1. Why was it necessary to create the new Office of Consumer Advocate; wasn't this work already being done, and if not why not?

Certainly there was a consumer advocate function under the law that was repealed with passage of H.B. 143. In fact, under the previous law the Commission was required to designate certain of its permanent staff to develop and present a public interest position in contested cases before the Commission. Once the Consumer Advocate Staff was designated to participate as a party to a proceeding they worked independently of the Commission and its advisory staff. In that sense, consumers were always represented by an independent party before the Commission in rate cases and other contested proceedings.

However, under the old law there was at least a perception that members of the Commission's Staff, who alternated between a CAS role and an Advisory role, could be subject to undue influence by the Commission and could have the opportunity for inappropriate ex parte communication with the Commission, thereby prejudicing the Commission's decision making process. The new law removes not only the perception that the Consumer Advocate is not independent of the Commission, but removes any opportunity for the Commission to unduly influence the Consumer Advocate and vice versa.

This structural independence is one of two features that distinguish the OCA from the former Consumer Advocate Staff, the other being the express right for the OCA to appeal Commission decisions that it feels are contrary to the public interest. This latter right, conferred upon the OCA by the Act that created it, was not part of the former law and so consumers have never been directly represented in appeals of Commission decisions nor have consumers had standing in court to directly oppose Commission orders. Now they will.

This provision of the Act is very important to the overall state regulatory process and will inevitably lead to sounder and more thorough decisions by the Commission, whether it is actually exercised or not. The fact that the OCA has the right of appeal will cause the rate setting process to conform more strictly to due process standards used by courts and it will require parties to present evidence to the Commission in contested cases which more fully satisfies the substantial evidence standard upon which the Commission must base its decisions.

2. What does the OCA do?

The OCA is currently actively involved in approximately a dozen cases pending before the Commission which range in complexity from a simple gas pass on filing, to a $40 million revenue increase request for PacifiCorp Wyoming. The substance of the work that we perform and the analysis that we do on these cases will not be unlike the work that we did as members of the former CAS. We will still be reviewing filings made with the Commission to determine whether or not there are public interest issues that need to be addressed by the OCA. In those cases where we determine that the public interest requires OCA involvement, we will continue to examine traditional issues such as cost of service, rate of return, revenue requirement, and rate design, to ensure that utilities provide safe, adequate and reliable services at affordable rates.

We will also work with parties in contested case proceedings, and in Commission rule making proceedings to develop non-traditional policies and practices to address the evolving nature of the utility industry. We will constantly look for ways to address this evolution and ensure that customers benefit from emerging regulatory practice and policy. We will also look for opportunities to encourage equitable risk sharing among utility companies and their customers. We have all learned over the past three to five years that providing safe adequate and reliable utility service is not accompanied by the same staid guarantee of profitability that it once was, as evidenced by the bankruptcy filing of PG&E in California and the weakened state of financial health for U.S. utilities generally. In this new utility market environment we must find ways to mitigate the impact of increased risk on customers so that, unlike the traditional regulatory compact, utility shareholders bear an equitable share of the risk of providing service and that they are rewarded in proportion to the risk that they assume.

We will also continue to be involved in debate and dialog on regional and national utility regulatory and policy issues, such as proceedings before the Federal Energy Regulatory Commission, the Federal Communications Commission and the Securities and Exchange Commission. We believe it is important for Wyoming consumers to be represented before such bodies because in the end every regulatory decision or policy, whether it is local, state or national in nature, is a consumer issue. So, when we have an opportunity to comment on or participate in such proceedings we will, at least to the extent that time and resources allow.

3. Why does my natural gas bill go up and down so much, and why is natural gas so much more expensive than it was last year?

The natural gas that is supplied to retail customers by their local distribution systems is purchased by the utility in the wholesale natural gas market, and the cost of that gas, except for those customers that are part of Kinder Morgan's choice gas program in Wyoming, is passed on to customers at the utility's cost to acquire it. In this traditional regulatory arrangement the utility makes no profit on the gas itself; it is simply allowed, subject to a Commission review of its acquisition practices, to recover the cost of purchasing the gas. The Wyoming Public Service Commission has no control over the prices that wholesale gas suppliers charge the distribution companies for natural gas.

In 1978 Congress passed the Natural Gas Wellhead Price Decontrol Act, which effectively deregulated the wellhead price of natural gas. Prior to that time, the federal government heavily regulated the wellhead price of natural gas, including production quotas, pricing and profitability. After the Arab oil embargo and the ensuing energy shortage of the mid 70's, Congress determined that deregulating the wellhead price of natural gas would encourage the exploration and production of natural gas which would in turn result in more supply and lower prices for customers.

This strategy worked well for the balance of the last two decades, with rising supplies and falling prices throughout most of the 80s and 90s. In fact, it worked so well that the price of natural gas at the wellhead fell to unprecedented lows during the middle 90's. At these low prices producers were discouraged from finding and producing new supplies of gas because of the substantial capital investment required to do so, with no corresponding guarantee that they would be able to recover those costs.

