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Fortnightly Magazine - February 15 1996

pay their bills? Should we pool all of a state's utilities uncollectible expenses and allocate the shortfall among all utilities based on revenues? Or, should we pool all of a state's utilities' uncollectible expenses and reimburse the amount to each utility from the state's general revenue fund? The argument could be made that these social welfare costs should be funded directly by the government, not indirectly by the private sector.

If only large industrial and commercial customers are allowed to leave a utility's generating system, should those customers be forced to contribute a "fair" share to cover uncollectible bills? Or should they escape paying a share of these social welfare costs?

What will customers pay for?

Should ratepayer funded demand-side management programs continue? Or should the cost of these programs be paid by those who voluntarily participate?

Should nuclear decommissioning costs (em in excess of funds set aside in trust accounts (em be recovered? If so, should they be recovered from customers that leave the system? If yes, how?

What do customers really want? We all know that they want lower prices, but are customers willing to sacrifice quality for lower prices? Will reliability be sacrificed? Should customers from all customer classes be permitted to choose the level, quality, and reliability of service they want? Over the years I have seen the outraged reaction of interruptible customers when interrupted (em even though they had received the benefit of lower-priced interruptible rates.

How much is regulation to blame?

Are the problems in the electricity industry today the result of regulation or bad decisions made years ago by some utilities?

Many utility executives argue that the construction of new generating facilities required regulatory approval and that in some cases utilities were ordered to build these generation facilities. Are these executives attempting to shift the blame for failed projects by hiding behind the so-called "regulatory compact?" Some regulators are quick to respond that the utility always has the legal burden to prove any request it brings to a regulatory commission. Regulators must make decisions based on the record created during a legal proceeding; regulators cannot go outside the record to make a decision. Therefore, the utility had to prove, on the record, its need for new generation, and the regulators made their decision based on the record and expertise of the utility management.

Should utilities that have made wise economic decisions over a period of years in preparation for competition be penalized for the mistakes made by utilities that have not?

Where do we go from here?

It is surprising that these questions have not received more attention in the past few years. Ten years ago, under the leadership of then chairman Phil O'Connor, the commissioners and staff of the Illinois Commerce Commission advocated a transition from a regulated electric industry to a market-responsive industry. Our staff wrote a widely distributed monograph titled "10 Point Program of Action." In May 1985, based on that monograph, I gave a speech at the Mid-America Regulatory Commissioners Conference outlining the following 10-step program for the electric industry: