Glenn D. Meyers, Buckner Wallingford II, and Horace J. DePodwin
And why policy on
stranded costs defies
a traditional legal or
There are sound economic reasons why policymakers should allow electric utilities to recover stranded costs through a competitively neutral network access charge, or some similar fee. First, differences in the quality of utility management appear to have contributed little to differences in electricity rates among states.
S&Ls won damages when the feds reneged on promises. Utilities could do the same.
It's tough to be a utility CFO these days. For decades, electric utilities have served both as target and conscripted agent of government policy. Utilities pay disproportionately high taxes. Utility rate structures further distort market forces with subsidies flowing from business to residential. These policies actually defeat market forces. To large measure, many of these market failures arise from reconciling the hangover from uneconomic policy initiatives.
Lori A. Burkhart
The Heritage Foundation has released its second report in a series on electric deregulation, aimed at capturing the attention of lawmakers on Capitol Hill now holding hearings on proposed legislation to restructure the electric industry.
The new report, Electricity Deregulation: Separating Fact From Fiction in the Debate Over Stranded Cost Recovery, by Adam D. Thierer, concludes that lavish stranded cost recovery is not justified, and that the "sky will not fall" if stranded cost recovery is limited or denied.
Phillip S. Cross
While authorizing Nashville Gas Co. to increase rates by $4.417 million, the Tennessee Regulatory Authority has modified its existing policy on the treatment of advertising expenses in gas rate cases.
The authority abandoned a past policy limiting advertising recovery to 0.5 percent of the company's gross revenues. It also ordered a 50-50 sharing between ratepayers and shareholders. It granted, however, the LDC's request for full recovery of both payroll and nonpayroll "sales promotion" costs, rejecting allegations the costs should be treated as advertising expenses.
Gayle S. Koch, Kenneth T. Wise, and Philip Hanser
Valuation, optimization and settlement strategies
oth gas and electric utilities face a variety of environmental issues arising from more than 1,500 former manufactured gas plant (MGP) sites, which supplied a major source of energy in the United States from the early 1800s to the mid-1900s. Using the standard operating procedures of the day, MGPs created and often disposed of byproducts such as coal and oil tars, tar/water emulsions, sludges, spent oxides (including cyanides), lampblack, ash and clinker.
Lori A. Burkhart
Tightens postings rules for transmission discounts; expands jurisdiction on stranded costs in municipal annexations.
The Federal Energy Regulatory Commission on Feb. 26 revisited its Order 888 open-access transmission decision, reaffirming its core framework but making changes by granting rehearing on two key issues.
Stranded-cost recovery associated with municipal annexation was revisited. In addition, the FERC updated the discounting of transmission services (See, Order 888-A, Docket Nos. RM95-8-001, RM94-7-001, and RM95-9-001).
Charles M. Studness
You've got to reinvest the proceeds (em and not just anywhere.
Recovering stranded investment is sometimes equated to preserving shareholder wealth. In fact, full recovery of stranded investment by itself will not preserve shareholder wealth in most cases.
What is missing all too often in discussions of stranded investment is the role that capital investment plays in the creation of shareholder wealth.
Mark J. Vople
Flow-based pricing ends
subsidies inherent in grid-wide,
n Order 888, the Federal Energy Regulatory Commission suggested 11 principles for forming an independent system operator, or ISO. In its third principle, the FERC offered this guidance on transmission pricing:
An ISO should provide open access to the transmission system and all services under its control at non-pancaked rates pursuant to a single, unbundled, grid-wide tariff that applies to all eligible users in a non-discriminatory manner.
Ruth K. Kretschmer, and Robert Garcia
Illinois has yet to face the issue, but when it does, it may find the road blocked by jurisdictional rules at the FERC. According to estimates by Moody's Investor Service, the state of Illinois would face stranded costs of nearly $6 billion if it should mandate retail wheeling to allow the state's electric utility customers to choose their own supply of electricity.
Phillip S. Cross
As directed by the state legislature, the New Hampshire Public Utilities Commission (PUC) has issued a preliminary plan to restructure the state's electric industry.