Transcript Regulatory Considerations in a Transitional Environment

Regulatory Considerations in
a Transitional Environment
Orjiakor N. Isiogu, Chairman
Michigan Public Service Commission, USA
Nigerian Association for Energy Economics Workshop
May 1, 2008
United States of America
Michigan Electric Statistics
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Generating Capacity: 30,787 MW
Transmission Line Miles: 8,525
Number of Customers: 4.5 million
Annual Power Supply Cost: $3.2 billion
Asset Base for 2 largest utilities
– Detroit Edison: $7 billion plant in service
– Consumers Energy: $3 billion plant in service
Michigan Regulation
• Electricity regulated since 1909
– 90+ years utilities vertically integrated
– 1978: PURPA authorized non-utility
generators
– 1996: Open access to transmission lines
ordered by the Federal Energy Regulatory
Commission
Retail Choice
– 2000: MI Public Act 141 enabled retail choice
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Rates unbundled
License Alternative Electric Suppliers (AES)
Develop code of conduct
Certain low-income protections
– Low-Income and Energy Efficiency Fund
• Establish interconnection standards
• Utilities required to join regional transmission
organizations or divest transmission assets
Regulation vs. Competition
• Both imperfect
• Regulators must find balance
– Promoting workable competition
– Tradition regulatory purview
– Supporting social goals
– Political acumen
Competition
Perfect Competition
A market structure in which the following five criteria are
met:
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All firms sell an identical product.
All firms are price-takers.
All firms have a relatively small market share.
Buyers know the nature of the product being sold
and the prices charged by each firm.
The industry is characterized by freedom of entry
and exit.
Regulation
• Society determines that a service is more
efficiently provided by a monopoly than
competition
• Regulation also invoked when a hybrid
competitive market exists
• Regulation substitutes for competition
– Attempts to mimic a perfectly competitive
market as much as possible
Promoting Workable Competition
• Abuses
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Cross-subsidies
Self-dealing
Insider information
Transfer of risk from regulated to unregulated
affiliates
• Tools to combat abuses
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Structural separation
Access to books and records
Transparent market information
Pre-approval of certain transactions
Promoting Workable Competition
Incentives may be needed:
New construction
• Generation
• Transmission
• Distribution
– Build-out – universal access to service
– Renewable Resources/Energy Efficiency
– Economic Development
– New Technology/Operational Efficiencies
Promoting Workable Competition
• Penalties are also tools:
• Fines
• Reduced rate of return
• Denial of filed requests
– Usually without prejudice
• Conditional approval
Traditional Regulatory Purview
• Access to service (issuing or enforcing)
– Licensing
– define franchises/service areas
• Just and reasonable rates
– Cost-justified
– Non-discriminatory
• Acceptable quality of service
• Assure public safety
• Opportunity for fair return on investment
Political Acumen
– Build and maintain credibility
• Executive, Legislative and Judicial branches
• Consumers
– Residential
– Business
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Utilities and other industry participants
Regulatory peers
Media
Academia
Supporting Social Goals
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Universal service
Low income assistance
Environmental consciousness
Economic development
Low-Income Assistance
• Winter Shut-off protection
• Service Quality Rules
– Performance Standards
• Timely service restoration
• Complaint response
• Customer call answer time
– Limits on estimated bills
– 21 days to pay
– Utility pays 7% interest on over-charges
– Low-income can designate how partial payment applied
Low-Income Assistance
• Low-Income and Energy Efficiency Fund
– Bill payment assistance
• $213,136,541 from 2003 through 2007
• 515,906 customers helped
• Average assistance payment over 5 years:
$413
Economic Development
• Encourage
– New job growth,
– Current job retention,
– Development of certain industries,
– New investment through plant expansion, or
– New investment in existing facilities.
Economic Development
• Rate design options
– Declining discounts over a period of years,
– Fixed discounts for a fixed period of years,
– Discounts related to availability of special
power supply arrangements, or
– Achievement of the underlying goal.
Procedural Considerations
• Due process in decision-making
– Public Hearings
• Fair opportunity for all to be heard
– Limits on Ex Parte communications
– Open Meetings Act
– Treatment of Confidential Information
• Commercially sensitive
• Customer privacy
Open Meetings
- “Sunshine Laws”
- all deliberations public
- perception of fairness
- high dependence on staff
- Private Deliberations
- more efficient communications
- may lend itself to decisions based on
extra-record factors
- may not benefit from staff expertise
Consumer Affairs
• Outreach
– Several Consumer Forums every Fall
• Education
• Complaint resolution
• In person, via telephone or Internet
– Avoid recorded menus as much as possible
Jurisdictional Issues
• Federal
– Pre-emption
• State
• Greater understanding of decision impacts
• Local
• Regional
– Cooperation among states to achieve mutual
benefits
MPSC Goals
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Establish fair and reasonable
rates for regulated services and
adopt and administer fair terms
and conditions of service for the
State’s utility customers.
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Assure adequate and reliable
supplies of regulated services to
all Michigan customers, and the
safe and efficient production,
distribution, and use of the State’s
energy, telecommunications and
transportation services.
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Assure the security of the State’s
critical infrastructure by promoting
homeland security.
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Promote the State’s economic
growth and enhance the quality of
life of its communities through
adoption of new technologies like
broadband telecommunications
and efficient renewable energy
resources.
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Provide customers with the
opportunity to choose alternative
electric, natural gas,
telecommunications and
transportation providers.
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Provide regulatory oversight in a
prudent and efficient manner while
implementing legislative and
constitutional requirements.
Michigan Public Service
Commission Website
• www.michigan.gov/mpsc
Thank you for your kind attention.