Nearly every major rate case over the past several years focuses some attention on removing subsidies running between rate classes.
1994--The Year in Review
the growing competitive market for electric generation services. Michigan has inaugurated a limited experiment for the state's two largest utilities. Connecticut has rejected the idea because of the state's excess capacity, and state regulators worry openly about the effect such a radical change might have on their ability to promote conservation and other social goals.
State legislatures have also played a part, passing a limited retail wheeling law in Nevada and considering the same in Ohio. A number of other states have opened investigations on the wheeling and stranded investment issues.
A major uncertainty in the debate is the utility obligation to serve, which requires a utility to provide service on demand under rates, terms, and conditions approved by the PUC. The Michigan wheeling case directly addressed the issue; customers participating in Michigan's wheeling experiment may return to bundled utility service after the experiment ends on the same terms as nonparticipants. However, if a participant chooses to return before the end of the program, that customer's load would be served from incremental generation or power-supply resources beyond those required to serve other retail customers. The most expensive source of fuel or purchased power, as well as other tariffed charges, would be assigned to the prematurely returned customer. Such a customer would also be exposed to interruption to maintain system integrity.
s Stranded Investment. Who pays for the cost of power facilities built by utilities under the current regulatory framework but rendered uneconomic in the restructured marketplace? Regulators cannot wait for a magic answer to this question. Plant writedowns and "equalization fees" are two solutions that have threatened utility power sales in the past year.
Even as it works to perfect retail wheeling, the California PUC continues to seek more traditional solutions to the problem of high utility rates. Southern California Edison Co. has asked to accelerate rate recovery of its embedded investment in nuclear generating
facilities, claiming that the move was necessary to prepare for the emerging competitive market. Edison plans to accelerate depreciation of current investment in its San Onofre and Palo Verde plants by a total additional capital recovery of $75 million per year. Conversely, it would slow depreciation on transmission assets, which are expected to appreciate in a more competitive environment. The PUC found that consumers would see a near-term rate reduction of $5 million, and a $39 million net-present-value
reduction in revenue requirement over 40 years. It acknowledged that the plan would only modestly improve the competitiveness of the nuclear plants, but called it a "move in the right direction." It noted, however, that future capital additions in the nuclear area would outpace the rate base reductions under the plan, and that performance-based pricing of the incremental costs was needed to address the cost-control problem. Re So. Calif. Ed. Co., 152 PUR4th 263 (Cal.P.U.C.1994).
Perhaps the most notorious case in which a utility claimed a serious threat from competition in the retail sale market is the dispute between Niagara Mohawk Power Corp. and Sithe/Independence Power Partners L.P., developers of a 1,040-MW gas-fired qualifying cogeneration facility (QF). Sithe had