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Charting Regulation in '95: Put on Your Lifejackets!

Fortnightly Magazine - November 15 1995

clear that states' procompetitive policies can remain in effect during the transition to competition.

Finally, federal legislation must maintain the nation's longstanding commitment to universal service. Given the diversity of the states, legislation must not replace individual state efforts with a new centralized federal program. Legislation should allow state authority over intrastate universal service policies and pricing to complement a limited federal universal service effort.

Because Congress legislated electricity as recently as 1992 (the Energy Policy Act), it launched no armadas in 1995. Congressional hearings were held on the Public Utility Regulatory Policies Act, the Public Utility Holding Company Act, and nuclear spent fuel. In the budget process, pirates snuck retail wheeling into authorization bills for Amtrak and defense facilities. (What's next? Retail wheeling through schools enabled in the education bill?)

The big water in 1995 is at the FERC, which launched its "Mega-NOPR" in March. Following its success in restructuring the gas industry, the FERC is now trying to open the wholesale transmission system and provide equal access to all competitors. NARUC supports the FERC's procompetitive goals for the bulk-power markets, including the use of market-based pricing in truly competitive wholesale generation markets, but has raised important issues in the rulemaking through its Electricity Committee.

The transition to competition through open-access wholesale transmission services requires that state jurisdiction be affirmed over 1) wholesale power purchases by distribution utilities, 2) the need for and siting of transmission and generation facilities, 3) questions of industry structure, and 4) the evaluation and implementation of retail competitive policies, including unbundled retail transmission.

NARUC encourages the FERC to provide a way to treat equity issues (environment, low-income, renewables, research & development, and so on) through a nonbypassable, nondiscriminatory system benefits (or wires) charge.

Also at issue is jurisdiction over the allocation of retail stranded investment among ratepayers, shareholders, or users of the transmission grid. The FERC wants to be the sole judge in making this determination when a retail customer becomes a wholesale customer, and a backstop authority for this decision when a state

authorizes retail access but may lack the authority to address retail stranded costs. NARUC strongly disagrees with the legal foundation, as well as the policy premises, of this proposal. The identification, allocation, and recovery of so-called "retail stranded costs" is the exclusive responsibility of the states; the FERC should not perform a "backstop" or appellate role for state decisions.

In the NOPR we see the intrinsic tension between state and federal jurisdiction that defines federalism. In its proposed rule, the FERC has been aggressive; in its comments, NARUC has resisted what it sees as undue federal expansion. The FERC and the states should invent new joint processes on both regional and national levels to coordinate their respective efforts to manage the transition to competitive markets, which neither level of government can undertake unilaterally.

On the river, it is always tempting to look back after surviving a difficult, adrenalin-producing rapid. But from below, as it recedes from view and the roar fades, the rapid always seems benignly anticlimactic. So, too, regulation. But, as