ARKANSAS PUBLIC SERVICE COMMISSION

Transcription

1 DISCLAIMER This electronic version of an APSC document is for informational purposes only and is not an official document of the Commission. An official copy may be obtained from the Secretary of the Commission. 4/7/00 ARKANSAS PUBLIC SERVICE COMMISSION IN THE MATTER OF A GENERIC PROCEEDING ) TO ESTABLISH ELECTRIC AFFILIATE RULES, ) REGULATIONS FOR FUNCTIONALLY ) DOCKET NO R SEPARATED BUSINESS ACTIVITIES, AND ) STANDARDS OF CONDUCT ) INITIAL COMMENTS ON THE MODIFIED PROPOSED RULES Comes now The Empire District Electric Company ( Empire ), a jurisdictional electric utility, by and through its counsel, and for its initial comments on the Modified Proposed Rules ( MPR ), pursuant to Order No. 11 and Order No. 12 in this docket, respectfully states as follows to the Arkansas Public Service Commission ( Commission ): 1. The Commission s Order No. 11 in this docket significantly modified the Proposed Rules which were previously filed by the Commission Staff. The MPR s were attached to Order No. 11. In the same Order, the Commission established a procedural schedule consisting of Initial Comments, Reply Comments and a public hearing to consider the MPR s. This procedural schedule was later modified by Commission Order No. 12, issued March 22, Empire will provide initial comments concerning selected portions of the MPR s. MPR Definitions - Affiliate, Competitive Affiliate 3. The MPR s modification of the term competitive affiliate to include all affiliates, not 1

2 just those engaged in generation or energy-related businesses, combined with the Commission s broadening of the application of the rules by changing references from competitive affiliate to merely affiliate is beyond the intent of Act 1556 and, thus, beyond the jurisdiction of the Commission. 4. The Commission quotes from the Act in stated that it has two paramount legislative purposes to encourage full and fair competition... and... achieving the lowest possible electric rates for consumers. Order No. 11 at p. 4. This ignores, however, the overall subject of Act That is, the introduction of retail competition in the generation and sale of electric power and the creation of a competitive retail electric market. (Ark. Code Ann (c) and (d)). 5. The changes made by the Commission broaden these rules to govern not merely affiliates providing in generation products or services of other energy-related products or services to all affiliates not matter what their activities. Empire believes that the definition of a "competitive affiliate" as proposed by the Staff in its Reply Comments appropriately addresses the intent of Act MPR 2.01A(6) 6. MPR Section 2.01A(6), which was a new addition to the MPR, should be amended to allow for emergencies, an exception provided by Act 1556 of MPR Section 2.01A(6) states: [An electric utility shall not] Afford any employee engaged in the retail marketing or sale of electricity, for either the electric utility or an affiliate, access to the system control center or similar facilities used for distribution functions that differs in any way from the access available to other energy service providers. 7. Ark. Code Ann (d)(1) (Act 1556 of 1999) states as follows: (A) Except as provided in subdivision (1)(B) of this subsection, the employees of the utility engaged in transmission and distribution system operations must function 2

3 independently of its employees, or the employees of any of its affiliates, who engage in the marketing or sale of electricity at retail. (B) Notwithstanding any other provisions in this subsection, in emergency circumstances affecting system reliability, utilities may take whatever steps are necessary to keep the system in operation. Electric utilities must report to the commission each emergency that resulted in any deviation from the standards of conduct, within 24 hours of such deviation, and notify such other affected parties as the commission may direct. (Emphasis added) 8. Act 1556 thus provides for an exception in cases of emergency circumstances. MPR 2.01A(6) should be amended as follows to include this emergency exception: [An electric utility shall not] Afford any employee engaged in the retail marketing or sale of electricity, for either the electric utility or an affiliate, access to the system control center or similar facilities used for distribution functions that differs in any way from the access available to other energy service providers, except as provided by Ark. Code Ann (d)(1)(B). MPR 2.02C(1) 9. MPR 2.2C(1) provides in part that If a customer requests a list of energy service providers, the electric utility shall provide a list in such a manner that treats all energy service providers equally. (Emphasis added) It is the use of the word equally which concerns Empire. There is no definition of the word equally in the rules, nor use of this word in Act Some of the dictionary definitions of equal -- such as of the same measure, quantity, amount, or number or identical in mathematical value or logical denotation -- would indicate a standard that is possibly unattainable. 10. As a substitute, Empire would recommend the following revision: If a customer requests a list of energy service providers, the electric utility shall provide a list in such a manner that provides equivalent treatment of all energy service 3

