Government Management, Accountability and Performance

1. Government Management,Accountability and Performance March 1, 2006 ENERGY SECTION Jim Russell, Glenn Blackmon, Bob Wallis, Jeffrey Showman PPT Available at: I\GMAP\Energy Regulation\Energy Presentation 2006

2. GMAP Quotes (GMAP–Guidelines for Agencies): “At its core, GMAP is simply a meeting where managers report in person to the leadership team. The purpose of the meeting is to share information that will help the agency achieve results.” “POG is about budgeting. GMAP is about managing. POG helps the Governor and agencies make decisions on where to invest money to get results that matter most to citizens.”

3. Topics Covered I. Introduction (Who & What). Costs and Benefits of Energy Regulation. III. Energy Measures (Discussion) IV. Tools, Training, & Challenges. V. Administrative Law Division

4. I. Introduction (Who we are, Who we regulate, What we do)

5. ENERGY SECTION – Who We Are. 14 Professional Staff 7 Analysts with Financial/Accounting Focus 7 Analysts with Economic/Statistical/Engineering Focus $1.2 Million Budget Salaries & Benefits ($1.1 Million) Rent ($77,000) Travel ($15,000) Training ($5,500) M&S, Printing ($2,500)

6. ENERGY SECTION – Who We Regulate. 3 Electric Utilities (Revenues) Puget Sound Energy ($1,600 Million) Avista ($300 Million) PacifiCorp ($210 Million) 4 Gas Utilities Puget Sound Energy ($900 Million) Avista ($170 Million) Cascade Natural Gas ($250 Million) NW Natural ($80 Million) $3.5 Billion in Annual Revenues(WA GDP $262T) 2.4 Million Energy Consumers (Pop. 6.26M) (Includes businesses, and G&E customers twice)

7. High Rates High Returns Low Rates Low Returns Commissioners, ALD, Policy Environment in Which We Operate Public Counsel Energy Utilities WUTC Energy Staff Trade Organizations Investors: Stocks Bonds Consumers

8. ENERGY SECTION – PERSPECTIVE ON COMMISSION MISSION STATEMENT: “The WUTC protects consumers by ensuring that energy utility and transportation services are Fairly priced, Available, Reliableand Safe.”

9. ENERGY SECTION – WHAT WE DO. Economic Regulation of Investor Owned Gas And Electric Utilities(Fairly Priced). General Rate Cases (GRC) Power Cost & Gas Cost Adjustments (PCA/PGA) Tariff Filings & Petitions (Acct’g, Transfers, Securities) Financial Reviews & Staff Investigations Adequacy of Energy Supplies(Available, Reliable, & Safe). Integrated Resource Planning (IRP) Reliability/Vegetation Management Reporting Staff Investigations

10. ENERGY SECTION – Tasks We Perform. GRC’s Energy Tariffs & Fin. IRP’s & MAJOR TASKS: Cost Adj’s Petitions Reviews Reliability Read and Scope Filings X X X X Auditing & Financial Analysis X X X X Power Supply/Gas Supply Modeling X X X Weather & Hydro Normalization X X X Revenue Requirement Modeling X X X X Forecasting X X X X Class Cost-of-Service Studies X X Rate Spread & Rate Design Studies X X X Demand Side Management X X X Reliability Analysis X X X Written/Oral Recommendations & Testimony X X X X

11. Energy Section – What We Do.- 2005 Energy Section Work Load (Hours) 11 132 6 117 24 290 Dockets (64% of time Docketed)

12. Energy Section – What We Do.2005 Workload Hours • Measure: Percent of time spent on different casework. • Strategic goal: Focus activities on most pressing/important work given caseload. • Data source: Records Management System and timesheet analysis. • Next steps: • Identify opportunities for efficient rate case resolution. • Foster cooperation in a litigious working environment. • Develop best practices for processing general rate requests (i.e Scoping, assignment of issues, I:\ratecase folders, negotiations, etc) Discussion Since 2000 we have been busy processing 14 (2.5/yr on avg) general rate cases and 30 (5/yr) energy cost adjustment filings. Rate case fatigue is setting in. “Jaws of statutory deadlines (blue)” are eating into other duties and analysis.

