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Electric Industry Restructuring: The States Forge Ahead

Fortnightly Magazine - October 1 1995

Interdependent Principles intended to provide a "framework" for utility-specific restructuring negotiations. Original signatories included the state's Office of Attorney General and the Division of Energy Resources; five of the eight IOUs regulated by the state; and groups representing business consumers, environmentalists, and nonutility generators. These Interdependent Principles are fundamentally the same as those submitted to the Rhode Island PUC, with some language differences.

On August 16, the DPU issued a decision in the restructuring docket, concluding that it had the legal authority to order the unbundling of electric rates, and that such unbundling was necessary to provide accurate price signals (Order, D.P.U. 95-30, Aug. 16, 1995). As to stranded costs, the DPU ruled that although the record did not establish a clear legal entitlement to recover stranded costs, "responsible policy must provide electric utilities a reasonable opportunity to recover net, nonmitigatable stranded costs during the transition period." Again, the DPU found that it had the legal authority to implement this stranded-cost policy.

While not specifically adopting the Interdependent Principles, the DPU outlined a set of broad principles consistent with those submitted by the coalition. Seven of these articulated the basic elements of the future industry structure, including the broadest possible customer choice; functionally separated generation, transmission, and distribution services; full and fair competition in generation markets; and support for the goals of environmental regulation. Five additional principles addressing the transition included pledges to honor existing commitments, unbundle rates, and maintain DSM programs. The DPU ordered each state IOU to file restructuring proposals that include sample rates for unbundled generation, transmission, distribution, and ancillary services, as well as a proposed stranded-cost charge. The first three IOU proposals are due by mid-February 1996.


Wisconsin regulators credit their progressive regulation for the state's relatively low electric rates. To ensure that the state retains its competitive edge, the Wisconsin PSC initiated an investigation last year to examine whether the electric industry's "fundamental structural and regulatory underpinnings" should be changed (Re Electric Utility Company Structure and Regulation, Dkt. 05-EI-114, Sept. 8, 1994, 154 PUR4th 509). Forty-seven parties filed comments in that docket last November.

In January the PSC outlined the objectives and principles that will guide its investigation. The objectives are to create a system "that sends accurate price signals to customers," maximizes "the number and diversity of service offerings," and "provides maximum economic efficiency and environmental stewardship." The principles state that all customer classes should at least be held harmless from any changes, competitive markets are preferred to regulation, and that "regulatory, social, environmental, and financial commitments" made in the past cannot and should not be ignored or discarded in the transition.

The PSC then established a 22-member Advisory Committee, including representatives of diverse

interests, to develop recommended actions. The Advisory Committee decided to address transmission, generation, and distribution issues separately. In May, the Committee submitted an interim report that set forth three transmission system alternatives:

Statewide TransCo. An independent, regulated monopoly that would acquire transmission assets from current owners at embedded cost.

Shared System with Independent Operator. Functionally equivalent to a statewide TransCo, without