MICHIGAN CHOICE APPEAL. Michigan Attorney General Frank Kelley filed an appeal in the Michigan Court of Appeals of the Michigan PSC's Jan. 14 rehearing order (News Digest, March 15, 1998, p. 18)...
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Unbundling: An Excuse for Cost Shifting?
The article "Risk and Rates for the Regulated Distribution," by Maloney, McCormick, and Tyler (Sept. 1, 1997, p. 26) was interesting. For people with the vested interests of the authors, unbundling offers the golden opportunity of reducing regulated rates without actually having a formal rate decrease. That comes about by shifting on paper as much revenue as possible from the regulated disco to the competitive genco, while of course leaving all the costs with which that revenue is associated within the disco.
To paraphrase the authors, if a cost is truly a cost of generation, then in the competitive market the price will allow for its recovery. That is true, as far as it goes. However, the problem is that the costs the authors want shifted to the genco are costs that were never there in the first place. These costs, such as administrative and general expenses, uncollectible accounts mandated by state policy, general plant and customer accounting and service expenses, now reside heavily in the distribution function. They will remain with the disco of the future. They won't be recoverable by the genco in the competitive market because no new unregulated entity will be burdened with such costs.
This proposed shifting of revenue from the disco to the genco will also prove very attractive to public utility commissions (especially in high-cost states) because that genco will no longer be their concern. Regulators will then have the opportunity to lower costs to consumers, even for the low-use, low-load-factor residentials that nobody has a great interest in serving, without calling it a rate decrease. They do run the risk of a deterioration in service. However, punitive performance-based ratemaking will offer protection for them in this area while keeping shareholders' returns as low as possible.
Jim Lundrigan
New Haven, Conn.
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