13. Energy Section – What We Do.2005 Workload Hours (Detail) # of Staff Supports Mission Statement Goal: Dockets Hours Fairly Priced Available Reliable Safe General Rate Case 5 8,929 X X X x Mergers & Acquisitions 1 444 X X X Power Cost Adjustments 4 1,199 X X X Purchased Gas Adjustments 7 511 X X X Other Tariff Filings 91 661 X X X x Accounting Petitions 14 736 X Transfer of Property 8 253 X Security Filings 14 105 X Integrated Resource Planning 13 1,154 X X X x Request for Proposals 5 203 X X X Financial Reviews (WAC Rept’s) 105 271 X Staff Investigations 7 648 X X X x Special Contracts 4 28 X Rule Making 5 725 X X X x Reliability Reports 5 30 X X X Certificates 1 4 X X X

14. II. “Costs & Benefits” of Energy Regulation

15. WUTC Energy Regulation- Funding Covers Costs (& More) $5.9M $5.5M $3.8M $3.7M

16. (Goal: Maximize the Slope of the “Consumer/Owner Value” Line) Commission Order Commission Order Briefs Cross Examination Negotiation/Settlement Written Testimony (Regulatory Steps) COMMISSIONERS ENERGY REGULATION GRC “Docket” Value Chain (Example UE-040640/641) ALD Consumer/Owner Value Policy STAFF ANALYSIS (See Slide 10) $ Net Value To Consumers/Owners $ ENERGY STAFF (Regulatory Departments) Docket & Distribute Records Center PSE Filed GRC Statutory Time

17. Energy Regulation- Energy Company General Rate Requests PSE 040640 (Slide 15) Graph represents completion of 14 Energy Rate Cases

18. Energy Regulation- Energy Company General Rate Requests Cumulative Benefit:Cost ratio = 15

19. Energy Regulation2005 Average Costs per Energy Dollar Total = $1.00 (G&E Combined) Energy Costs $.52 Depreciation $.10 WUTC Energy Regulation Cost = $.00106 O&M $.14 Taxes $.10 Return $.10

20. Energy Section – Cost Comparison of Energy Regulation (Regulators vs Utilities) Energy Regulatory Section Costs: WUTC ID, OR, MT WA Regulated CA PUC’s Energy Utilities Total Costs Per Regulatory Empl. $101,300 $118,000 $203,100 $238,400 Cost Per Dollar of Utility Revenue $.0004 $.0007 $.0018 $.0009 # of Regulatory Employees Per Utility 1.86 1.53 5.36 9.44 Annual Costs Per Customer $0.55 $1.07 $2.60 $0.94 Source: NRRI, RRA, Utility Commissions, Statistical Reports, and Regulated Utilities.

21. Energy RegulationMeasure: Fairly Priced Natural Gas • Measure: Residential natural gas prices, for investor-owned utilities. • Strategic goal: Customers pay as stable as practical natural gas rates. • Data source: Utility tariffs, PGA filings • Discussion • Two natural gas rate cases are currently pending at the Commission. • IRP process helps identify opportunities for low/stable natural gas rates in today’s volatile climate. • PGA process helps smooth out short term volatility.

22. Energy RegulationMeasure: Fairly Priced Electricity • Measure: Residential electricity prices, for investor-owned utilities compared to public utilities • Strategic goal: Customers pay low, stable energy rates • Data source: EIA reports (need to update graph through 2005) • Discussion • Investor owned utility (IOU) electric rates declined, in inflation adjusted terms, more than any other type of WA utility from 1989 to 2003. • Regulated Utilities weathered the energy crisis relatively well thanks in part to the IRP process. • Two rate cases are currently pending at the Commission.

23. COMPETITIVENESS OF WA ELECTRIC RATES Investor-Owned Electric Utilities http://www.pacificpower.net/Article/Article45955.html

24. III. Energy Measures (discussion): ULTIMATE MEASURE – What would energy Rates, Reliability and Service be absent WUTC regulation? How do we measure the Energy Staff’s contribution to Fairly Priced, Available, Reliable and Safe service? How do we measure the quality of our analysis and recommendations? Docket (timeliness)/Timesheet/Cost Analysis. Compare costs spent per utility. Comparison of our cost to our peers (PUC’s, Utilities). Peer review (internal/external). Percent of recommendations adopted? Need applicable internal data!

