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Fortnightly Magazine - February 15 1996

transmission surcharge, thereby benefiting high-priced utilities to the detriment of low-priced utilities? Would a U.S. senator or representative from a low-cost state vote against the best interests of his or her own state?

The Federal Energy Regulatory Commission (FERC) has determined that utilities should recover all reasonable wholesale stranded costs. If the industry (with the exception of the distribution sector) is deregulated and the market rules, will any regulatory body be able to control the actions and reactions of a free market? Or will a free market have to "wait" until the FERC ensures that larger, high-cost utilities have recovered their stranded investments?

Can stranded costs be collected in a competitive environment without the government interference the industry is now disclaiming? Without the FERC's intervention, would there be extra-contractual wholesale stranded-cost recovery?

There has been little discussion about undervalued utility assets such as generating stations that are depreciated and currently booked at less than present market value. What impact should (or will) undervalued assets have on recovery of stranded costs?

If the collection of stranded costs is allowed, how long should the transition period be? Why does it seem to some that a long transition to a competitive market really means "give us time through accelerated depreciation to recover the cost of high-cost generation stations that cannot be recovered in a competitive industry"?

How will deregulation affect rates?

The argument is made that since deregulation of the gas industry the price of natural gas at the well head has been dramatically reduced and the cost of transportation by the pipelines has also decreased. However, local distribution company (LDC) rates have not been lowered. In fact, LDC rates in many cases have increased. Is this a premonition of the future for electric prices?

Residential electric rates in many cases are four or more times higher than industrial rates. Is there empirical evidence that it costs four times more to serve a residential customer than an industrial customer?

So-called "cost of service" studies, whether long or short run, are being questioned by respected economists with increasing frequency. How valid are the assumptions used in these studies? Do the studies have credibility, or are they really based on smoke and mirrors?

Should the transmission grid be opened to retail wheeling at the state level? If it is, can price regulation be enforced? If so, for how long?

Fuel adjustment clauses: To be or not to be? This is indeed a timely question.

Should the generation sector be declared competitive, moved out of rate base, and deregulated? Obviously, some of these generating units have been earning a rate of return and have been depreciated for many years. Is this relevant?

What will become of social welfare?

If the industry is deregulated and all customer classes are allowed to choose their electric supplier for generation and transmission service, how will "last resort customers" be handled? Obviously, the amount of uncollectible bills caused by these customers differs from utility to utility. Should all customer classes of a utility be required to subsidize customers that cannot or will not