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Four Olive Branches

Fortnightly Magazine - October 1 1996

888 that it will defer to state PUCs on where to draw the line and how to allocate costs between transmission and local distribution in the case of "unbundled retail wheeling." Here is what the FERC says:

"[I]in instances of unbundled retail wheeling that occur as a result of a state retail-access program, we will defer to recommendations by state regulatory authorities concerning where to draw the jurisdictional line under the Commission's technical test for local distribution facilities, and how to allocate costs for such facilities to be included in rates, provided that such recommendations are consistent with the essential elements of the Final Rule."

It adds that it will defer to jurisdictional recommendations from states that employ technical factors other than those used in the FERC's seven-part test,1 if the states believe the historical uses of particular facilities support the application of different criteria.

Conditioned on respect for the core principles of open access and comparability, the FERC offers to the states an opportunity to define "transmission" and "distribution." Here is no meaningless offer.

Olive Branch #2. The FERC requires public utilities to consult their state regulatory authorities before they petition the FERC for a ruling on the classification of facilities as either transmission or local distribution.

Olive Branch #3. The Final Rule concludes that "there is an element of local distribution service in any unbundled retail transaction." The FERC emphasizes that "even when our technical test for local distribution facilities identifies no local distribution facilities for a specific transaction, we believe that states have authority over the service [FERC's emphasis] of delivering electric energy to end users." Consequently, states retain the jurisdictional ability to collect retail stranded costs, to support low-income programs and energy conservation policies, and to fund other "stranded benefits."

The FERC also clarifies its ruling to preserve state jurisdiction over matters of local concern if retail unbundling occurs.

Olive Branch #4. Finally, the FERC may defer to states

concerning the terms and conditions of the unbundled retail transmission tariffs as long as the states honor the principles of open access and comparable pricing:

"If the unbundled retail wheeling occurs as part of a state retail access program, it may be appropriate to have a separate retail transmission tariff to accommodate the design and special needs of such programs. In such situations, the Commission will defer to state requests for variations from the FERC wholesale tariff to meet these local concerns, so long as the separate retail tariff is consistent with the Commission's open-access policies and comparability principles."

Deference by the FERC in this area could remove a potential obstacle to state implementation of retail choice by letting states participate in determining the content of unbundled retail transmission tariffs. Consequently, this forms the most important part of the jurisdictional discussion if the FERC and the states truly intend to cooperate.

Taken together, these four olive branches could and should create a cooperative, working relationship between the FERC and the states. Whether, in fact, these olive branches will create a workable relationship will depend upon how the FERC carries