25. Measure: Energy Conservation • Measure: Annual “first-year” energy savings from conservation; electric and gas • Strategic goal: Sufficient energy supplies, cost-effective investments, resource diversity • Data source: Regulated company conservation reports • Discussion and Next Steps: • Companies and consumers responded to high 2001 energy prices with aggressive conservation, which has reverted to pattern of steady growth. • Many programs contribute to energy savings: Weatherizing homes, retrofitting equipment and facilities, and energy education. • Review of Integrated Resource Planning (IRP) rule and gas decoupling will ensure that companies plan for the future.

26. Energy Measure: Green Power Sales • Measure: Track Green Power Sales. • Strategic goal: Make sure regulated utilities are meeting the demand for clean energy in a responsible manner. • Data source: Green Power Programs in WA 2002-2005 Reports to the Legislature. • Discussion and next steps: • Continue to monitor and track success of this program.

27. Energy Measure: Electric Reliability (SAIDI and SAIFI) • Measure: Electric company reliability. • Strategic goal: Uphold reliability, minimize consumer frustration. • Data source: 2005 Reliability Reports. • SAIDI – Sustained Average Interruption Duration Index • SAIFI – Sustained Average Interruption Frequency Index • Discussion and next steps: • Continually monitor reliability through reporting and review of vegetation management programs. • Address “problem areas” in a timely fashion. • Consider “reliability” capital investment requirements in future reports?

28. Electric Consumer Complaints(Per 10,000 customers and by type) • Measure: Electric company complaints; per 10,000 customers (quarterly data, average for four previous quarters), and by type (by year) • Strategic goal: Uphold service quality, minimize consumer frustration • Data source: UTC Consumer Contact System Total Number of Electric Complaints • Discussion and next steps: • Consumer Affairs continually monitors complaints. • Consider developing a monthly or quarterly report from Consumer Affairs to identify problem areas for consideration in Energy Section work.

29. Natural Gas Consumer Complaints(Per 10,000 customers and by type) • Measure: Natural Gas company complaints; per 10,000 customers (quarterly data, average for four previous quarters), and by type (by year) • Strategic goal: Uphold service quality, minimize consumer frustration • Data source: UTC Consumer Contact System • Discussion and next steps: • Consumer Affairs continually monitors complaints. • Consider developing a monthly or quarterly report from Consumer Affairs to identify problem areas for consideration in Energy Section work. Total Number of Gas Complaints

30. Investors Perspective on WA • Discussion • RRA evaluates the regulatory climate of each State public utility commission from an investor’s perspective. • We want to be in the middle rating, neither overly pro-investor nor pro-consumer. • Since last report, Oregon declined one notch and Calif went up one notch. • Measure: Evaluation of regulatory climate from shareholders’ perspective • Strategic goal: Balance interests of companies, allow shareholders opportunity to earn fair rate of return on investment. • Data source: Regulatory Research Associates (RRA) “Regulatory Focus”, 1/6/06

31. Energy Company Credit Ratings • Measure: Unsecured corporate credit ratings for regulated companies • Strategic goal: Strong, stable companies have access to capital on reasonable terms (Utility’s secured ratings are more relevant for ratemaking purposes) • Data source: Standard & Poor’s credit rating history • Discussion • Energy service requires substantial investment in capital infrastructure, such as generation facilities and distribution networks. • Credit ratings help investors evaluate the financial strength of companies. • Ratings have declined for all three electric utilities since the Western energy crisis. • Avista has slipped below investment grade, and PSE is at the lowest investment grade. • Next steps: • Two of three electric utilities have power-cost adjustments, which should help improve their financial strength in the long term. • The Commission will be reviewing rate cases for two electric utilities and two gas utilities in 2006-2007.

32. Measure: Energy Staff Evaluations • Measure: Status of Energy Staff evaluations • Strategic goal: 100% of evaluation complete on time • Data source: Human Resources • Discussion: • All interim reviews were completed through Dec 05 by Roger Braden before his departure. • Next Steps: • Complete annual evaluations in a timely fashion next cycle (from 1/06 forward). • Complete performance descriptions (PD) for each position.

33. IV. ENERGY SECTION – Tools, Training & Challenges Tools & Training: Software/Hardware Training NARUC Institutional Memory - “I:/Ratecase” Folder. Challenges: Retain Experienced Employees. Post Energy-Crisis Workload. Changing Energy Environment.

