Unanswered Questions About Mutual Utility
Posted on July 5, 2005 by oregoncub
Tags, Legislative & Political
Below are a list of questions we sent to backers of the Oregon Mutual Utility Bill, Senate Bill (SB) 671, on April 13, 2005. We have not yet received answers to these questions, and are therefore asking our members and all Oregon ratepayers to call their Representative (503-986-1000) telling them to Vote No on SB 671, and call Governor Kulongoski asking him to veto the bill if it reaches his desk (503-378-4582).
Questions As To The Application Of The Mutual Utility Construct
Regulation
1. What exactly would the PUC regulate, and how would it enforce its regulation?
2. What role would the Board have in approving any filing to the PUC? Because the PUC can’t disallow costs, this would seem to be the critical step in setting the utility’s policies and rates. Would customers and members of the public have access to this process?
Governance
3. You have already selected five board members.
a. Who was involved in selecting these five board members?
b. What is the rationale for having the initial self-selected board members picking the rest of the Board and this Board choosing new nominees to the Board? How does this foster a true election process? How does this support diversity of representation?
c. Are all 9 members subject to an election by customers?
d. Will board elections be contested (i.e., will customers have a choice of more than one candidate)?
e. Will customers separately elect each board member or will they be presented with a slate for the entire board that is currently up for election?
f. You state that, “customers will have the opportunity to propose alternative names” for the board. Would they make these recommendations to the nominating committee? How and by whom would these nominees be evaluated?
g. According to your Governance description, the governance structure is designed to represent the interests of all stakeholders. How is the governance structure designed to represent the interests of all stakeholders?
h. How will the nominating and corporate governance committee, which recruits and proposes board members, represent the interests of all stakeholders?
4. Could the board decide to forgo member elections or member nominations?
5. Would OMU be subject to the open meetings law and/or the public disclosure law?
EXTENDED BODY:
Taxes
6. Your response to the Governor’s task force says that you would not pay “federal income tax on retail sales to customers.”
a. Are you saying that this entity would be tax-exempt? If not, what does this statement mean?
b. How would OMU be treated under the federal tax code and what sections of the tax code would apply to a mutual utility?
7. OMU claims that it will pay $12.3 million per year in state income taxes.
a. What is the basis for this figure?
b. What is the legal rationale for paying little or no federal taxes but significant state taxes?
c. Are there other entities that pay significant state income taxes but little or no federal taxes?
Rates
8. In your response to the Governor’s task force you state that, “based on PGE’s performance and conditions in 2004, OMU anticipates that after the transition to mutual ownership, the utility’s refunds to its customers should be equal to or greater than the anticipated acquisition charge.”
a. What analysis supports this statement?
b. 2004 was a reasonably good year for PGE, would your conclusion hold true in a year that PGE did not have a strong financial performance?
9. In your response to the Governor’s Task Force you state that, “under mutual ownership PGE may reinvest net income in its system to ensure safe, reliable, low-cost power, and make refunds to its customer-owners. OMU anticipates these decisions will be made through a collaborative process involving PGE, its customer-owners and the OPUC.”
a. What are the details of this collaborative process?
b. What would be the role of the PUC Staff, the PUC Commissioners, and the mutual utility’s board of directors?
10. You state that, “each member’s interest in refunds is based upon the customers’ size as determined by the customer’s actual usage, related to the cost of generation and distribution less fuel costs and purchased power.”
a. What is meant by a customer’s actual usage, and how would you determine a customer’s actual usage related to distribution?
b. Based on this concept, what would be the expected division of any refunds between residential, commercial, and industrial customers?
11. You state that the PUC will set rates. When the PUC sets rates, what it actually does is determine which costs in a utility’s budgets can be recovered from customers and which costs must be borne by shareholders.
a. What does PUC rate-setting mean for a utility without shareholders, where customers must absorb all the costs and risks, regardless?
b. If the PUC thought an expense was not justified, what action could it take?
c. Under current law, could the PUC approve rates that include costs that it did not believe were prudent?
d. The current statutes that provide the PUC with its regulatory power deal with issues like prudence and balancing the interests of shareholders and customers. What changes in PUC regulatory authority would be necessary to allow it to regulate a mutual utility?
