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News Analysis

Fortnightly Magazine - November 15 1998

Hurdles loom in 10 states eyeing deregulation.

Lawsuits and delayed deadlines. A "go slow" approach and more studies. Stranded cost debates and commission reports that make recommendations but avoid concrete action.

With a new wave of states addressing electric competition, these are a few of the themes that have emerged in 1998. In most states, the process has been slow, though the start of competition does, in fact, appear closer in many.

Here are 10 states that have largely stayed out of the headlines but have made at least some movement in 1998 toward retail choice for electric customers.

Arizona (em Too Much, Too Soon? At press time, settlement talks were in progress on lawsuits filed in September by the state Attorney General and Tucson Electric, challenging emergency rules %n1%n finalized on Aug. 10 by the state corporation commission that would speed up the pace of electric competition through a more rapid phase-in than originally approved in December 1996.

A dissenting opinion issued Aug. 12 by Arizona commissioner Carl Kunasek highlighted the controversy. Kunasek criticized the new rules as "too much, too soon," and predicted that most consumers won't know what to do when retail choice becomes available for all on Jan. 1, 2001, two years after the rules begin to phase-in retail choice for larger customers. He also complained that the new rules reached "no real decision" on stranded costs, since they would have the utilities either divest generation or seek some level of transition revenue yet to be decided. Kunasek saw it all as a formula for litigation.

"The time for resolving stranded investment issues starts well before competition begins," he noted. "To date, we've solved nothing."

Nevertheless, according to ACC spokesman Perry Baker, if a settlement is reached in the Tucson case, the Attorney General would probably drop his lawsuit as well. The commission, for its part, says it doesn't anticipate that its Jan. 1 startup date will be affected by the lawsuits. That target marks the date to begin the phase-in plan for retail competition, by which all customers would be eligible by Jan. 2001. (On May 29, the Governor had signed HB 2663, which called for competition for 20 percent of system load on Jan. 1, 1999 and 100 percent on Jan. 1, 2001.)

The two options on stranded costs have prompted different strategy choices by Arizona utilities. Under the first option, utilities may recover 100 percent of stranded costs determined by auctioning all generation assets. They would be able to keep 50 percent of auction proceeds above book value. Should a utility choose not to divest, the second option provides for a 10-year guarantee of sufficient revenues to maintain financial integrity. Tucson Electric announced on Aug. 21 that it planned to divest, %n2%n while Arizona Public Service was seeking regulatory approval to recover approximately $533 million of stranded costs from ratepayers. %n3%n

Under the rules, customers who have access to competitive generation service will also have the option of competitive metering and billing. The rules also call for a 3- to 5-percent rate cut for those

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