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FERC's Mega-NOPR: The IOUs Respond

Fortnightly Magazine - March 1 1996

full recovery; another 5 express qualified support; 23 do not specifically address the issue; and 6 disagree.

Of those that disagree, Central Illinois Light Co. sees stranded-cost recovery as a subsidy to inefficient generation, and argues for partial recovery, at most, over a three- to five-year period. UtiliCorp United argues against stranded-cost recovery for departing wholesale customers unless the wholesale contract specifically allows it, or unless the FERC allows the wholesale customer to be released from the contract. Similarly, Texas-New Mexico Power contends that there "is no wholesale stranded investment" absent a continuing duty to serve wholesale customers. Wisconsin Power & Light, Wisconsin Electric Power (WEP), and IPALCO also criticize the FERC's policy of full stranded-cost recovery.

Of the many IOUs that favor full stranded-cost recovery, all that are specific support the FERC's

"revenues lost" approach to calculating stranded costs.

Who Should Arbitrate Stranded Costs?

The issue of the FERC's role in the recovery of costs stranded by departing retail customers drew a range of responses. The NOPR concludes:


"[I]t is appropriate to leave it to state regulatory authorities to assume the responsibility for any stranded costs occasioned by retail wheeling, except in the narrow circumstance in which the state regulatory authority does not have authority under state law, at the time retail wheeling is required, to address recovery of such costs."

The NOPR maintains that costs stranded through retail wheeling cannot be recovered in transmission rates; instead, it suggests surcharges to state jurisdictional local distribution rates. On the other hand, the FERC argues that it should be the "primary forum" for recovering costs stranded by wheeling to newly created wholesale customers (e.g., municipalization).

Some commenters support the NOPR, while many others urge the FERC to take a stronger role with respect to retail stranded costs. Pacific Gas & Electric (PG&E), for example, commends the FERC for leaving retail stranded cost determinations to the states, urging only that the rule be tightened so that no retail customer can escape a state-imposed charge, and that the FERC accept state determinations of stranded costs in the retail-turned-wholesale situation. UtiliCorp also expressly agrees with the FERC's approach. WEP makes a strong case for letting states determine the amount and method of retail stranded-cost recovery, adding that the FERC should resist any suggestion that

it act as a "backstop" for retail stranded costs.

The "backstop" scenario is in fact suggested by at least 15 of the commenters. Atlantic City Electric, for example, contends that the "FERC must provide a 'back-stop' forum [for retail stranded costs] any time a state does not have jurisdiction, loses its jurisdiction, or exercises its jurisdiction in a manner inconsistent with the FERC's guidelines or intent." Detroit Edison suggests that the FERC step in when the states do not implement their authority over retail stranded costs "in a fair and reasonable manner." Commonwealth Edison urges the FERC to permit the recovery of all retail stranded costs through transmission charges where the state regulatory agency has authority, but fails, to permit full stranded-cost recovery. Entergy, concerned about the potential for cost-shifting among