It comes as no surprise that regulated investor-owned utilities (IOUs) hold divergent views on the restructuring of the electric industry. Size, generation cost, transmission access, customer loyalty, and the friendliness of state regulators all factor into their individual visions of restructuring. Just how far these conceptions vary becomes obvious from the comments filed by the IOUs to the Notice of Proposed Rulemaking (NOPR) issued by the Federal Energy Regulatory Commission (FERC) on open-access transmission and stranded investment.1

In all, 83 entities (including individual companies and groups of affiliates filing a single document) submitted comments on the NOPR. These 83 comments represent most of the 137 public utilities the FERC estimates will be subject to its rulemaking.2

In general, well over half of the IOU commenters expressly state that they favor the Mega-NOPR's overall thrust. That is, they support concept of nondiscriminatory access to transmission lines. Some utilities want conditions on open access: e.g., fairness to transmission owners and existing customers (Allegheny Power), voluntary implementation (Ohio Edison), or compressive enforcement (all transmission owners should be open, says Oklahoma Gas & Electric). And some challenge the method of implementation. Nevertheless, no IOU commenter has gone on record in the rulemaking to oppose the idea of open access. These comments, therefore, seem to reflect an acceptance by IOUs that open access is an inevitable component of increased competition.

Can the FERC Mandate

Open Access?

Twenty-one of the commenters, with varying degrees of enthusiasm, either expressly support the FERC's legal authority or praise the FERC's efforts to require all utilities to file open-access tariffs. Among these, CINergy, Consumers Power, San Diego Gas & Electric, Sierra Pacific, and UtiliCorp all gave strong endorsements to FERC's legal analysis of its authority to issue an open-access rule.

On the other hand, 14 commenters assert that the FERC has insufficient authority under sections 205 and 206 to mandate universal filing of open access tariffs (em including Allegheny Power System, Baltimore Gas & Electric, Consolidated Edison, Ohio Edison, and Virginia Electric Power.

A number of commenters say nothing about the FERC's legal authority, or expressly state that they do not address the issue. This could mean that they do not challenge the authority, or that they are preserving the argument. Southern California Edison (SCE), for example, says that it will probably not challenge the FERC's authority under section 206, but calls the FERC's legal analysis

"inadequate and vulnerable" to legal challenge. SCE recommends that the FERC use the pro forma tariffs as "default" tariffs in complaint cases under section 211. Public Service Electric & Gas (PSE&G) also advises FERC to proceed under section 211 rather than under "questionable" section 206 authority. Public Service Co. of Colorado, perhaps reflecting the sentiments of other commenters, says it has already filed open-access tariffs, leaving the FERC's authority to compel filing "somewhat academic."

How Much Stranded-Cost Recovery is Acceptable?

The IOU commenters offer a more uniform opinion whether the FERC is correct in finding that full stranded-cost recovery should be allowed as an integral part of requiring open access. About 51 clearly agree with allowing full recovery; another 5 express qualified support; 23 do not specifically address the issue; and 6 disagree.

Of those that disagree, Central Illinois Light Co. sees stranded-cost recovery as a subsidy to inefficient generation, and argues for partial recovery, at most, over a three- to five-year period. UtiliCorp United argues against stranded-cost recovery for departing wholesale customers unless the wholesale contract specifically allows it, or unless the FERC allows the wholesale customer to be released from the contract. Similarly, Texas-New Mexico Power contends that there "is no wholesale stranded investment" absent a continuing duty to serve wholesale customers. Wisconsin Power & Light, Wisconsin Electric Power (WEP), and IPALCO also criticize the FERC's policy of full stranded-cost recovery.

Of the many IOUs that favor full stranded-cost recovery, all that are specific support the FERC's

"revenues lost" approach to calculating stranded costs.

Who Should Arbitrate Stranded Costs?

The issue of the FERC's role in the recovery of costs stranded by departing retail customers drew a range of responses. The NOPR concludes:

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"[I]t is appropriate to leave it to state regulatory authorities to assume the responsibility for any stranded costs occasioned by retail wheeling, except in the narrow circumstance in which the state regulatory authority does not have authority under state law, at the time retail wheeling is required, to address recovery of such costs."

