that would be confidential if reported by a public service corporation to the Commission.

Public Utilities (PSCs)

21. Confirms the Commission's authority to develop and oversee a comprehensive public education program regarding electric generation service competition, in order to transition to competition, which may be designed to:

(a) Educate retail electric customers about the changes in the electric industry.

(b) Provide customers with accurate and unbiased information so they may make informed choices when participating in the competitive market.

(c) Encourage public participation in the decision making process relating to establishing a competitive electric industry.

22. Specifies the Commission may work with interested parties, including but not limited to community based consumer advocate organizations, to develop and implement an outreach and education plan which may include:

(a) Dissemination of information by means of interactive approaches, as well as brochures and a variety of mass media outlets.

(b) An explanation in clear and plain language of the basic concepts of competitive electric generation service, including specified issues.

(c) Publicized public forums conducted in several areas of this state to obtain public input and provide opportunities for the exchange of questions and answers.

(d) Targeted efforts to reach rural, low income, elderly, nonenglish speaking, disabled, minorities and at risk populations.

23. Specifies the public policy of Arizona is that a competitive market shall exist in the sale of electric generation service and confirms the authority of the ACC to:

(a) Open the service territories of PSCs no later than December 31, 1998 for 20% of their 1995 retail load and their entire service territory no later than December 31, 1999.

(b) Establish requirements for certificating and regulating electricity suppliers that are PSCs.

(c) Maintain the current service territories of PSCs and prohibits PSCs from providing electric distribution service in the service territories of other electric distribution utilities and maintain the current service territories of PSCs. Subject to legislative review by the Auditor General in 2008.

(d) Require an electric distribution utility that is a PSC to provide other services (which includes metering and billing services), if not otherwise reasonably available, for the service territory they serve. Subject to legislative review by the Auditor General in 2003.

(e) Establish a temporary surcharge to pay for all or a portion of the unmitigated stranded costs of electric generation service incurred as a direct result of competition that were incurred by public power entities serving their customers in this state prior to December 26, 1996, that cannot be recovered in a competitive market. Exempts electric distribution services provided to customers who do not have competitive electric generation service between December 31, 1998 and December 31, 1999. Also, allows the ACC to exempt electric distribution services provided to retail electric customers who have regulated electric generation service between December 31, 1998 and December 31, 1999.

(f) Require electric distribution utilities that are PSCs to act as the supplier of last resort for electric generation service for every customer in their distribution service territory whose peak demand is 20 kilowatts or less if other electricity suppliers are unwilling or unable to supply electric generation service and whose service has been discontinued through no fault of the customer. Allows for the recovery of costs incurred by the distribution utilities that are PSCs for supplying electricity through a distribution charge on retail customers with a peak demand of 20 kW or less. Subject to legislative review by the Auditor General in 2008. (G) Investigate complaints and impose sanctions for subsidization of competitive services by any regulated rate or charge for any noncompetitive electric service.

(h) Exclude the profits or losses associated with electric generation service when regulating electric distribution service.

Supervising and Regulating (PSCs)

24. Requires the ACC to adopt rules which:

(a) Protect the public against deceptive, unfair and abusive business practices including intrusive and abusive marketing and deceptive and untrue advertising.

(b) Require a separate authorization to change electricity supplier which cannot contain inducements, must confirm rates, terms and conditions and cannot suggest the customer must take action to retain their current supplier. Requires an electricity supplier that submits or executes a change in a customer's electricity, without authorization, to refund to the customer the entire amount of their electricity charges for three months or the period of the unauthorized service, whichever is less.

(c) Require that plain language in advertising and billing use uniform words and phrases allowing customers to make accurate comparisons.

(d) Prohibits mailings for billing purposes from including advertisements for electric or related services provided by the billing entity, which can be provided by other persons, unless the billing entity provides its customer mailing list to all other people that provide those services while billing is a service of the distribution utility.

(e) Stipulate that customer information, account information and related proprietary information are confidential unless waived, in writing, by the customer.

(f) Ensure that PSCs that employ contractors, either directly or through an affiliate, for interior household energy service be licensed by the Registrar of Contractors and require the contractors to comply with all municipal permit and inspection standards and life safety codes.

