SPONSORS: Governors Symington and Nelson
SUBJECT: A Competitive and Reliable Western Electric Power System
A. BACKGROUND
1. The western electric power system is experiencing fundamental change driven by customer demands for choice, lower cost generation, and state and federal regulatory reforms to create a competitive western electricity market.
2. The western electric power industry is central to the region's economy. As the regional power outages of July 2-3, 1996, and August 10, 1996, highlight, the western economy is dependent upon a reliable supply of electricity. Annual expenditures for electric power in the West are over $700 per capita or $57 billion. This is more than the gross output of either the western mining, or farming, or agriculture, forestry, and fisheries sectors.
3. While rates vary from state-to-state, the western region has the second highest regional average electricity rates in the nation.
4. The western electric power industry is very diverse. Investor-owned utilities, publicly-owned utilities, and federal power marketing administrations all play major roles in supplying electricity and providing transmission in the region. Seventy investor-owned utilities provide nearly 70 percent of the West's electric supply. Nearly 1,000 publicly-owned systems, three-fourths of the public power districts, rural electric cooperatives, municipals, regional, and federal systems provide about 30 percent of the West's electricity. Non-utility power suppliers, power marketers and brokers, and load aggregators are adding to the diversity of the electric power industry.
5. Past western state utility policies have been instrumental in (a) cutting the cost of energy services through cost-effective conservation investment, (b) expanding the production of electricity from abundant western renewable resources such as wind, geothermal and solar, (c) fostering industry-sponsored research and development, and (d) helping low-income consumers pay their electricity bills. However, the methods by which these policies have been implemented may not be sustainable in a competitive industry. New approaches will be required.
6. The federal government has acted to open access to the high voltage transmission system, a necessary step in promoting competition. In 1997, Congress is expected to consider legislation to expand competition in the electric power industry.
7. Nearly every western state is evaluating or has acted on regulatory or legislative proposals that would change the existing structure of the electric power industry to give consumers more options to lower their costs and improve reliability.
B. GOVERNORS' POLICY STATEMENT
1. Western Governors support expanded competition among electricity generators to lower electricity costs to western consumers. Some states have already taken steps to promote competition. These initiatives need to be fostered and impediments to increased competition need to be removed. The Governors believe that all segments of the western industry, including investor-owned utilities, public power, federal power marketing administrations, power marketers and brokers, and independent power producers, must participate in the competitive market. The form and timing of such participation should depend upon determinations made at the state and local levels. Western Governors also support further implementation of access to the western transmission grid on a non-discriminatory basis.
2. Western Governors recognize that the western electric power system is comprised of a highly integrated interstate grid. This "interstate highway of electrons," which moves at the speed of light, requires a high level of coordination among those using the grid, as well as the cooperation of those in each state and in the federal government charged with the responsibility for regulating various elements of the system during this transition to competition.
3. The transition to a more competitive market should ensure continued reliability and safety in the provision of electric power service. Western Governors encourage private sector solutions that promote system reliability. Western Governors urge the western electric power industry, in cooperation with western states and the federal government, to support the formation of independent system operators (ISO) and/or security centers to maintain and enhance system reliability and mitigate vertical market power and facilitate efficient transactions in a restructured industry. All transmission owners within the area served by an ISO, including federal power marketing administrations, must be members of the ISO. New approaches to establishing and enforcing regional reliability criteria need to be adopted. These new approaches should include:
a. Appropriate state and regulatory bodies taking steps to support regional and national reliability councils to ensure that the new reliability management process is implemented equitably and promotes the reliability of the western interconnection;
b. Use of a public process for setting reliability criteria;
c. Review of proposed reliability criteria by states;
d. Application of reliability criteria to all users of the grid;
e. Enforceable sanctions for non-compliance with reliability criteria;
f. Mandatory membership by operators and users of the transmission grid in regional reliability councils;
g. Governmental oversight of the public processes used to establish and enforce reliability criteria, either through an organization of all affected states and provinces or through a joint state/federal oversight process; and
h. Examination of potential for market power abuse.
4. Western Governors support the adoption of "system benefit" charges to continue appropriate support of social purposes, including acquisition of cost-effective energy conservation, research and development, expanded use of renewable energy resources, and low-income assistance.
5. Western Governors urge the federal government to work with the states to develop effective means to mitigate market power in order to lower costs to customers.
6. Western Governors urge western state public utility commissions and Attorneys General to examine whether new measures are needed to protect electricity consumers in a more competitive market and educate consumers of their rights and risks under a competitive electric system.
7. Western Governors urge the federal government to refrain from adopting preemptive legislation that would impose a "one-size-fits-all" approach to the restructuring of the electric power industry that fails to recognize the unique characteristics of the western electric power industry. No action by Congress or the Federal Energy Regulatory Commission should abridge the existing powers and authorities of state and local governments. Any action taken by Congress should enable states to restructure the electric industry, but not impose a mandate on states to do so. Congress should ensure that federal institutions, such as the power marketing administrations, participate in regional actions to promote competition, such as the creation of independent system operators. Additionally, any federal legislation must retroactively include state actions to establish retail competition.
Federal agencies and federal legislation should facilitate effective decision-making by the states and empower the states, with the cooperation of other regional stakeholders, to create regional mechanisms, where appropriate, to address transmission, reliability, market power and other regional concerns. The Federal Energy Regulatory Commission should be required to defer to the decisions of such bodies.
C. GOVERNORS' MANAGEMENT DIRECTIVE
1. The WGA Task Force on Electric Industry Restructuring: Competition and Reliability is directed to monitor and report on the implementation of this resolution and to share important information with western legislatures. The Committee on Regional Electric Power Cooperation (CREPC), a joint working committee of the Western Interstate Energy Board and the Western Conference of Public Service Commissioners, is directed to work with the western industry and the federal government to achieve the goals of the Governors' Policy Statement. CREPC is to report to the Task Force on the progress in implementing the Governors' Policy Statement.
Note: This Policy Resolution was originally adopted in January 1997 and amended in June 1997.
97resos/resos/elect-mod.003