The NOPR maintains that costs stranded through retail wheeling cannot be recovered in transmission rates; instead, it suggests surcharges to state jurisdictional local distribution rates. On the other hand, the FERC argues that it should be the "primary forum" for recovering costs stranded by wheeling to newly created wholesale customers (e.g., municipalization).

Some commenters support the NOPR, while many others urge the FERC to take a stronger role with respect to retail stranded costs. Pacific Gas & Electric (PG&E), for example, commends the FERC for leaving retail stranded cost determinations to the states, urging only that the rule be tightened so that no retail customer can escape a state-imposed charge, and that the FERC accept state determinations of stranded costs in the retail-turned-wholesale situation. UtiliCorp also expressly agrees with the FERC's approach. WEP makes a strong case for letting states determine the amount and method of retail stranded-cost recovery, adding that the FERC should resist any suggestion that

it act as a "backstop" for retail stranded costs.

The "backstop" scenario is in fact suggested by at least 15 of the commenters. Atlantic City Electric, for example, contends that the "FERC must provide a 'back-stop' forum [for retail stranded costs] any time a state does not have jurisdiction, loses its jurisdiction, or exercises its jurisdiction in a manner inconsistent with the FERC's guidelines or intent." Detroit Edison suggests that the FERC step in when the states do not implement their authority over retail stranded costs "in a fair and reasonable manner." Commonwealth Edison urges the FERC to permit the recovery of all retail stranded costs through transmission charges where the state regulatory agency has authority, but fails, to permit full stranded-cost recovery. Entergy, concerned about the potential for cost-shifting among states, proposes that utilities file retail wheeling or PoolCo tariffs at the FERC. Then, if there is no state assurance of stranded-cost recovery by the time of a final FERC order, the FERC can provide for the recovery of all legitimate retail stranded costs in the tariff.

A few of the commenters go further. PSE&G, for example, "strongly suggests" that the FERC reconsider its decision to let states deal with retail stranded costs, preferring that the FERC act as the primary source of setting the rules and procedures for recovery of retail stranded costs. Public Service Co. of New Mexico (PSNM) likewise claims that the FERC has exclusive jurisdiction over retail wheeling service, including the stranded costs retail wheeling creates. PSNM suggests state involvement in developing standards through a technical conference or joint federal-state working committees.

State or Federal Jurisdiction?

The NOPR concludes that all facilities used to deliver power to a wholesaler fall under FERC jurisdiction, but that facilities used to provide unbundled transmission to a retail customer could fall under either FERC or state jurisdiction, based on a case-by-case analysis of factors such as power flows, voltage, and meter placement. The FERC expects that "local distribution" facilities will involved in "most, if not all" unbundled retail wheeling, thus providing states with a means of assessing stranded costs on departing retail customers.

Surprisingly, about 55 of the commenters offered no comment on this controversial issue. And while eight (em including SCE, PG&E, and PSE&G (em generally endorse the FERC's approach, at least six do not. Consumers Power, for example, thinks the FERC's approach would lead to too much litigation, and lobbies for more of a bright-line test. Consumers suggests that the FERC and the states create a joint board under section 209 of the Federal Power Act. Detroit Edison argues that since transmission and distribution can occur simultaneously on the same facilities, jurisdiction should

depend on the nature of a transaction rather than the label placed on the facilities.

Three New York IOUs (Long Island Lighting Co., New York State Electric & Gas, and Rochester Gas & Electric), in joint comments, argue that the FERC's jurisdiction extends over all retail wheeling down to the load, but that all transmission in bundled retail service counts as state jurisdictional "local distribution." Oklahoma Gas & Electric calls the FERC's approach "indefensible," and argues that the FERC's jurisdiction covers the movement of electric energy over interconnected electrical facilities, while state jurisdiction begins when the power flows onto radial facilities, regardless of the purchaser.

And What Else?

