As I began to write this column, the California Public Utilities Commission (CPUC) was slated in less than 30 minutes (this time, for real) to unveil its final proposed plan to restructure the electric utility industry. After the deed was done, on Wednesday, December 20, I logged on to ftp.cpuc.ca.gov and downloaded the text of the two opinions, issued by California commissioners Daniel Fessler and Jessie Knight. But during the two-week delay in California from the original planned release date of December 6, the Wisconsin Public Service Commission (PSC) snuck in under the wire to win the honor of being first. Its restructuring order, issued Tuesday, December 19, beat the CPUC by one day.
Victory. But will Wisconsin claim the trophy?
On December 8, Wisconsin chairman Scott Neitzel fired off an internal memorandum to fellow commissioners Cheryl Parrino and Dan Eastman, giving them a heads-up on ideas he would propose at the PSC's open meeting on December 12 (the original target date for the Wisconsin order). As things turned out, Wisconsin also postponed its final order (em from December 12 to December 19 (em as Neitzel jockeyed for position to bring the "go slow" Parrino and Eastman over to his more aggressive views.
Here's the rub. On the very first page of Neitzel's memo, he paused to quote the comments of one Orval Jenks, of Oak Creek, WI, who spoke at the PSC's public hearing in Milwaukee back in late November. As Mr. Jenks put it, and as Neitzel saw fit to reiterate for the benefit of his fellow regulators, "Success comes from not being the first to give up the old or the last to take up the new."
The One to Read
If you're like me, you have neither the time nor the inclination to read every PUC polemic on electric utility restructuring. I recommend you skip the Wisconsin and California orders, and instead get your hands on a copy of Massachusetts State Senate Report No. 2130, "A Prescription for Competition: The Restructuring of the Electric Utility Industry" (Report of the Senate Committee on Post Audit and Oversight, issued December 4, 1995).
What I like about the Massachusetts Senate Report 2130 is that it agrees with my view (em namely, that electric utilities will not break up into generation, transmission, and distribution. Instead, the Massachusetts Report favors a model (see, "Model VI," table of contents, this issue, p. 4) with a somewhat different set of elements:
s deregulated generation
s centralized dispatch and control (a voluntary pool, with generators selling directly to customers if they choose)
s a regulated "wires business" (transmission and distribution) run by utilities
s a customer service function run by energy service companies (ESCOs) and retail load aggregators in which utilities do not play a role.
The Massachusetts Senate model assumes a regulated distribution function, but with a catch (em no more customer contact. Instead, a new group of brokers, retail load aggregators, and ESCOs would operate as middlemen, coordinating deals and prices between (a) generators and pool dispatchers, and (b) retail customers.
Thus, while the Federal Energy Regulatory Commission (FERC) works to unbundle transmission from generation, Massachusetts would unbundle distribution from retail customer contact:
"Allowing utility companies to compete to provide energy services to customers while they are still in control of the wires may allow for the erection of market barriers."
This model makes sense to me, since it implies, I believe, that transmission and distribution are essentially the same thing. Customers don't care much about the diameter of the pipe, the size of the truck, or the voltage of the line that delivers the product to the door. It's all a back-office job.
The Massachusetts report offers another interesting comment on the future of back-office utility operations: "Since distribution and transmission will most likely remain monopolies, the associated payroll and benefit costs will not be a largely influential factor in the competitiveness of a utility company."
Regarding generation markets, the report notes that in New England, over two-thirds of all generation capability is controlled at least in part by three players: Northeast Utilities (35.5%), New England Electric Systems (19.9%), and Boston Edison (13%). Data provided by NEPOOL reveals a Herfindahl-Hirshman Index (HHI) for the New England electric generation market of between 1924.34 and 1961.11, depending on the season (with a greater concentration occurring during the summer). This index, the report notes, would qualify electric generation as a concentrated market under the guidelines established by the U.S. Department of Justice.
The One to Watch
Still over the horizon, but likely to show up soon on the radar screen, is a possible jurisdictional dispute between the FERC and the Commodity Futures Trading Corporation (CFTC) over the right to regulate the electric futures contract proposed by NYMEX.
In August NYMEX filed notice with the CFTC of the availability of the terms and conditions of its
proposed electricity commodity futures contract for delivery at the California-Oregon border and at Palo Verde, AZ. (See, 60 Fed.Reg. 45402, Aug. 31, 1995). Later, on September 28, NYMEX filed a petition with the FERC for a declaratory order that certain electric futures contracts would not qualify as "securities" under the Federal Power Act and would not therefore implicate FERC jurisdiction (See FERC Docket No. EL95-81-000).
The other day I called the CFTC and inquired about the possibility of conflicting FERC jurisdiction. The CFTC appeared to be completely unaware of the pending FERC action. Then I picked up a copy of comments filed by the Edison Electric Institute (EEI) and started reading.
The EEI comments urge the FERC to maintain "appropriate review and reporting requirements," yet acknowledge that FERC regulation should not unduly delay or "stifle" any emerging financial markets. Later, EEI notes that price fluctuation limits imposed by NYMEX in its electricity futures contract might constitute market-based ratemaking, implying (but not advocating) that such limits must therefore satisfy any FERC policy on market-based pricing for bulk-power sales.
What a mess. Imagine the FERC sticking its nose into the trading pit in New York, Chicago, or Kansas City. You can just smell the billable hours.
Articles found on this page are available to Internet subscribers only. For more information about obtaining a username and password, please call our Customer Service Department at 1-800-368-5001.