[BETA] Fortnightly

If the new rules of electric industry competition don't permit stranded-cost recovery, the credibility of the U.S. government would be seriously undermined. Or so an executive of one of the country's largest utilities told a Senate energy panel."We just have to keep in mind we incurred these costs based under what the rules were," said Jerry Jackson of Entergy Corp. "If the government is going to change those rules . . . but not [make] sure the past commitments were honored, we'd have a very serious issue in respect to the credibility of the United States."

Jackson was one of nine witnesses to testify before the Senate Committee on Energy and Natural Resources on March 28. Witnesses represented small business, independent power, public power, cooperatives, and medium and large utilities. The hearing was the second in a series of oversight hearings on competitive change in the electric power industry.

Although witnesses were asked to respond to

S. 1526 - a bill introduced by Sen. J. Bennett Johnston (D-LA), ranking Democrat on the committee - and

10 related questions, most of the debate focused on retail wheeling and stranded costs.

Like Jackson, Daniel Waters of the Southern California Public Power Authority said Congress must assume some responsibility for stranded costs. The 1989 Energy Policy Act prohibited the burning of natural gas in utility boilers, pushing utilities toward nuclear solutions, now stranded investment. Ironically, the low-cost competition today is natural gas-fired turbines.

"I can assure you we will all make mistakes, as we unravel the historic regulatory compact," Waters said. "Let's let those few states that have the most serious cost problems lead the way."

The panel raised no objections when Sen. Johnston asked whether decommissioning costs should be handled through legislation. But when he suggested that decommissioning become a federal requirement, witnesses protested loudly.

Sen. Frank H. Murkowski (R-AK), committee chairman, polled the panel on the need for comprehensive legislation on electric industry restructuring. Four witnesses said "yes," although two added "not immediately"; three said no; two abstained. Witnesses said legislative priorities should include stranded assets, reciprocity, federal-state rights, and well-developed competition.

One of the most outspoken opponents of full stranded-cost recovery was Peter Mehra of Ford Motor Co., representing large industrial users.

"We're not up here seeking the bankruptcy of the large utilities," he said. "We're trying to get our manufacturing plants efficient. Efficient so they can compete. As you are aware, the transplanted Japanese companies have all built plants in Tennessee, Kentucky, and those parts of Ohio where power is about half the cost of what we're paying in Michigan and other parts of Ohio - a distinct competitive advantage.

"Unfortunately, the efficient utilities, or the utilities who made the right choices, they're not represented at this panel today," Mehra added. "In fact, if there is stranded-cost recovery, they would be bankrupted because the utilities who would receive stranded [payments] would use that money to bid below the variable costs of the other utilities."

"Not if it's really stranded costs," Sen. Johnston countered. "Not if it's mitigated stranded costs and net