4 providers. MPR 3.01J 11. Empire has several comments concerning the provisions of MPR 3.01J, which requires signed statements from certain employees and training for others. As an initial matter, Empire is encouraged that some of the restrictions have been limited to employees engaged in activities in the State of Arkansas. However, Empire believes that the Commission should go further to address these issues. 12. First, there is a concern as to the level of employee that must sign the referenced statement. During the hearing, the Staff witness was asked whether similar requirements would apply to an OG&E career lineman sitting in a cherry picker truck in west central Oklahoma. (Tr. 212) The Commission stated that it would address this issue. While the MPR s have addressed the location aspect of this question, they have not addressed the level of employee that should be subject to the provisions. If the hypothetical career lineman were sitting in the State of Arkansas, it is possible that the rules would still apply to him or her as arguably the lineman is engaged in distribution of retail electricity in Arkansas. Empire, therefore, believes that it would appropriate to modify the MPR as follows to clarify the level of employee for whom this requirement applies:... engaged in decision making as to production, distribution and Second, MPR 301J is unclear as to what the statutes are with which employees must be familiar. It appears likely that the statutes are the statutes resulting from Act 1556 of 1999, and not all the statutes of the State of Arkansas. Accordingly, Empire recommends that references to the statutes and these Rules be changed to read the statutes resulting from Act 1556 of 1999 and these Rules. 4

5 14. Third, Empire is concerned with the additional cost which may result from enforcement of these rules. The refusal of an employee to sign this statement will create an interesting enforcement situation for electric utilities. Presumably, companies will have no choice but to terminate the employment of those employees refusing to sign such statements in order to remain in compliance. This may result in very difficult situations for the company as well as litigation costs for the company. Additionally, Empire does not agree with the use of a signed statement for the same reasons identified in the following comments concerning MPR 3.03C. As an alternative, Empire suggests that rather than a signed statement, MPR 3.01J instead establish a training requirement. MPR 3.03C 15. Based upon these concerns, Empire recommends that MPR 3.01J be changed to read as follows: Each electric utility shall provide training to each of its employees engaged in decision making as to production, distribution and marketing or sale or of retail electricity in Arkansas concerning the statutes resulting from Act 1556 of 1999 and these Rules. The electric utility shall describe its procedures to ensure compliance with this Rule in its written procedures filed pursuant to Rule MPR 3.03C requires as follows: Shared officers and directors shall file with the Secretary of the Commission a statement signed and sworn under oath that they are aware of, understands, and will comply with the restrictions set forth in the statutes and these Rules. 17. Empire is opposed in principle to a policy that presumes an officer or director will violate the rules unless he or she certifies under oath that they will not violate the rules. This requirement of a statement sworn under oath is unprecedented in the electric industry. It is a requirement that reminds one of the days of loyalty oaths. It has been stated as to loyalty oaths, that [q]uestioning loyalty oaths does not make someone un-american. Nor does signing one prove 5

6 that a person is a loyal American. It only proves that the state is paranoid. 1 Similarly, an oath in this will prove nothing as to compliance or noncompliance. Empire therefore recommends that MPR 3.03C be removed in its entirety. MPR MPR 4.02 utilizes a modified asymmetrical pricing standard for goods or services or assets flowing between an electric utility and its affiliates. The Commission s attempt to implement these pricing regulations is an inappropriate attempt to further competition. 19. In particular, the provisions found in MPR 4.02A(1) which requires sales or transfers from competitive affiliates to an electric utility to be priced at lower of fair market value or fully allocated cost will lead to uneconomic decisions. Kenneth W. Costello of The National Regulatory Research Institute included the following discussion of this issue in his paper A Pricing Rule for Affiliate Transactions: Room for Consensus (October1998): In the "lower of" situation with regard to sale of a product or service by an affiliate to a utility, the affiliate may decide not to make such a sale. Let us assume that the affiliate's FDC for a service is less than the market price. The affiliate would then be better off by selling to someone else since it could receive the market price instead of the lower FDC. The utility would have to acquire the service from someone else at the market price. The "lower of" provision merely discourages the sale of a service or product from an affiliate to a utility. The utility is unaffected when it can purchase the same service from another party at the market price, with the affiliate forced to sell its service or product to someone else. In sum, the "higher of" or "lower of" provision has the intended purpose of maximizing the economic gains to the utility from affiliate transactions (presumably, some or all of which can be credited to the utility's customers). In reality, however, the provision would have no effect or, in the worst case, a negative effect on the utility's profits. 1 Our View, The Oklahoma Daily, March 3,

