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Firms back 'arms-length' rules

Changes sought in deals between utilities, sister firms

Some of Utah's biggest businesses petitioned the state's Public Service Commission on Thursday to adopt new rules that would ensure public utilities negotiate arms-length transactions with their sister companies.

The request, driven by the Utah Association of Energy Users — whose membership includes IHC Health Services, Tesoro Refining and Marketing Corp. and other large energy users — follows just weeks after the demise in the Legislature of HB251, backed by the association, which would have opened the bid process of electrical generation contracts when those deals involve affiliates.

Two companies are affiliated when one owns less than a majority of the voting stock of the other, or when both are subsidiaries of a third company.

The association contends public utilities are not capable of negotiating at arms-length with their affiliates, exposing Utah ratepayers to unfair business practices, favoritism and higher rates.

The new rule is aimed at Utah Power parent company PacifiCorp and rises from the company's decision to purchase all of the output of a new power plant in West Valley City that was built by nonregulated PacifiCorp Power Marketing, a subsidiary of Oregon-based PacifiCorp's parent ScottishPower.

"The problem is there is no transparency, not only for us or other bidders, but not even for the commission," said Gary Dodge, an attorney representing UAE.

The push for stricter oversight comes on the eve of a massive $2 billion capital investment campaign by PacifiCorp, which plans to add nearly 6,000 megawatts of generating capacity to its six-state electric grid over the next 10 years.

A megawatt is enough electricity to power about 500 typical homes.

"That 5,800 megawatts carries a huge price tag," said Paul Barber, a senior consultant to Energy Strategies, an electric and natural gas consulting firm. "Our goal is to make sure it is done the most cost effectively. Just make it transparent. There's too many dollars on the table here that ratepayers are going to have to pay."

Kimball Hansen, a spokesman for Utah Power, said the company supports an open, transparent acquisition process, and the PSC already has regulatory control over its acquisitions, so new rules are not needed.

"We feel like the PSC has done and is doing an excellent job in providing that oversight," Hansen said. "We have every expectation that it will continue to do so going forward."

The proposed new rule will draw the scrutiny of the commission in the coming months, PSC Chairman Steve Mecham said.

Mecham added that the commission's job was not to manage bids, yet he acknowledged that more study was needed to understand whether the rule was necessary.

"It's not typical for the regulators to step into the shoes of management," said Mecham, referring to the bid process. "Management makes those kinds of decisions, and then in a rate case we determine what finds its way into rates and what customers pay for."

The West Valley plant lease, which PacifiCorp entered into with its affiliate, could become the subject of the company's next rate case in May, Mecham said.

"You always want to ensure that negotiations occur at arms-length," he said. "We've had affiliate relationship concerns over the years, and we've dealt with them in other cases with all the utilities."