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News Digest

Fortnightly Magazine - January 1 2001

power producers, industrial customers, and the state's public advocate, Maine found no need to incorporate a mechanism to share excess earnings with ratepayers in approving a seven-year, performance-based, price index formula to set rates for electric transmission and distribution for Central Maine Power.

Instead, the PUC set a high productivity figure as an offset to the inflation adjustment allowed under the formula. The offset will equal the inflation rate in 2001, and rise from 2 percent to 2.9 percent by 2007-nearly double the offsets proposed initially by CMP..

Standard Offer Entry/Exit Fees. Maine opened an investigation of entry or exit fees for standard offer power supply service, citing "gaming" threats posed by customers who switch back and forth between competitive and SO services. The PUC posed several questions for comment, such as:

  • Cause of Gaming. Should the rule address only those problems that stem from market price fluctuations, or should it consider problems that stem from ratemaking formulas used in calculating SO rates?
  • Type of Fee. Require an "opt-out" fee (payable if a customers leaves SO service too soon), or instead charge an "entrance" fee on return to SO service?
  • Revenue Allocation. How to apportion revenues from opt-out fees if the identity of the SO provider changes between the time a customer signs up and later leaves?
  • Aggregation Deals. How to handle the case when customers enroll in SO service as an aggregated group, but then leave SO service individually? .

Studies & Reports

Transition to Deregulation. The "prolonged and muddled transition" from regulation to market control of the North American electric power industry, including recent highly publicized brownouts and volatile prices, has raised public concerns about the industry's ability to deliver reliable service at affordable costs, according to a report by Cambridge Energy Research Associates and Arthur Andersen.

The report, "Electric Power Trends 2001," says that potential consequences of the transition difficulties include the likelihood of renewed political intervention and re-regulation that could worsen transmission gridlock and increase the industry's valuation gap. Contact Lauren Laidlaw at 617-441-2604 or llaidlaw@cera.com.

Wisconsin Power Markets. Power producers may well be able to exercise market power in Wisconsin (especially in northern Wisconsin and Upper Michigan), thereby frustrating development of retail electricity competition in the state, even after new transmission capacity is added, according to a study commissioned by the Wisconsin PSC and conducted by the consulting firm of Tabors, Caramanis and Associates of Cambridge, Mass.

Yet the report adds that a workably competitive market would not produce stranded costs or adverse effects on employees at generating facilities, but would lead to "significantly lower rates."

The authors suggest two remedies: (1) Require Wisconsin Electric Power Co. to divest its generation assets among three separate independent owners, and (2) force plant owners to dedicate a significant portion of their capacity to fixed price contracts for retail customers taking standard offer service. . -L.A.B., P.C.

Gas Franchise Forfeiture. North Carolina opened an inquiry on whether Frontier Energy LLC has made enough progress to initiate gas distribution service in newly certificated and previously unserved areas to avoid forfeiture