12. You state that the cost of interim financing can be avoided if the legislation is approved allowing for the use of securitization before OMU’s purchase is finalized. You also state that once the enabling legislation is completed, OMU will issue the securitization bonds to repay interim investors.
a. With interim financing, when will customers begin paying for the securitized bonds? Without securitized financing, when will customers begin paying for the securitized bonds?
b. Are there circumstances under which customers would begin paying for the securitized bonds, before the deal is fully approved? If yes, what would the rate impact likely be?
13. Your materials state that you are, “developing a cost-of-service model so we can fairly share costs and savings among industrial, commercial and residential customers… One group of customers should not subsidize others; cost of service should be the primary determinant of prices charged.”
a. Who is developing this cost-of-service model? What is its current status? Who will approve the model?
b. If cost of service is the primary determinant, what are the other determinants? How heavily will they be weighted?
Ownership
14. Under this model, could PGE be sold to another entity? If so, who would make this decision?
15. In one information piece, Financing the Purchase of PGE, it states, “as the securitization bonds are repaid, customers’ ownership interest in PGE continues to grow,” yet in another piece, Acquisition Financing Strategy, it states that commencing “with the first monthly customer payment… PGE becomes a mutual company owned by its customers.” When do customers become owners and what does ownership mean?
16. If a portion of PGE were to form a PUD or a municipality, what would happen to those customers’ portion of the acquisition debt?
Financing
17. How does the cost of debt associated with securitized financing compare to the cost of financing the mutual utility without securitization or financing an acquisition with municipal bonds? How does it compare to tax-exempt financing?
18. Our understanding is that these bonds are securitized, and therefore the responsibility of PGE customers, not OMU; what bond covenants does OMU anticipate and whose responsibility would these be?
19. In your response to the Governor’s task force, you state that, “ased on OMU’s analysis to date, it does not anticipate the acquisition should affect factors such as PGE’s credit rating, and capital structure requirement.”
a. Who has done this analysis?
b. Has OMU discussed the mutual utility construct with any rating agencies and/or gotten any feedback from them?
20. Which of the following costs would be backed by securitized bonds:
a. The revenue that would go to Enron as part of the purchase?
b. The cost and profit to be paid to you and others who are involved in putting together this purchase?
c. The cost of the regulatory processes that are necessary to approve the proposal?
d. The cost and profit to be paid to the lobbyists that are pursuing your securitization legislation?
21. What are the start-up costs that you expect to implement the mutual utility construct, and what actions have you and those working with you taken to minimize those costs?
22. Would your legislation allow securitization of any costs beyond the original acquisition?
23. What are the details of the interim financing, and how will the transition from interim financing to securitization proceed?
24. What are the transactional costs associated with interim financing?
25. What are the transactional costs associated with securitized financing?
Investing In New Power Supply
26. With regards to the mechanism for financing new resource acquisitions OMU states, “PGE will continue to have the same access to capital markets for resource acquisition that it has historically enjoyed. A portion of revenues (representing customer-ownership patronage) may be retained to provide a source of equity capital for such expenditures and to maintain PGE capital structure. The acquisition will not change this requirement, although such retained funds will not constitute ‘income’ for federal income taxes and will be obtained ‘pre-tax.’”
a. Will this be sufficient to fund new resources?
b. Will further securitization be required?
c. In addition, to retaining earnings, PGE and other utilities regularly look to new equity issuance to maintain their
capital structure. How would OMU maintain its capital structure without new equity?
d. If net income is not sufficient to maintain and invest in the utility, how will new investments be financed and what effect would such financing have on the utilities credit rating?
Accountability
27. Who are the individuals currently involved in this proposal who expect to be paid if the deal is approved?
28. What is the estimated amount each expects to be paid?
29. How would the reasonableness of such payments be determined?
30. Would anyone have the authority to decline payment to any of these individuals?
31. Why was the decision made to offer legislation on securitization without tying that securitization to ownership by customers, election of the board of directors, or any other aspect of this deal?
Proposed Legislation
32. Does Section 6 (1) violate the constitutional prohibition against binding future commissions?
33. In Section 5(4)(b), what happens if the PUC identifies acquisition costs that are not just and reasonable to recover from ratepayers? Who would be responsible for paying those costs?
34. If the mutual utility is not successful in acquiring PGE, what is the practical result of having changed the PUC’s general authority? What other proposals could make use of this new law?
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03/10/17 | 0 Comments | Unanswered Questions About Mutual Utility