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Fortnightly Magazine - July 15 1996

Flexible Pricing and PBR: Making Rate Discounts Fair for Core Customers

Tim Woolf, and Julie Michals

With competition looming, electric utilities increasingly resort to price discounts, both to retain customers and to alleviate some of the pressure to introduce retail competition. Performance-based ratemaking (PBR), which allows utilities greater flexibility in offering price discounts, is emerging as an integral component of many restructuring proposals.

However, flexible pricing can create inequity among ratepayers.

Perspective

Marija Ilic

Some believe that small-scale, distributed generation will usher in a new era of magically inexpensive power: Industrial users will run their own cogeneration units. Many residential customers will use some sort of portable (em perhaps exotic (em power equipment in their homes. Existing, utility-owned, large-scale generating stations will be cast off on the path to ultimate efficiency.

Meanwhile, New England is running out of power this summer.

California Affirms PBR Plan

Phillip S. Cross

The California Public Utilities Commission (CPUC) has rejected claims that an experimental performance-based rate plan for San Diego Gas and Electric Co., a combined electric and natural gas utility, was yielding "perverse results" and should be modified in keeping with the PUC's purposes in establishing the experiment. According to the Utility Consumers' Action Network, the utility had earned a profit that exceeded its authorized return by 114 basis points while the plan was in effect.

State PUCs: Still Setting the Agenda

Joseph F. Schuler, Jr.

Quizzed by lawmakers, and buffeted by political winds, regulators ponder an uncertain future.

Agree or not, utility commissioners are part judge, part regulator, and part politician.

Schaefer Pushes Restructuring

Joseph F. Schuler, Jr.

Rep. Dan Schaefer (R-CO), closed his final hearing on electric industry restructuring with what sounded like a promise to push utilities down the bumpy path of retail wheeling.

"My vision for the future is one where all consumers have the ability to pick and choose among numerous competitive suppliers of electricity," Schaefer said. "It is one where all consumers have the benefit of lower rates, better services, and new innovations brought on by competition . . .

LDC to Sell Production Facilities to Affiliate

Phillip S. Cross

The West Virginia Public Service Commission (PSC) has authorized Hope Gas, Inc. to sell its production facilities to an affiliate, CNG Producing Co., for the current book value of the properties, $4.512 million. The DPUC emphasized that it would rely on representations that Hope Gas would work to reduce the risks to its ratepayers for lost and unaccounted-for gas by pursuing meter relocation on a prioritized basis.

The Discount Debate: Recent PUC Rulings On Local Exchange Resale

Now that incumbent LECs must offer all services for resale, state regulators must decide the appropriate level of discount for the new resale tariffs.

Discounts could put incumbent LECs at a disadvantage, since many local exchanges already price below the cost of service, particularly for basic residential access.

FERC Responds to EPA's Open-access Challenge

Lori A. Burkhart

On May 13, Environmental Protection Agency (EPA) Administrator Carol M. Browner referred the Federal Energy Regulatory Commission's (FERC's) open-access rule, Order 888, to the Council on Environmental Quality (CEQ). In effect, Browner has asked the Clinton Administration to intervene in the restructuring process.

Browner feels that under certain circumstances the open-access rule could lead to future increases in air pollution. She believes these impacts can be minimized through a combination of actions by EPA and states under the Clean Air Act (CAA).

Discount Rates Urge Restructuring in Penn.

Phillip S. Cross

The Pennsylvania Public Utility Commission (PUC) has authorized Duquesne Light Co. to expand its economic development rate initiatives to include small industrial customers. The new rate rider provides a five-year discount on demand charges on a maximum of 100 kilowatts (Kw) for new or existing customers smaller than 100 Kw. If the utility's service territory is to recover from the steel industry's devastating downturn, the PUC argued, Duquesne must be able to offer a competitive rate to keep industrial operations of all sizes.

Model and Parameters

Objective. Estimate market impacts of "1+" dialing parity plus eliminating traditional LATA boundary.

Model. Measure shifts in market dominance between major competitors, by assuming price changes and estimating revenue impacts across range of demand elasticities, to reflect both changed rates and market shares. Also consider changes to revenues collected by U S WEST through carrier access charge (CAC).

Scope. Limited to residential toll calls carried by AT&T and U S WEST. Does not examine commercial toll customers.

Data.

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