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Four Olive Branches

Fortnightly Magazine - October 1 1996

aggregation rights for small-volume users, universal service funds, a "PoolCo," or pure direct access. Policy on stranded investment (em including rights and duties of recovery and mitigation (em should fall within that group.

Only time will tell whether Order 888 offers fig leaves to cover a FERC power grab or olive branches for genuine cooperation. At this juncture, I believe the FERC wants to cooperate and has set forth the means to do it. States should accept and pursue the FERC's offer. t

John Hanger is a commissioner with the Pennsylvania Public Utility Commission.

Federal-State Conflicts

Separating Transmission from Distribution

Order 888 has drawn controversy over conflicting federal and state jurisdiction over transmission and distribution. (E.g., "Jurisdictional Gridlock: A Pathway Out of Darkness," by Craig A. Glazer, Public Utilities Fortnightly, Jan. 1, 1996, p. 29.)

In Order 888, the FERC asserts authority over the transmission component of an unbundled interstate retail wheeling transaction, even though, previously, it has conceded state jurisdiction over retail transmission when bundled in the traditional manner with electric energy as a delivered product.

"When a retail transaction is broken into two products that are sold separately (perhaps by two different suppliers: an electric energy supplier and a transmission supplier), we believe the jurisdictional lines change. In this situation, the state clearly retains jurisdiction over the sale of the power. However, the unbundled transmission service involves only the provision of "transmission in interstate commerce," which, under the Federal Power Act, is exclusively within the jurisdiction of the Commission. Therefore, when a bundled retail sale is unbundled and becomes separate [transactions for] transmission and power sales ... the resulting transmission transaction falls within the federal sphere of regulation."

--FERC Order 888, April 24, 1996, pp. 430-31.

FERC's Concessions

States' Rights in Order 888

s The Bright Line. The FERC will defer to state PUCs on when to draw the line and how to allocate costs under the FERC's technical test for dividing jurisdiction between transmission and local distribution in cases of "unbundled retail wheeling."

s The Preferred Forum. Utilities must consult state PUCs before petitioning the FERC for a ruling to classify transmission from distribution.

s The "Service" Element. The FERC concedes that unbundled retail wheeling always involves an element of service to end users--a matter that falls within state jurisdiction even if the technical test fails to identify local distribution.

s Meeting Local Needs. As part of a state retail access program, the FERC will defer to state requests for special features to meet local concerns in a separate tariff for retail transmission, as long as the retail tariff satisfies the FERC's open-access policy.

1. As proposed in its "Mega-NOPR," and ratified in Order 888, the FERC on a case-by-case basis with consider seven factors as indicators of local distribution: 1) close proximity to retail customers; 2) radial design; 3) inflows are common, outflows are rate; 4) power is not reconsigned or transported on to other markets; 5) power is consumed in a comparatively restricted geographical area; 6) meters measure flows at the interface interface between transmission and local