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Frontlines

Fortnightly Magazine - November 15 1999

said the commission had not yet acted on the new plan (or even decided whether to hold new hearings). But she predicted that the PUC might issue a schedule for the case during the first week in November. (Docket No. 99-03-35, Oct. 1, 1999.)

THE PRICE OF POWER DEPENDS ON THE PRODUCT. It also depends on how you do the math. When regulators design a standard offer for default service for customers who elect not to switch, should they start with the bundled regulated price and then back off all the various unrelated items, such as transmission, distribution, marketing and account costs, system benefits charges, stranded cost securitization and so forth, yielding a residual credit for the energy? It seems simpler at first just to calculate the cost of generation, but that raises the question, What costs belong in the generation function? Consider these issues, which highlight areas of possible confusion in comparing rules from state to state involving distribution tariffs, standard offers and shopping credits:

* Old vs. New Cost. Use data from the last rate case to fix costs for distribution tariff, or require new cost study?

* Supply from Affiliates. Allow parent utility to buy power from subsidiary for standard offer portfolio?

* Incentives. Equate shopping credit to actual cost of power, or add artificial incentives?

* Retailing Costs. Inflate shopping credit to reflect the cost of marketing incurred by competitive suppliers?

* Churn Rate. Add allowance costs associated with frequent customer migration between standard and competitive offers?

* Gaming. Require seasonal shopping credits (peak and off-peak) to dissuade customers from gaming the system with frequent switching?

Connecticut has developed a 30-year electricity market price forecast for New England, pegging energy at 3.205 cents per kilowatt-hour in year 2000. (See News Digest, Sept. 1, 1999, p. 20.) It then defines "wholesale cost" as "market price" grossed-up to reflect load factor, line losses, ancillary services and other items. In the UI case, it noted that Enron had set up its generation charge (same as the shopping credit) to reflect a "higher level of migratory risk" to offset high churn rates for customer accounts, but questioned whether to allow that, given that on Sept. 9, out of concern for "gaming" behavior, the PUC had imposed a 12-month moratorium on customer switching.

In another recent order, the Massachusetts commission rejected a schedule of shopping credits proposed by Western Massachusetts Electric as too low (3.4 cents in 2000, 3.8 cents in 2001, 4.2 cents in 2002). It told WME to recalculate its standard offer generation rate at the "wholesale supply price" identified through the standard offer solicitation, but without any apparent gross-up to reflect ordinary marketing costs incurred by competitive suppliers.

In Ohio, which passed an electric restructuring law just this summer, the PUC staff proposed rules on Sept. 30 asking utilities to file periodic reports including methods to adjust shopping credits. Such adjustments would be used to ensure that migration rates meet the state mandate for 20 percent of customers in each class to have switched to competitive retailers by the end