(g) Ensure that PSCs do not engage in any practice that restricts the ability of customers to form aggregation associations in order to negotiate lower electric service rates.

25. Specifies the public policy of Arizona, in supervising and regulating PSCs, is that the most effective manner of establishing just and reasonable rates for electricity is to permit electric generation service prices be established in a competitive market.

26. Confirms the ACC's authority to adopt rules or orders which require a reduction of the price for bundled service to distribution customers for electric retail customers with an aggregated peak load of 20 KW or less by at least 10% over a maximum 10 year period, beginning any date between January 1, 1991 and the effective date of the chapter. Requires each PSC to report its beginning effective date and the proposed apportionment among its customer classes to the ACC by December 31, 1998.

27. Prohibits any person or entity from engaging in any practice that precludes the opportunity to have facilities installed in and to all new residential, commercial and industrial developments in a manner that provides retail energy customers with realistic choices of energy for each appliance application.

28. Allows the ACC to exempt electric generation service from current statutory regulations.

29. Classifies the failure to comply with the rules regarding deceptive business practice and separate written authorization for a change in retail electricity supplier as an unlawful practice pursuant to consumer fraud statutes and allows the Attorney General to investigate and take appropriate action.

30. Specifies that affected PSCs must be notified prior to information, furnished to the ACC, being opened to public inspection on order of the ACC.

Electricity Suppliers

31. Requires an electricity supplier to obtain a certificate from the ACC before offering electricity for sale to retail electric customers in Arizona.

32. Stipulates that the regulation of electricity suppliers providing electric generation service is a matter of statewide concern.

33. Prohibits cities, including charter cities, towns and counties, from requiring franchises for electricity suppliers providing electric generation service within its jurisdiction and prohibits the imposition of taxes, charges or rent on the use of the rights of way on electricity suppliers for providing electric generation within its jurisdiction, except that a fee equal to the franchise fee of the electric distribution utility may be charged on a retail electricity sale not already subject to a franchise fee made using electric distribution facilities in service territories franchised as of the effective date of this section.

34. Requires the ACC to adopt rules, on or before December 31, 1998, providing minimum standards of disclosure and complaint procedures applicable to certified electricity suppliers, including the imposition of conditions on the certification of electricity suppliers to assure their financial stability.

Taxation

35. Expands the utilities classification of the Transaction Privilege Tax (TPT) to include providing electric retail customers ancillary electric services, electric distribution services, electric generation services, electric transmission services and other services related to providing electricity, from and after December 31, 1998.

36. Excludes surcharges collected on electric distribution services to recover stranded costs from the utility classification, from and after December 31, 1998.

37. Applies the excise tax levied and imposed on the storage, use or consumption of tangible personal property purchased from a retailer as a percentage of the sales price, to electricity suppliers, from and after December 31, 1998.

38. Requires electric distribution utilities to collect the use tax on electric generation service, from and after December 31, 1998.

Miscellaneous

39. Prohibits a city or town that provides electric distribution service from selling electric generation service outside of its service territory unless the city or town allows other electricity suppliers to sell electric generation service within its territory.

40. Repeals the prohibition on cooperatives from constructing electric distribution lines that duplicate existing electric facilities. (Provision included in strike everything amendment adopted to S.B. 1023)

41. Prohibits a generation and transmission cooperative from supplying electric generation service, unless the cooperative has the consent of the member owned nonprofit cooperative cooperation, in the: (Provision included in strike everything amendment adopted to S.B. 1023)

(a) Certificated service territory.

(b) To any corporation in the certificated service territory

(c) To any member of a member owned nonprofit cooperative corporation.

42. Specifies the antitrust statutes apply to the conduct and activity of PSCs to the extent that the conduct or activity is subject to competition.

43. Eliminates the requirement for filing 10 year plans for construction of new facilities and specifies the remaining requirements apply to transmission lines. Requires the ACC to review the adequacy of the existing and planned transmission facilities in Arizona to meet present and future energy needs in a reliable manner.

44. Prescribes, modifies and eliminates definitions.

45. Contains a severability clause.

46. Makes technical and conforming changes.

House Action

GOVOP 02/20/96 DPA 7-0-4-0

Third Read 03/03/98 52-5-2-1

Prepared by Senate Staff

March 17, 1998

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