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Fortnightly Magazine - February 1 1996

Federal Energy Regulatory Commission (FERC) works to unbundle transmission from generation, Massachusetts would unbundle distribution from retail customer contact:


"Allowing utility companies to compete to provide energy services to customers while they are still in control of the wires may allow for the erection of market barriers."

This model makes sense to me, since it implies, I believe, that transmission and distribution are essentially the same thing. Customers don't care much about the diameter of the pipe, the size of the truck, or the voltage of the line that delivers the product to the door. It's all a back-office job.

The Massachusetts report offers another interesting comment on the future of back-office utility operations: "Since distribution and transmission will most likely remain monopolies, the associated payroll and benefit costs will not be a largely influential factor in the competitiveness of a utility company."

Regarding generation markets, the report notes that in New England, over two-thirds of all generation capability is controlled at least in part by three players: Northeast Utilities (35.5%), New England Electric Systems (19.9%), and Boston Edison (13%). Data provided by NEPOOL reveals a Herfindahl-Hirshman Index (HHI) for the New England electric generation market of between 1924.34 and 1961.11, depending on the season (with a greater concentration occurring during the summer). This index, the report notes, would qualify electric generation as a concentrated market under the guidelines established by the U.S. Department of Justice.

The One to Watch

Still over the horizon, but likely to show up soon on the radar screen, is a possible jurisdictional dispute between the FERC and the Commodity Futures Trading Corporation (CFTC) over the right to regulate the electric futures contract proposed by NYMEX.

In August NYMEX filed notice with the CFTC of the availability of the terms and conditions of its

proposed electricity commodity futures contract for delivery at the California-Oregon border and at Palo Verde, AZ. (See, 60 Fed.Reg. 45402, Aug. 31, 1995). Later, on September 28, NYMEX filed a petition with the FERC for a declaratory order that certain electric futures contracts would not qualify as "securities" under the Federal Power Act and would not therefore implicate FERC jurisdiction (See FERC Docket No. EL95-81-000).

The other day I called the CFTC and inquired about the possibility of conflicting FERC jurisdiction. The CFTC appeared to be completely unaware of the pending FERC action. Then I picked up a copy of comments filed by the Edison Electric Institute (EEI) and started reading.

The EEI comments urge the FERC to maintain "appropriate review and reporting requirements," yet acknowledge that FERC regulation should not unduly delay or "stifle" any emerging financial markets. Later, EEI notes that price fluctuation limits imposed by NYMEX in its electricity futures contract might constitute market-based ratemaking, implying (but not advocating) that such limits must therefore satisfy any FERC policy on market-based pricing for bulk-power sales.

What a mess. Imagine the FERC sticking its nose into the trading pit in New York, Chicago, or Kansas City. You can just smell the billable hours.



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