34. V. Administrative Law DivisionEnergy Case Work Presentation By: Bob Wallis

35. ALD Energy Proceedings 2004 to 2006 • Discussion: • Six electric cases currently pending (three rate cases/mergers, one complaint, one tariff filing, and one PCA). • Two gas rate case currently pending. • All energy cases proceed to a final order, with no initial orders, but multiple interim orders. • Trend: Steady load of energy rate cases is likely to continue.

36. ALD Timeliness of Initial Notice – Energy Cases • Discussion / Next steps: • Average time is nine calendar days for gas cases, six days for electric cases, excluding outlying data. Overall average is seven calendar days. • Delay in issuing notices is due, in part to requests by staff or parties for time for settlement discussions or the need to coordinate schedules. • ALD will require parties seeking delay to file letters with Records requesting delay, and letters requesting ALD to proceed. • Measure: 14 calendar days to issue initial notice of hearing. • Note: Measurement begins when ALD receives the case, e.g., a suspension order following an open meeting. • Strategic goal: Reducing regulatory burden by starting the process quickly, ensuring due process. • Data source: UTC Records Management System.

37. Timeliness of Prehearing Conference Orders – Energy Cases • Discussion/Next Steps: • Average time to enter a prehearing conference order is five calendar days for gas cases, six for electric. • Issuing the orders promptly provides parties a record of the schedule for the proceeding, other procedural guidelines, and contact information for all parties. • Continue efforts to consistently enter prehearing conference orders promptly after the hearing. • Measure: Seven to 21 calendar days to enter an order following the prehearing conference (seven for less complex cases, and 21 for more complex cases). • Strategic goal: Providing reliable, responsive information and process to stakeholders (regulated companies, customers, and other parties). • Data source: UTC Records Management System.

38. ALD Timeliness of Interim Orders – Gas Cases • Discussion: • Of the cases in which ALD entered interim orders, ALD entered procedural orders in an average of four calendar days, and dispositive orders in an average of 11 calendar days. • ALD entered 12 procedural and 5 dispositive interim orders in gas cases in FY04 through FY06. • Continue efforts to consistently enter interim orders promptly during proceedings. • Measure: Seven calendar days to enter interim procedural orders and 21 calendar days to enter interim dispositive orders. • Strategic goal: Providing reliable, responsive information and process to stakeholders (regulated companies, customers, other parties). • Data source: UTC Records Management System.

39. ALD Timeliness of Interim Orders – Electric Cases • Discussion: • Of the electric cases in which ALD entered interim orders, ALD entered procedural orders in an average of five calendar days, and dispositive orders in an average of 13 calendar days. • ALD entered 16 procedural and 21 dispositive interim orders in electric cases in FY04 through FY06. • Continue efforts to consistently enter interim orders promptly during proceedings. • Measure: Seven calendar days to enter interim procedural orders and 21 calendar days to enter interim dispositive orders. • Strategic goal: Providing reliable, responsive information and process to stakeholders (regulated companies, customers, other parties). • Data source: UTC Records Management System.

40. Time from Initial Notice to Entering Order – Energy Cases • Discussion/Next Steps: • On average, ALD entered a final order within 198 calendar days of issuing the notice of hearing in gas cases, and 191 calendar days in electric cases, excluding outlying data. • Where over 200 days elapse before ALD enters an order, delays are due to settlement discussions, or court appeals. • Require parties seeking delay in scheduling prehearing to file request letters with Records and evaluate requests for continuances critically after first request. • Measure: Evaluative measure to assist in measuring timeliness of ALD management of proceedings. • Strategic goal: Providing reliable, responsive information and process to stakeholders (regulated companies, customers, other parties). • Data source: UTC Records Management System.

41. ALD Timeliness of Final Order – Energy Cases • Discussion/Next Steps: • On average, the Commission entered final orders in gas cases within 19 calendar days of the trigger event, and in electric cases within 32 days of the trigger event. • Administrative Procedure Act requires initial and final orders entered within 90 calendar days (RCW 34.05.461(8)(a)). • Work towards consistently entering initial and final orders within 60 calendar days of triggering event. • Measure: 45-60 calendar days to enter an initial or final order. • Note: Measurement begins after last day of hearing, or last filed brief. • Strategic goal: Providing reliable, responsive information and process to stakeholders (regulated companies, customers, other parties). • Data source: UTC Records Management System.

42. Thank You! Contributors: Ann Rendahl Graciela Etchart Joanna Huang Joelle Steward Roger Kouchi Christian Ward Mike Young Yohannes Mariam