Several other factors were at work during this period that also helped keep the price of gas low. Prevailing weather patterns across much of the country were milder that normal for several years, meaning that the demand for natural gas in winter home heating was less than normal. Additionally, natural gas demand in industries that use gas as a primary fuel source or as a feedstock in a manufacturing process, was flat and demand growth was low.

In late 2000 and 2001 these fundamental elements of natural gas supply and demand began to change quickly. The fall off in production, coupled with increased demand brought about by increased economic activity and a return to more normal weather patterns, caused the price of natural gas to rise sharply during the 2000/2001 heating season. Additionally, the vast majority of new electric generation capacity placed in service since the late 1990s is fueled by natural gas, placing additional demand on natural gas supplies without a corresponding increase in production.

All of these factors have combined to drive up the price of natural gas at the wellhead. Retail natural gas distribution companies must compete with other gas users for their retail supplies which means that customers, who must pay for those supplies on a dollar for dollar basis, have seen steadily increasing prices throughout the last couple of years.

Wholesale natural gas prices have also been much more volatile recently as compared to historical price trends and there are several underlying reasons for that volatility. Spot market natural gas and natural gas futures contracts are routinely traded on established commodity exchanges such as the New Your Mercantile Exchange and the Chicago Board of Options Exchange. Traders on these exchanges hedge their positions in natural gas against the price of other energy sources such as crude oil, heating oil and coal. Also, many industrial customers who use large amounts of natural gas, have the ability to substitute one or more of these alternative fuel sources in their manufacturing process. The result is that the price of natural gas follows the price of other energy resources much more closely that it did historically. Some of the volatility that is inherent in the price of other energy resources is thereby projected onto the market price of wholesale natural gas. Additionally, wholesale natural gas markets, and the players that trade in them, have become much more sophisticated in the last three to five years, such that information about physical factors such as impending storms that might affect the production of natural gas in the Gulf of Mexico, or an arctic cold front that might cause demand to rise dramatically for a period of time, is reflected almost instantaneously in the market price of natural gas. All of these factors combine to increase the volatility of wholesale natural gas prices when compared to historical price trends.

4. Wyoming has large energy reserves, including natural gas and coal. Why do we pay as much for our natural gas as those who live in states with very small reserves of natural gas? Shouldn't Wyoming citizens benefit from our abundant energy resources through lower prices?

As explained in the answer to question 3 above, natural gas is a commodity that can be bought and sold, stored and traded, much like many other commodities that are traded on a daily basis. For example, there is a robust and vibrant market for agricultural commodities that is the subject of trading and contracting on most of the public commodities exchanges in the world. On such exchanges you can buy contracts for the purchase of cattle, corn, soybeans, wheat and other similar commodities. Producers and traders use these exchanges to get the highest possible price for their commodity, while purchasers use them to get the lowest possible price. Both the buyers and sellers are free to choose whatever price and product suites their individual needs.

Similarly, natural gas producers and traders use the same types of markets to ensure that they get the highest possible price for their product. Neither natural gas producers nor agricultural producers are restricted in the markets in which they are allowed to sell their products. A natural gas producer may sell gas to customers outside the state of Wyoming if those customers are willing to pay more than are the Wyoming customers, just as ranchers may sell their cattle to out of state customers in order to get the best price. Both the Wyoming Public Service Commission and the Federal Energy Regulatory Commission, although they do exercise a great deal of collective authority over the transportation and delivery of natural gas, lack jurisdiction over the pricing of wholesale natural gas.

5. How long will we have to endure these high and volatile natural gas prices?

While no one can predict with certainty what wholesale natural gas supplies will cost in the future, most experts agree that current market fundamentals point toward a sustained period of increasing natural gas prices. Due to the volatility of the market there will certainly be periods of falling prices as well as rising prices, but on average the trend is toward increasing prices. It is unlikely, notwithstanding a calamitous event that substantially reduces demand, that we will return to the unprecedented low natural gas prices that were prevalent in the past. Instead, customers should expect average prices for natural gas to increase over time as demand continues to grow and production peaks and begins to decline.

6. If prices are going to remain high into the foreseeable future, how can I reduce my bill for retail natural gas service?

Customers can reduce their bill for natural gas service by reducing the amount of gas that they must buy. Since it is hard for either the Public Service Commission, or customers for the most part, to impact the price that customers must pay for gas, reducing consumption through conservation is the most effective way to lower your bill. There are many cost effective and relatively inexpensive conservation measures that customers can employ in their homes to reduce gas consumption and lower their gas bills.

