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The Electric Competition Debate in...New York

Fortnightly Magazine - May 15 1998

by 7 to 10 percent; utilities say it's more like 1 percent. He said Niagara Mohawk Power Co., for example, probably cannot restructure some of their long-term IPP contracts without securitization. But that prediction proved untrue.

Helmer agreed there exists a short-term role for the Legislature regarding securitization. Helmer and Silver both feel that citizens are very uncomfortable with the issue. First, the Legislature needs to rename the proposed legislation, removing the word "securitization" and perhaps calling it something like "ratepayer relief," Helmer said. Second, it needs to tell consumers what it means.

A securitization bill, according to Silver, must follow three basic principles. First, public backing of any credit enhancement mechanism, such as an irrevocable rate that underlies securitization must be linked to the amount of ratepayer savings. Refinancing used to raise the bottom line, buy back stock and make investments in other states or foreign countries is not the way to reduce electric costs in New York, he argued. Second, securitization can't be a new barrier to competition. Third, securitization cannot be a mechanism for locking in higher rates.

Silver opposes any open-ended term for securitization. Ultimately, Silver would look to the federal government to offer tax-exempt financing to help make the transition to a competitive market while dealing with stranded nuclear plants. Silver believes such financing should be available not only in New York but throughout the country.

Silver also noted that the Public Power Authority of New York was planning to refinance $1.6 billion of debt to become more competitive with private industry. He questioned whether public power should compete with private utilities. He explained that a proposal has been made to restructure the power authority and create loan guarantee bonds that would reduce the need for securitization. He pointed out that the power authority had been created for a limited purpose and now would be at a competitive advantage. He said the assets of the power authority should be used to foster competition.

The PSC has said all along that utilities would be allowed to recover prudent, verifiable and non-mitigable stranded costs. Helmer explained that the stranded cost settlements vary across the board reflecting each utility's unique situation. However, in highlighting concerns of the financial community over a PSC solution to stranded costs, Dan Scotto has noted that a "general/vague policy implies less than full recovery."

Scotto has also cautioned that nuclear power could prove the "trump card" in the move to competitive markets. "At this stage of the evolutionary process, it is still unclear whether decommissioning will be the responsibility of the wire companies," he said. He pointed out that PECO Energy and Westinghouse, in particular, are approaching a showdown on the issues.

In March, the PSC announced that it would open its own inquiry on the future of nuclear power in a deregulated electricity market. At that time it reviewed industry comments on a skeletal nine-page report issued by commission staff. That report (Nuclear Generation in a Competitive Market for Electricity) recommended a public auction of nuclear plants to private buyers, but that the obligation