Regulatory Considerations in a Transitional Environment

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Regulatory Considerations in a Transitional
Environment

• Orjiakor N. Isiogu, Chairman
• Michigan Public Service Commission, USA
• Nigerian Association for Energy Economics
  Workshop
• May 1, 2008

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United States of America
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(No Transcript)
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Michigan Electric Statistics

• 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

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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

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Retail Choice

• 2000 MI Public Act 141 enabled retail choice
• 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

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Regulation vs. Competition

• Both imperfect
• Regulators must find balance
• Promoting workable competition
• Tradition regulatory purview
• Supporting social goals
• Political acumen

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Competition

• Perfect Competition
• A market structure in which the following
  five criteria are met 1. All firms sell an
  identical product. 2. All firms are
  price-takers. 3. All firms have a relatively
  small market share. 4. Buyers know the nature
  of the product being sold and the prices charged
  by each firm. 5. The industry is characterized
  by freedom of entry and exit.

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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

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Promoting Workable Competition

• Abuses
• Cross-subsidies
• Self-dealing
• Insider information
• Transfer of risk from regulated to unregulated
  affiliates
• Tools to combat abuses
• Structural separation
• Access to books and records
• Transparent market information
• Pre-approval of certain transactions

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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

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Promoting Workable Competition

• Penalties are also tools
• Fines
• Reduced rate of return
• Denial of filed requests
• Usually without prejudice
• Conditional approval

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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

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Political Acumen

• Build and maintain credibility
• Executive, Legislative and Judicial branches
• Consumers
• Residential
• Business
• Utilities and other industry participants
• Regulatory peers
• Media
• Academia

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Supporting Social Goals

• Universal service
• Low income assistance
• Environmental consciousness
• Economic development

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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

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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

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Economic Development

• Encourage
• New job growth,
• Current job retention,
• Development of certain industries,
• New investment through plant expansion, or
• New investment in existing facilities.

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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.

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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

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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

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Consumer Affairs

• Outreach
• Several Consumer Forums every Fall
• Education
• Complaint resolution
• In person, via telephone or Internet
• Avoid recorded menus as much as possible

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Jurisdictional Issues

• Federal
• Pre-emption
• State
• Greater understanding of decision impacts
• Local
• Regional
• Cooperation among states to achieve mutual
  benefits

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MPSC Goals

• Establish fair and reasonable rates for regulated
  services and adopt and administer fair terms and
  conditions of service for the States utility
  customers.
• Assure adequate and reliable supplies of
  regulated services to all Michigan customers, and
  the safe and efficient production, distribution,
  and use of the States energy, telecommunications
  and transportation services.
• Assure the security of the States critical
  infrastructure by promoting homeland security.

• Promote the States economic growth and enhance
  the quality of life of its communities through
  adoption of new technologies like broadband
  telecommunications and efficient renewable energy
  resources.
• Provide customers with the opportunity to choose
  alternative electric, natural gas,
  telecommunications and transportation providers.
• Provide regulatory oversight in a prudent and
  efficient manner while implementing legislative
  and constitutional requirements.

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Michigan Public Service Commission Website

• www.michigan.gov/mpsc

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Thank you for your kind attention.