Investigations of changes in the structure of the electric utility industry are growing at the state level. Restructuring issues are also becoming a larger part of traditional rate cases and other established regulatory functions such as integrated resource planning.
Rate Proceedings
Several matters related to competition, industry restructuring, and regulatory reform were cited by the Massachusetts Department of Public Utilities (DPU) when it approved a $30.95-million rate increase for Massachusetts Electric Co., an investor-owned utility and wholly-owned subsidiary of New England Electric System.
The DPU rejected an attempt by the utility to recover lost revenues associated with the decision of one of its largest customers, Massachusetts Bay Transportation Authority (MBTA), to switch to a neighboring utility for part of its supply requirements. According to the DPU, the utility had failed to show that losing part of its 13 MBTA accounts was an extraordinary event beyond the "normal ebb and flow" of customers experienced by all utility companies. The DPU also rejected a proposal to alter the way the company allocates its cost of electric supplies to account for "excess power-supply costs" associated with lost or unrealized sales to industrial customers. Proponents of the cost shift had claimed that the new allocation method would better reflect a documented increased risk of faulty forecasting for industrial sales.
In rejecting the proposal, the DPU said that a risk-specific allocation of capacity costs among customer classes would require a jurisdictional inquiry into the planning, plant acquisition, and operation of the NEES, and perhaps a review of the return required by investors if such a change were put in place. The jurisdictional concern is more significant in light of the DPU's recent directive requiring state electric utilities to functionally separate generation from transmission and distribution and to increase reliance on competition in the generation component of operations. It also noted that residential customers in a restructured industry might possibly pool their loads and purchase electricity at market-based group rates, making risk-specific cost allocations irrelevant. Nevertheless, the DPU concluded that rates should reflect any "statistically verifiable" differences in the risk of sales to the various rate classes, and directed the utility to investigate the issue for consideration in a future proceeding.
The DPU also concluded that the utility should use the newly determined revenue requirement to develop an incentive regulation proposal and to submit the plan as part of an industry restructuring proposal required as part of the DPU's generic investigation of changes in the electric industry. Re Massachusetts Electric Co., D.P.U. 95-40, Sept. 29, 1995 (Mass.D.P.U.).
In the same vein, Colorado Public Utilities Commission (PUC) made the following observations when designing electric rates for Public Service Co. of Colorado: 1) the relationship between economic efficiency and the presence of substantial competition, 2) the increasing importance of service quality as an industry moves away from regulated monopoly toward a market with an increasing number of suppliers, and 3) the importance of setting rates that neither hamper a utility's efforts to remain a viable competitor in the future nor discourage economically efficient firms from entering electric markets. Re Public Service Co. of Colorado, Docket No. 95I-513E, Decision No. C95-1098, Nov. 11, 1995 (Colo.P.U.C.).
Integrated Resource Planning
The Arkansas Public Service Commission (PSC) has found that long-term integrated resource planning (IRP) under prescriptive regulatory guidelines is no longer the best means of protecting the public interest given increasingly competitive markets and structural changes in the electric utility industry. Accordingly, the PSC declined to adopt the standards for IRP offered under the Energy Policy Act of 1992. The PSC concluded that it must refocus its attention and adapt its practices to reflect the fact that competitive pressures have become more important factors affecting utility management planning decisions. It declined to reopen suspended IRP dockets, and instead required each electric utility in the state to file a copy of its current resource plan. Re Energy Policy Act of 1992, Docket Nos. 94-342-U et al., Order Nos. 4 et al., Oct. 10, 1995 (Ark.P.S.C.).
Generic Investigations
The Nevada Public Service Commission (PSC) has opened a broad investigation of the potential implications of competition in the electric industry. According to the PSC, the Nevada Legislature recently established a subcommittee to study the effects of competition in the generation, sale, and transmission of electric energy and expects a report by August 1996. The PSC said it would issue a final report on its own investigation in June 1996. Seeking comments from all interested parties on a wide range of issues, the PSC began with a review of restructuring decisions issued by regulators in Massachusetts, California, and Maryland. Re Electric Restructuring, Docket No. 95-9022, Oct. 27, 1995 (Nev.P.S.C.).
The District of Columbia Public Service Commission (PSC) has initiated an investigation into electric services, market competition, and related regulatory policies. While emphasizing that under current regulation the District enjoys some of the lowest rates in the nation, the PSC said that "if this fact is to remain true" it must be prepared to take steps to allow greater reliance on competition and customer choice. On the other hand, given the District's unique balance of residential and large office users, the PSC warned that an opening of the monopoly market could put great upward pressure on residential rates if commercial customers are the only ones with a true choice of suppliers. Re Electric Service, Market Competition and regulatory Policies, Formal Case No. 945, Order No. 10720, Oct. 27, 1995 (D.C.P.S.C.).
The Vermont Public Service Board (PSB) has formally opened a full-scale investigation into electric industry restructuring, acknowledging a set of guiding principles agreed upon by a board-based working group convened by the state's Department of Public Service. The key principles are 1) efficiency, to reduce costs; and 2) fairness, to ensure that benefits are distributed equitably among all consumers.
In committing to develop a new regulatory framework that seeks the benefits of "greater market discipline" while "maintaining and enhancing desirable features of the current regulatory system," the PSB pointed to ongoing developments in the wholesale markets, including efforts by the New England Power Pool to reconsider fundamental aspects of membership, planning, and dispatch of generation in the region, as well as an apparent consensus among affected parties in the state that increased competition could provide benefits to consumers. With a general goal of achieving a restructured industry by December 31, 1997, the PSB pledged to advance the issues "with all deliberate speed" to avoid extending any period of regulatory uncertainty. Re Restructuring of the Electric Utility Industry in Vermont, Docket No. 5854, Oct. 17, 1995 (Vt.P.S.B.).
After a preliminary review of emerging competition in the electric utility industry, including numerous roundtable sessions with over 200 representatives of industry stakeholders, the Iowa Utilities Board has found "no consensus among participants as to whether full retail competition would benefit Iowa's electric consumers." Nevertheless, the Board concluded that actions currently underway at the federal and regional levels require a continuation of the dialogue. It scheduled further discussion on all issues for December 1995. Re Emerging Competition in the Electric Utility Industry, Docket No. NOI-95-1, Oct. 12, 1995 (Iowa U.B.).
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