Existing Contracts. In its NOPR, the FERC finds it unnecessary to exercise its section 206 authority to reform or abrogate all existing power-supply, coordination, or transmission contracts, and asks whether such an exercise would be in the public interest. Of the 37 specific comments, 35 generally agree that all existing contracts should not be modified. UtiliCorp and PSNM disagree with blanket modification, but note the availability of case-by-case review under sections 205 and 206. CINergy suggests that requirements contracts should not be modified, but that the FERC should use its section 206 authority to require amendments to all existing coordination agreements to eliminate bundled transactions. Two IOUs specifically favored broader modification of existing contracts: Portland General Electric urges the FERC to require utilities to use their open-access tariffs for all existing wholesale sales and purchases, as well as service to native load. Texas-New Mexico Power suggests that all wholesale customers be allowed to convert their existing contracts to the terms of the pro forma tariffs.

Market Dominance. The NOPR also inquires whether open-access tariffs would reduce the need for market dominance tests for sales from existing generating units at market prices. Of the 41 commenters on this issue, most take the position that open-access tariffs would eliminate generation market power, making it possible to drop or at least relax market dominance tests, subject to challenge in individual cases. Nine commenters express reservations about dropping a market dominance test, stating that open-access alone will not necessarily eliminate generation market power. Minnesota Power & Light urges the FERC to retain its

current policies on testing market dominance. Northern Indiana Public Service Co. notes that other barriers to entry to the market justify continued testing for market power.

Ancillary Services. As for the FERC's proposal to require transmitting utilities to offer six categories of ancillary services along with transmission, many commenters generally agree with the concept, but suggest a technical conference or a separate rulemaking to deal with the issue. A common argument is that the transmitting utility should not have a one-sided obligation (em with no obligation on the part of the customer to take (em to provide services otherwise available in the marketplace. Another common observation is that ancillary services that must be provided by the transmitting utility, such as

reactive power, should be allowed to be bundled with the transmission rate.

Reassigned Rights. Almost all commenters agree that the price for reassigned transmission rights should be capped at the rate originally paid, as long as the transmitting utility's rate remains regulated. United Illuminating feels that reassigned rights should be capped at the higher of the price paid or the holder's opportunity costs. Baltimore Gas & Electric feels that transmission rights should not be reassigned at all.

The variety of IOU comments on the NOPR suggests that the era of a unified industry position on important issues may be at an end. Before issuing its final rule, the FERC will, of course, have to sift through the comments of municipal systems, cooperatives, consumers, independent generators, and marketers as well (em no doubt a daunting task. t

Brian R. Gish is an attorney who specializes in energy and utility law in the Washington, DC, area. His e-mail address is EnergyLaw@aol.com

Can FERC Legally Mandate Open Access?

All Those in Favor...

Arizona Pub. Service

Central Illinois Light

CINergy

Consumers Power

Duquesne Light

Entergy

IPALCO

Kansas City P & L

Montaup Electric

New England Power

Oklahoma G & E

Orange & Rockland

Pacific G & E

PSC of New Mexico

San Diego G & E

Sierra Pacific

Texas-New Mexico

Tucson Electric

United Illuminating

UtiliCorp United

Western Resources

... All Those Opposed

Allegheny Power

Baltimore G & E

Carolina P & L

Cent. Hudson G & E

Con Edison

Dayton P & L

Detroit Edison

Minnesota P & L

No. Indiana PS

No. States Power

Ohio Edison

South Carolina E & G

Union Electric

Virginia Electric & Power

1. Promoting Wholesale Competition through Open-Access Nondiscriminatory Trans. Servs. by Pub. Utils.; Recovery of Stranded Costs by Pub. Utils. and Transmitting Utils., Notice and Supplemental Notice of Proposed Rulemaking, IV FERC Stats. & Regs., Proposed Regulations, (pp 32,514 (1995), 60 Fed.Reg. 17,662 (Apr. 7, 1995).

2. Of course, many trade associations and other ad hoc groups of IOUs filed their own sets of comments. This article focuses on issues that individual IOUs felt strongly enough to comment on separately.

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