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Fortnightly Magazine - August 1997

Michigan City Still Disputing Stranded Costs

Lori A. Burkhart

The Federal Energy Regulatory Commission has moved closer to deciding the stranded cost dispute between Consumers Energy and the city of Alma, Mich., which intends to construct its own municipal electric system.

On Sept. 10, the FERC set for hearing two stranded cost issues: (1) whether Consumers Energy has met the "reasonable expectation" standard justifying stranded cost recovery from Alma; and (2) if so, what amount the utility may recover. (See, Docket No. sc97-4-000.)

Consumers Energy wants $56.1 million in stranded cost payments from Alma.

Virginia to Examine VEPCO's Rates, Earnings

Phillip S. Cross

The Virginia State Corporation Commission has announced it will conduct a broad-based investigation into current earnings and rate structures of Virginia Electric and Power Co. in light of changes under way in the electric market. The commission's staff had found, as part of an annual earnings review, that the utility "is clearly in an overearnings position."

The staff observed that the company may have "potentially large levels of stranded costs" because of uneconomic power contracts with nonutility generators.

Moody's Predicts Greater Polarity in IPP Ratings

Lori A. Burkhart

Moody's Investors Service examines key credit considerations in the evolving independent power production industry in a new report. The report predicts greater polarity in ratings of such companies.

The Haves and the Have-Nots: Access to Capital, Diversified Portfolios says the IPP industry will become dominated by "first-tier" companies that exhibit financial flexibility needed to survive in an increasingly uncertain environment. Such companies will possess diversified assets and ability to generate cash.

Oregon Disallows Costs for Executive Compensation

Phillip S. Cross

The Oregon Public Utility Commission has directed U S WEST Communications Inc. to reduce rates by $97.4 million and to refund ratepayers an additional $102 million, after having excluded from rates some $4 million in executive bonuses and incentive pay plans for management.

The refund corrects interim rates left in effect last year when the commission had terminated an alternative rate plan, finding that service quality had dropped since 1991, and the incentive-based program had begun. See, Re U S WEST Communications, Inc., UT 80, Order No.

California Chooses Transition Charge for Recovery

Lori A. Burkhart

The California Public Utilities Commission has established guidelines for the recovery of stranded costs over four years through a competition transition charge collected from existing and future customers, including those who depart the system.

The June 11 order allows recovery from 1998 through 2002 for costs associated with generation plants, nuclear settlements and QF contracts (Docket No. R.94-04-031/I.94-04-032). Costs associated with purchased power contracts, including QF contracts in place on Dec. 21, 1995, can be collected for the duration of the contract.

Florida Utility Expands Green Pricing Program

Phillip S. Cross

The Florida Public Service Commission has authorized Florida Power and Light Co. to set up a two-year green pricing research and development project under a settlement agreement between the utility and the state Legal Environmental Assistance Foundation.

The order allows FP&L to recover from all ratepayers up to $475,000 in administrative costs associated with the experiment. The commission had approved the program as proposed by the utility in an earlier ruling, but reviewed the matter further because of a complaint by LEAF.

Michigan Competition Plan Meets Opposition

Lori A. Burkhart, and Phillip S. Cross

Putting aside calls for a faster-paced switch to the new industry format, the Michigan Public Service Commission has adopted a phase-in schedule for customer direct access to alternative electricity suppliers that runs through 2002. The order, which some have said needs additional work, also outlines stranded cost recovery policies and related securitization strategies.

Under the plan, 2.5 percent of each electric utility's retail load will become eligible for customer choice each year from 1997 through 2001, with all customers eligible in 2002.

Pennsylvania Electric Restructuring Continues

Phillip S. Cross

The Pennsylvania Public Utility Commission has taken new steps in its ongoing effort to restructure the state's electric industry, proposing regulations to govern customer choice of energy suppliers and securitization of stranded costs.

The PUC's new actions on retail choice and stranded costs were designed to comply with state legislation passed last December, known as the Electricity Generation Customer Choice and Competition Act. See, 66 Pa.C.S. secs. 2801 et seq.

In fact, the PUC began last January to implement the new state legislation.

Perspective

Albert J. Budney, Jr.

Canadian markets beckon U.S. utilities, and vice versa, demanding greater access to transmission lines to bridge the gap.

When I took the job of president of Niagara Mohawk Power Corp., way up North, near the Canadian border, I shared the news with a close friend. I told him how excited I was to be joining an innovative team that was out in front, breaking new ground in the competitive arenas rapidly evolving in the electric power industry.

Off Peak

Today's critics decry stranded costs, yet fail to cover their tracks.

Many of today's most vociferous critics of stranded cost recovery were once among the most ardent supporters of the nuclear plants they now disavow.

Back in the '70s, when electric utilities and regulators laid out their long-term plans, nuclear power played a leading role, and American industry largely concurred. Now, however, 20 years later, the business sector sings a new tune. "I told you so," the refrain goes.

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