December 28, 1999
Senator Ed Schrock
Dear Senator Schrock:
It is with great pleasure that the L.R. 455 Task Force submits the Final Report of the Phase II Study to the Natural Resources Committee.
As requested by the Legislature, the report provides a comprehensive overview of the completed and anticipated developments in wholesale and retail electric competition. It includes reviews of Federal Energy Regulatory Commission activity, utility mergers, state regulatory and state legislative activities, and congressional initiatives. It offers an evaluation of the potential effects of these developments on the consumer-owned electric industry in Nebraska.
The primary findings show the nation is entering a major transition for electric utilities from a monopoly market to a partially deregulated competitive market. Decisions at the federal level have set the stage for this transition and determinations on the timing and form of competitive markets have initially been left to the states.
Each state must evaluate the costs and benefits of a transition to a competitive retail market based upon its own unique conditions. Nebraska faces a very different situation than other states in view of its low-cost power and non-profit service from locally-controlled, consumer-owned electric systems.
While states with high electric costs have taken the most aggressive action, Nebraska. s challenge is how to maintain its low power costs. A transition to retail competition without price justification or certain preconditions in place could raise, rather than reduce power costs.
The report finds that expanded wholesale competition and changes in transmission networks may be accommodated by the current structure. Modification of the distribution systems may also take place to enhance efficiencies. However, to establish retail competition, the structure, principles, and operations of Nebraska. s consumer-owned systems would have to be altered significantly to move from non-profit, cost-based delivery of services to a selective transactional market with market-based pricing.
The report also finds that markets and technology will continue to evolve, and that current low-cost conditions may change. Pressures to implement a transition could arise at the federal and regional levels, as well as within the state.
The report offers recommendations and a policy framework to address issues of competition and electric industry restructuring. It outlines methods to retain low wholesale power costs, assure low-cost transmission access for all Nebraska electric
systems, and improve the operations of distribution systems. It also outlines the conditions necessary for consumers to benefit from retail competition and a process to prepare for and assess those conditions as the market and the industry evolve.
The report recommends a two-part legislative process. The first part would allow enhancement of the Nebraska systems and prepare for competition, and the second part would undertake a transition, if and when conditions warrant such a change. Should this transition be undertaken, consistent with the philosophy of local control, each individual consumer-owned electric system would have the ability to conduct a public process to determine whether or not to participate.
This "condition-certain" framework would constitute Nebraska. s unique plan to meet the changing conditions of the industry and provide flexibility and security for consumers.
We thank the Natural Resources Committee and the Legislature for its support and initiative in this effort and express our thanks to those who have contributed to the Phase II research and analysis.
On behalf of the Task Force,
Harry M. Trebing, Project Consultant
Cline, Williams, Wright, Johnson & Oldfather
Individuals who made significant contributions to the Phase II Report: Kate Allen, Scott Andrews, Mike Foley, Charlie Pape and Rich Kosch. Also of substantial assistance were the Nebraska Power Association Joint Planning Committee, Rates Committee, and Lawyers. Committee.
Written comments or questions regarding the Phase II Report should be submitted to: Charles Pallesen, Esq./ Cline Williams/ 1900 US Bank Building/ Lincoln, Nebraska/ 68508
Chapter One: Background on Electric Industry Competition and Restructuring
Chapter Two: Electric Industry Competition and Restructuring in Other States
Chapter Three: Retail Competition, Customer Choice, and Consumer Protection
Chapter Four: Three Models to Address Nebraska Key Issues and Potential Impacts
Chapter Five: Changes and Impacts on Nebraska's Electric Industry Structure and Operations
Chapter Six: Changes and Impacts on the Environment, Energy Efficiency, and Renewable Energy
Chapter Seven: Changes and Impacts on Law, Governance, Regulation and Taxation
Chapter Eight: Cost/Benefit Considerations
Chapter Nine: Public Process and Timing Considerations
Chapter Ten: Summary of Chapter Key Points and Recommendations