7 20. It is important that the Commission first determine whether the market is working before mandated pricing strategies that may not be in the interest of the customers. The need to do this is well described by Alfred Kahn in his article, Deregulation: Micromanaging the Entry and Survival of Competitors. The following principle, which is one of several principles for efficient competition, describes the necessity for a demonstrated need: Weighing the trade off between safeguards and efficiency; the true test is empirical - the encouragement or preservation of competition or protection of competitors from unfair, exclusionary practices may conceivably, in extreme cases, require denying incumbent monopolists the full opportunity to exploit economies of scale and scope. Any such determination can logically be made, however, only on the basis of a searching assessment of the factual situation in the markets in question, which must involve consideration of whether rivals of the incumbent utilities may enjoy similar or offsetting economies or competitive advantages. In the absence of such a thorough assessment, there is no substitute for seeing whether competition does in fact succeed rather than assuming it will not. (Kahn, p. 9-10). 21. Empire recommends that the Commission return to the pricing provisions proposed by the Staff in its Reply Comments and give the competitive market a chance to operate before resorting to the more aggressive pricing mechanisms found in the MPR. MPR MPR 4.03 requires that records of all transactions, regardless of size, be tracked and maintained by the electric utility. Empire believes that this approach to joint purchases and record keeping will be overly burdensome without corresponding benefits for consumers. This burden primarily exists in relatively small purchases. An example of this would be the purchase of office supplies, such as paperclips. While Empire understands the Commission s interest in large purchases, such as computer hardware, it believes that this interest can be addressed with casting a net that also captures paperclip purchases. Accordingly, Empire recommends that a threshold amount for the 7

8 tracking of transactions be established. This would ensure that an electric utility s additional efforts are directed at those transactions which are significant for the purposes of Act 1556 and the resulting regulations and not an unintended burden that is merely ancillary to those interests. The following would be an appropriate modification to this provision: An electric utility shall maintain a record of each transaction with its affiliates exceeding Twenty-Five Thousand Dollars ($25,000) for at least three years following the date of each transaction.... WHEREFORE, Empire respectfully prays that the Commission give consideration to Empire s Initial Comments on the Modified Proposed Rules. Respectfully submitted, Dean L. Cooper Mo.Bar Enrollment #36592 BRYDON, SWEARENGEN & ENGLAND P.C. 312 East Capitol Avenue P.O. Box 456 Jefferson City, MO Telephone: (573) Facsimile: (573) Attorneys for THE EMPIRE DISTRICT ELECTRIC COMPANY CERTIFICATE OF SERVICE The undersigned certifies that a copy of the foregoing was, on the 7th day of April, sent via U.S. Mail to the following: Mr. Jeff Broadwater Mr. Scott C. Trotter Ms. Valerie F. Boyce Entergy Services, Inc. Trotter Law Firm, P.A. Arkansas Public Service Comm n. P. O. Box W. Capitol, Suite Center Street Little Rock, AR Little Rock, AR Little Rock, AR Mr. Robert M. Lyford Mr. Michael O. Parker Mr. David R. Matthews Arkansas Electric Cooperative Ms. Laura G. Wiltshire 119 S. Second P. O. Box W. Capitol, Suite 501 Rogers, AR Little Rock, AR Little Rock, AR

9 Mr. Larry Chisenhall Mr. Thomas Chapman Mr. Steve Haralson Chisenhall Nestrud & Julian Enron Corp. Assistant Attorney General 400 W. Capitol, Suite Smith Street P. O. Box 751 Little Rock, AR Houston, TX Little Rock, AR Mr. Charles J. Harder Mr. John S. Selig Mr. Stephen H. Joiner Assistant General Counsel Mitchell Williams Selig Rose Law Firm P. O. Box W. Capitol, Suite E. Fourth Street Little Rock, AR Little Rock, AR Little Rock, AR Mr. Jeffrey L. Dangeau Arkansas Western Gas Co. P. O. Box 1408 Fayetteville, AR