[BETA] Fortnightly

Investigations of changes in the structure of the electric utility industry are growing at the state level. Restructuring issues are also becoming a larger part of traditional rate cases and other established regulatory functions such as integrated resource planning.

Rate Proceedings

Several matters related to competition, industry restructuring, and regulatory reform were cited by the Massachusetts Department of Public Utilities (DPU) when it approved a $30.95-million rate increase for Massachusetts Electric Co., an investor-owned utility and wholly-owned subsidiary of New England Electric System.

The DPU rejected an attempt by the utility to recover lost revenues associated with the decision of one of its largest customers, Massachusetts Bay Transportation Authority (MBTA), to switch to a neighboring utility for part of its supply requirements. According to the DPU, the utility had failed to show that losing part of its 13 MBTA accounts was an extraordinary event beyond the "normal ebb and flow" of customers experienced by all utility companies. The DPU also rejected a proposal to alter the way the company allocates its cost of electric supplies to account for "excess power-supply costs" associated with lost or unrealized sales to industrial customers. Proponents of the cost shift had claimed that the new allocation method would better reflect a documented increased risk of faulty forecasting for industrial sales.

In rejecting the proposal, the DPU said that a risk-specific allocation of capacity costs among customer classes would require a jurisdictional inquiry into the planning, plant acquisition, and operation of the NEES, and perhaps a review of the return required by investors if such a change were put in place. The jurisdictional concern is more significant in light of the DPU's recent directive requiring state electric utilities to functionally separate generation from transmission and distribution and to increase reliance on competition in the generation component of operations. It also noted that residential customers in a restructured industry might possibly pool their loads and purchase electricity at market-based group rates, making risk-specific cost allocations irrelevant. Nevertheless, the DPU concluded that rates should reflect any "statistically verifiable" differences in the risk of sales to the various rate classes, and directed the utility to investigate the issue for consideration in a future proceeding.

The DPU also concluded that the utility should use the newly determined revenue requirement to develop an incentive regulation proposal and to submit the plan as part of an industry restructuring proposal required as part of the DPU's generic investigation of changes in the electric industry. Re Massachusetts Electric Co., D.P.U. 95-40, Sept. 29, 1995 (Mass.D.P.U.).

In the same vein, Colorado Public Utilities Commission (PUC) made the following observations when designing electric rates for Public Service Co. of Colorado: 1) the relationship between economic efficiency and the presence of substantial competition, 2) the increasing importance of service quality as an industry moves away from regulated monopoly toward a market with an increasing number of suppliers, and 3) the importance of setting rates that neither hamper a utility's efforts to remain a viable competitor in the future nor discourage economically efficient firms from entering electric markets. Re Public