Brief Description: Asking the federal energy regulatory commission to withdraw a new pricing policy proposal.

Sponsors: Senators Fraser, Morton and Kline.

Hearing Date: 4/1/03

Staff: Pam Madson (786-7166).

Background:

In order to further the goals of formation of regional transmission organizations and the separation by utilities of their transmission function from other utility operations, the Federal Energy Regulatory Commission (FERC) recently proposed a new pricing policy. This policy provides an incentive for utilities to transfer operational control of their transmission facilities to a Regional Transmission Organization (RTO), to form independent transmission companies (ITCs) within RTOs, or to pursue additional measures that promote efficient operation and expansion of the transmission grid.

The proposed policy allows a utility to qualify for an incentive of an additional 0.5 percent on its return on equity for its transmission assets if it participates in and transfers operational control of its transmission facilities before December 31, 2004, to a FERC-approved RTO. The incentive would be available until December 31, 2012.

An ITC may qualify for an additional incentive equivalent to 1.5 percent of the book value of transmission assets at the time they are transferred to the ITC if the ITC also participates in a FERC approved RTO. The ITC must meet FERC's independent ownership requirements which prohibits ownership interests or financial interests between the ITC and any market participants. This incentive would be recovered through transmission rates and would be available until December 31, 2022, and is contingent on continued independence from market participants and continued participation in the RTO.

The final return of equity incentive is equal to 1 percent for investment in new transmission facilities, which are found appropriate pursuant to an RTO planning process.

Summary of Bill:

The Legislature requests that the Federal Energy Regulatory Commission (FERC) leave the Northwest electricity system in place and withdraw its proposed new pricing policy for the rates of transmission owners until such time as a cost-benefit analysis is completed that indicates a positive benefit for Northwest consumers, and the region expresses its desire to form a new transmission organization.

In the event that FERC does not withdraw its proposal, the President and Congress are requested to take action to prevent FERC from proceeding with its proposal.

Appropriation: None.

Fiscal Note: Not Requested.