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Stranded Costs for a "Hungry" Utility

Fortnightly Magazine - October 1 1999

immediately from Alma's defection. By starting the clock a year earlier, the two attorneys in effect would have the FERC reduce the stranded-cost award when it reviews the ALJ order. As the two attorneys explained:

"The facts are completely different here. From 1999 to 2001, Consumers Energy's other customers will need to use all the capacity released by Alma's departure. Therefore, the potential for cost-shifting [by taking account of load growth], which concerned the commission in Las Cruces, does not exist here."

Quoting from the record, Burns and Schratwieser saw not so much a stranding as an opportunity: "Consumers Energy will be able to sell all of the released capacity no matter when Alma departs, and at the market price."

A Ridiculous Demand? Consumers Energy filed its own brief Aug. 13, alleging that ALJ Dowd erred by not also considering CECo lost revenues through a stranding of its distribution system, on the grounds that Alma would not connect its new municipal system to any other transmission provider after municipalization. It discounted suggestions by Alma that it might reach some kind of distribution "brokering" or sharing arrangement, either by regulatory order or negotiation.

"The [ALJ] concludes that if Alma built its own distribution system, CECo's distribution facilities would only be uneconomic assets, not stranded as envisioned in Order 888.

"Given that holding, focusing on CECo's Alma distribution system, as the [ALJ] does, for purposes of determining its status and usage after municipalization is an asset-by-asset review of stranded costs inconsistent with the revenues lost formula [in] Order 888."

Consumers Energy, adds Judge Dowd, erred by using only a 10-year period to calculate stranded costs, rather than a 30-year term.

Nevertheless, a group of Alma businesses continues to argue that the utility itself is at fault for any stranded costs by campaigning against Alma's municipalization. In a brief filed Aug. 16, attorneys Clark Hill and Thomas Maler wrote: "It was CECo's demand for a ridiculous $105.6 million [later revised to $56 million] which prevented the city from moving toward in a timely fashion."

They added, "Where Alma does not seek to take anything from CECo except customers - and only those customers which voluntarily choose the municipal utility based on price and service - Alma will not have been the cause of 'stranding' anything of CECO's ¼ this type of conduct by incumbent monopoly utilities is not what the Commission intended when it issued order 888."

Bruce W. Radford is editor-in-chief of Public Utilities Fortnightly.

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