T+D Investment Risk. The Maine PUC appeared to take a pro-consumer stance in setting principles it will use to set a revenue requirement for transmission and distribution (T&D) services provided by Bangor Hydro-Electric Co. after the company becomes a wires-only utility on March 1. The PUC downplayed the risk of wires operations, adopting a return on equity of 11 percent and disallowing about $3.5 million of some $71 million in claimed T&D costs.
Overall, the PUC viewed the risk profile of a T&D electric utility as falling somewhere "between that of a water utility on the low end and that of the existing electric utility industry at the upper end." It added that it had yet to see any opinion from the investment community "that would suggest that pure T&D utility operations would be anything but less risky than fully integrated electric utility operations."
The utility had asked the PUC to consider improving shareholder returns to bolster investor confidence, but the PUC declined, describing the major point of industry restructuring as being to insulate ratepayers from generation investment risk.
Nevertheless, the PUC did boost the wires equity return to 30 points above the 10.7 percent midpoint indicated by approved financial models: "Psychologically, the 11 percent threshold may provide an additional measure of comfort for equity investors as we restructure."
Also, the utility had asked for $40 million for stranded costs on the T&D plant, but the PUC declined to set a specific figure, saying that any estimate would vary greatly, depending on the outcome of a mandated auction of generating assets and contracts with qualifying cogeneration facilities. Docket No. 97-596, Nov. 24, 1999 (Me.P.U.C.).
Power Outages. After seeing outage complaints double in the last three years, with two storms in July 1999 blacking out over a quarter-million customers of Detroit Edison, and receiving a preliminary report from its staff, the Michigan PSC decided on Nov. 19 to investigate the reliability of Edison's distribution system and the company's storm response capability.
The staff report, also issued Nov. 19, recommends that the PSC develop a rate mechanism to link reliability to DE's allowed rate of return. See http://ermisweb.cis.state.mi.us/mpsc/.
Efficiency Programs. Vermont OK'd a "nonbypassable volumetric charge" that will fund the new Energy Efficiency Utility, the mechanism established to deliver an array of energy efficiency programs in the state. (See News Digest, December 1999, p. 17.)
The energy efficiency charge (EEC) in 2000 will range from 0.17 percent to 2.75 percent of all customers' current bills, but with a setoff to avoid double billing where utility rates already allow for demand-side management programs. Docket No. 5980, Nov. 19, 1999 (Vt.P.S.B.).
Efficiency Program Evaluation. Massachusetts chose the "total resource cost" method of testing the cost-effectiveness of energy efficiency programs in the deregulated electric industry. The method considers savings in increased productivity and reduced late payments and other "non-resource benefits" such as reduced environmental impacts at a customer's site, as well as resources such as oil, water and wastewater.
"We have concluded that the best way to ameliorate the industry's environmental impact while lowering