[BETA] Fortnightly

The Federal Energy Regulatory Commission ruled that the Iowa Utilities Board's decision to implement an Iowa statute, which obligates electric utilities to purchase power from qualified facilities at rates in excess of the purchasing utilities' avoided costs, is preempted by the Public Utility Regulatory Policies Act (Docket No.

The North Carolina Utilities Commission has permitted the state's major investor-owned electric utilities to suspend their

existing avoided-cost rate offers for long-term power purchases from qualifying cogeneration facilities, pending regulatory review.

The commission said it would also review a proposal by North Carolina Power Co. to reduce the eligibility threshold for the avoided-cost rates from the current capacity level of 5,000 kilowatts, to only 100 kW.

Consumers Would Overpay.

Perhaps the only political prediction bound to come true this year is that the words ôelectric restructuringö will reverberate in nearly every stateÆs legislative chamber.

So says Matthew Brown, director of the energy project at the National Conference of State Legislatures.

But other factors support BrownÆs prediction. Public Utilities FortnightlyÆs informal survey of most states turned up similar results. Legislators know that the Clinton Administration and the U.S. Congress plan to introduce a federal bill this year.

Sound bites from state and federal regulators.

Natural Gas Briefs

Gas Marketing Affiliates. Indiana finds no jurisdiction to regulate Proliance Energy, LLC, a brokering and energy services affiliate of Indiana Gas Co., Inc. and Citizens Gas and Coke Utility, but says it will regulate the utilities in their transactions with Proliance. Case No. 40437, Sept. 27, 1996 (Ind.U.R.C.).

Gas Regulatory Reform. Ohio proposes alternative regulatory procedures for natural gas local distribution companies. Case No. 96-700-GA-ORD, Sept. 26, 1996 (Ohio P.U.C.).

Employee Incentives.

How a sample electric company could reduce risk of loss by upgrading performance to industry benchmarks. Competition in electric generation will expose utility costs that exceed those of alternative suppliers. Roughly speaking, these above-market ("transition") costs should track the difference between the new market price and the embedded cost set by traditional cost-of-service regulation.

The problem has attracted no shortage of proposals.

The Idaho Public Utilities Commission (PUC) has modified the method electric utilities must use to conduct avoided-cost negotiations with qualifying cogeneration facilities (QFs). A new interim standard for large QF projects (greater than 1 megawatt) calculates avoided costs based not on displaced purchases from a single, hypothetical power plant, but on information in the utility's resource plan.

The Massachusetts Department of Public Utilities (DPU) has again turned down a request by a cogeneration developer (QF) to collect capacity payments for the entire 20-year term of a purchased-power contract with Commonwealth Electric (CE), despite conflicting advice from the state supreme court.

Last year, in remanding a similar DPU ruling, the Massachusetts Supreme Court had suggested that a contract price violates the Public Utility Regulatory Policies Act (PURPA) if it does not include any capacity payments for most of its term.

The California legislature had taken an interest in electric restructuring from early on in the debate. Through policy committees of the Assembly and Senate, it had signaled that the CPUC would need the blessing of the lawmakers before it would be allowed to pursue the ideas spelled out in the commission's Final Policy Decision. Moreover, the December 1995 decision had drawn a divided reaction. Some parties had sought relief from the outcome of the December 1995 order.

Stranded-

Cost

Recovery: All FERC'ed Up

By Michael T. Maloney, Robert E.

McCormick, and Chad A. McGowan

The "lost-revenues" approach in Order 888 ignores the fact that cash flow drives

asset valuation . . .

. . . the key to measuring uneconomic investment.

Early on in the debate, the legislature had signaled the commission that it would need the blessing of lawmakers to pursue its agenda.This past August, during the waning days of a two-year session, the California Legislature unanimously passed a landmark bill to deregulate the state's $23-billion electric utility industry.

The new law, known as "Assembly Bill (AB) 1890, largely reaffirms the broad outlines of the December 1995 Final Policy Decision issued b