[BETA] Fortnightly

The Maine Public Utilities Commission (PUC) has terminated an ongoing rulemaking on stranded-cost recovery by electric utilities in the state. In closing the docket, the PUC cited proposed rules recently issued by the Federal Energy Regulatory Commission (FERC) as evidence of FERC jurisdiction in the matter.

Widespread concern over nuclear plant decommissioning has triggered similar interest in the decommissioning of fossil-fired steam generating stations. This rising interest stems in part from the emergence of a competitive market in electric generation, which, among other things, threatens impairment of assets.

Fossil decommissioning issues are not nearly as contentious as those that attend nuclear plants.

The Federal Energy Regulatory Commission (FERC) has issued its comprehensive notice of proposed rulemaking (NOPR) designed to move the wholesale electric industry to a more competitive marketplace. The order, Open Access Non-discriminatory Transmission Services by Public Utilities and Recovery of Stranded Costs by Public and Transmitting Utilities, weighs in at over 300 pages (Docket Nos.

Stranded costs are those costs that electric utilities are currently permitted to recover through their rates but whose recovery may be impeded or prevented by the advent of competition in the industry. Estimates of these costs run from the tens to the hundreds of billions of dollars. Should regulators permit utilities to recover stranded costs while they take steps to promote competition in the electric power industry?

In his article, "The Flawed Case for Stranded Cost Recovery" (Feb. 1, 1995), Charles Studness made many good points. Yet he omitted to mention one critical factor that influenced several utilities in the late 1970s to go ahead with new coal and nuclear capacity: the Carter Administration's 1978 Fuel Use Act, mandating that utilities cease burning natural gas by 1989.

For many companies operating in the south central United States, this requirement meant conversion or replacement of most existing capacity.

We stand on the threshold of a new era in the electric services industry. I deliberately avoid the term "electric utility industry," because the future is not limited to the vertically integrated monopoly utility. Many utilities may already perceive the first cracks in their armor: nonutility generators (NUGs), self-generators, and energy service companies.

Competition is not in the industry's future; it is here now. Further, competition and market forces are not going to magically disappear.

SIDE SUBHEAD

With no need for new capital, utilities have lost political pressure, exposing the regulatory compact as an illusion.Recovery of stranded investment today marks the central issue in the debate over electric utility competition. Unfortunately, the utility argument in favor of recovery is flawed.

In less than a decade, three powerful trends will converge on gas distributors.