[BETA] Fortnightly

Standard & Poor's (S&P) has released a survey of 90 state regulators and their opinions on electric utility deregulation, conducted by RKS Research and Consulting. S&P intends to use the survey to assess the "nonquantifiable risks and opportunities" of competition.

The study found that state regulators and staff do not fully support stranded-cost recovery through cost allocation at the state level. Regulators would prefer to share stranded costs among large customers, small commercial and residential customers, and shareholders. However, 26 percent feel utilities should not recover stranded costs. The survey also found:

s 92 percent believe market-price regulation will replace retail cost-of-service regulation.

s 50 percent believe it is important to protect the financial health of utilities.

s 33 percent believe that eliminating service territory protection should be a major goal.

s 8 percent support protecting the electric utility monopoly.

s 54 percent expect utilities to implement unbundling (most believe the industry would be better served through structural unbundling than through mergers).

S&P predicts substantial jurisdictional conflict between state and federal regulators, as well as between state regulators and utilities. Disputes will involve the manner and method of allocating stranded costs, and will likely intensify unless a uniform national policy is mandated at the federal level.

From an investor's perspective, S&P says that the industry's overall risk is increasing, and warns that costs of capital and the creditworthiness of utilities may be adversely impacted in the short run during the transition to competition.

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