Since the vast majority of the gas used by typical residential customers is used for home heating during the winter, customers should pay particular attention to conservation measures that help reduce the need for space heating. For example, an electronic thermostatic control for forced air gas furnaces, which can be obtained at most hardware and home improvement stores, can substantially reduce the amount of gas needed for space heating. These devices automatically lower building temperatures when you are not at home and increase them when you are. Other conservation ideas include; insulation blankets for hot water heaters; additional insulation in attics and crawl spaces; keeping north facing window coverings closed to reduce the egress of heated air from the home; applying caulking and weather-stripping to doors and windows and to areas where utility facilities enter the house; keeping doors to unoccupied rooms shut. It is surprising to see how much energy can be saved from following these simple conservation tips.

7. My phone bill is incomprehensible. There are so many charges, credits and taxes that I don't understand. Is there a simple explanation of these charges?

The following is a line-by-line explanation of a typical local service phone bill based on an actual Qwest Communications monthly bill. Amounts for other Wyoming local exchange carriers would be similar in concept but would vary in amount.

Residence Line in the Qwest Base Rate Area $23.10 per month The basic monthly rate will vary by company and service location. Current rates range from less than $15 to more than $90 per line per month. You can find these rates on Table B of Tab 9 in the Public Service Commission July 14th materials.

Extended Area Calling $0.23 per month This surcharge allows customers in Cheyenne to call the areas of Eastern Laramie County (e.g., Burns, Albin, etc.) toll free. Customers in Eastern Laramie County pay a higher monthly fee for the ability to call Cheyenne customers toll free. Similar arrangements exist in other areas of the state, such as Star Valley and Glendo-Wheatland-Chugwater.

Federal Excise Tax $0.95 (percentage based) This is a tax of 3 percent imposed by the United States Congress. The money from this tax becomes part of the general funds and is not earmarked for any specific programs.

State Tax $1.27 (percentage based) This is a state sales tax that is submitted to the Wyoming Department of Revenue and becomes part of the general fund.

County Tax $0.63 (percentage based) This is the optional 1% or 2% sales tax imposed by counties. It will vary county by county.

Federal Access Charge $6.00 per month The $6.00 reflects a charge in a month prior to July 1, 2003. The charge as of July 1, 2003 has increased to $6.50 per month. This interstate charge, which is imposed by the Federal Communications Commission, is meant to recover a portion of the customer's local loop (i.e., connection from the customers' premise to the telephone company's central office and switching equipment) that is used for providing interstate services. In recent years, the recovery of these interstate assigned costs has been moving from a per minute charged, paid by interstate, long distance providers, to a flat charge paid by customers, regardless of the amount of long distance service used.

Federal Universal Service Fund $0.59 (percentage based) This money is used to fund federal universal service support. The cost of the program is determined by the Federal Communications Commission and is billed to the interstate telecommunications carriers. This charge reflects a pass-through of the cost by those carriers to the retail customers. The current rate is 9.5% and is applied only to interstate rates and services. The percentage level is changed as often as quarterly.

Telephone Assistance Program Fund $0.01 per month This amount is established for each local service provider, with approval of the proposed rate by the Public Service Commission. The rate level may vary slightly by provider but is in the few pennies a month range for all as of this time. The basis for the rate is whatever is necessary to fund the support provided to that company's Telephone Assistance Program customers. In other words, the Telephone Assistance Plan (used to assist economically disadvantaged customers with their monthly phone bills) for each company is funded by the other customers of that company. The rate is very low because the number of customers who are on this means tested program is far less than those who are eligible for the program. The maximum allowable charge is $0.20 per month.

Wyoming Universal Service Fund $0.93 (percentage based) This amount is reflective of the 4% Wyoming Universal Service Fund rate that was in effect for the period of July 1, 2002, through June 30, 2003. Beginning July 1, 2003, the assessed rate has been reduced to 1% of a customers' total intrastate bill (including an assessment on items such as intrastate long distance, intrastate wireless, and options services such as Call Waiting). This surcharge funds the required support payments to customers and the administrative costs of the Wyoming Universal Service Fund - a fund that pays for any basic local service rate that exceeds 130% of the weighted statewide average rate.

Wyoming Relay Service Fund $0.06 per month This money is used to fund the operations of the Wyoming Relay Service, which is a service that allows for hearing impaired customers to communicate with hearing customers through the use of special equipment and a centralized operation. The Department of Workforce Services (Vocational Rehabilitation) administers this program. The maximum allowable charge is $0.25 per month.

Emergency 911 Tax $0.50 per month This tax is imposed by local jurisdictions (pursuant to state law which allows a charge of up to $0.75 per month). It is used to fund the provision of 911 and E911 services.

Municipal Charge $0.47 (percentage based) This charge is a percentage-based charge by which the local service provider passes on revenue based municipal franchise fees. The fees are collected by the utility and passed on to the municipality, generally under a franchise agreement.

Federal Charge - Service Provider Number Portability $0.43 per month This charge was requested by the service providers and approved by the Federal Communications Commission. Its purpose is to fund the costs associated with the requirement that customers be permitted to keep their existing telephone numbers even when changing providers.