[BETA] Fortnightly

PUC endorses direct access, plant divestiture and limits on recovery of stranded costs. Says order will not interfere with 1990 bankruptcy plan for Northeast Utilities. The New Hampshire Public Utilities Commission has issued its final plan for restructuring the state's electric industry, at the same time announcing what is believed to be the first formal policy decision by a state utility commission that would deny full recovery of costs left "stranded" by the transition to competition.

Released on Feb. 28, the 125-page decision %n1%n is accompanied by a separate document of equal length, that presents the commission's analysis of its legal authority to limit stranded-cost recovery and effect other aspects of restructuring.

In substance, the plan varies little from a preliminary proposal announced by the commission back in September 1996. %n2%n It essentially follows guidelines and a timetable contained in a new state law on electric restructuring enacted in May 1996. %n3%n

In the face of considerable controversy, the commission has maintained its original plan to limit recovery of stranded investment by tying recovery to a benchmark based on regional average electric rates for New England utilities. It also has denied claims by Northeast Utilities that the restructuring policy will conflict with a bankruptcy rate plan agreed to by Public Service Co. of New Hampshire and Northeast Utilities back in 1990 (see sidebar). That agreement %n4%n had been approved by both the commission and the Federal Bankruptcy Court and had served as a foundation for the purchase of PSNH and its Seabrook investment by Northeast Utilities, a regional utility holding company.

The decision announces many other key policies, including:

• Plant Divestiture. Distribution utilities (discos) must divest generation and aggregation/marketing services within two years of the start of customer choice.

• Contract Divestiture. Discos must also sell rights to buy power under existing purchased power contracts.

• Rate Unbundling. Utilities must segregate retail service and rate components.

• Billing and Metering. Large industrial and commercial customers may obtain metering, billing, and customer services from competitive providers starting in 1998. PUC defers further unbundling of competitive services until a later date.

• Reciprocity. PUC acknowledges lack of jurisdiction over competing utilities, such as Central Vermont Public Service Co., New England Power, and Unitil Power, but says such companies cannot compete at retail in New Hampshire if they retain generation assets.

• Stranded Costs. Recoverable only with reference to a regional benchmark electric price. PUC defines stranded costs as net "sunk" generation cost (em i.e., net of operating costs and site and salvage value (em including generation-related regulatory assets. Plants with negative stranded costs (plants that are economic) must be netted against uneconomic plants to mitigate stranded-cost recovery.

Also, the PUC issued five supplemental orders that establish utility-specific interim stranded cost charges, based in part on calculations and recommendations prepared at the PUC's direction and presented in a report dated Jan. 2, 1997, by La Capra Associates based in Boston (see sidebar). The interim charges will remain in effect for two years from the implementation of each utility's restructuring compliance plan.

Market Structure

The PUC's final plan is designed to