Fortnightly Magazine - July 15 1995

NYNEX Gets Price Cap

The Massachusetts Department of Public Utilities (DPU) has completed a long-awaited rate plan for New England Telephone and Telegraph Co. (dba NYNEX), adopting price-cap regulation without earnings sharing, but with strong measures to protect ratepayers from monopoly pricing, investment risk, and subsidies of utility ventures. The plan also includes price floors and separates competitive and monopoly services for pricing purposes. The DPU also approved a rate freeze for basic residential service until 2001, but rejected a claim that rates should fall during that time.

Incentive Ratemaking in Illinois: The Transition to Competitive Markets

For the past several decades, utility regulation at the state level dealt with secure local markets and truly captive customers. A regulatory compact flourished that offered reasonable prices to customers, while guaranteeing the monopolist the opportunity to earn a fair rate of return on prudently incurred investments.

SEC Calls for PUHCA Repeal

The Securities and Exchange Commission's Division of Investment Management has proposed repeal of the Public Utility Holding Company Act of 1935 (PUHCA), with consumer safeguards preserved and transferred to the Federal Energy Regulatory Commission (FERC). Safeguards would include state access to holding company books and records, federal audit authority, and oversight of affiliate transactions.

Success is in the Details: Rationalize, Organize, and Plan

Any executive who has gone through a merger, however well planned and executed, knows that it is a challenging process. Two essential ingredients are required before merger discussions can proceed from the initial "what if" stage to agreement on all critical and strategic issues. These ingredients must be developed by the chief executive officers through face-to-face meetings and a combination of intuitive response as well as specific examination of strategic issues.

Cal. GOP Pushes for Energy Resource Diversity

Eleven of California's Republican Congressmen have thrown their weight behind Gov. Pete Wilson

(R-CA) in a letter attacking the Federal Energy Regulatory Commission's (FERC's) February 22 decision that the California Public Utility Commission's resource auction violated the Public Utility Regulatory Policies Act in failing to consider all sources in setting avoided costs. The letter opposes what it labels the FERC's attempt to overturn California's Biennial Resource Plan Update (BRPU).

Making it Work: The Goal is Greater Shareholder Value

While the intensity of management activity was very high throughout the merger planning process, it was generally well ordered, in large measure because our Corporate/ Utility Transition Team and 16 sub-teams formed an effective vehicle for managing the planning process.

The Transition Team was given less than one year from the July 27, 1994, merger announcement date to plan the implementation of the merger.

FERC Wants Rolled-in Pricing for Systemwide Benefits

The Federal Energy Regulatory Commission (FERC) has issued a policy statement requiring

rolled-in pricing for new pipeline facilities where the benefits to the system are proportionate to the rate impact on existing customers (Docket No. PL94-4-000). In the past, the FERC made cost-recovery pricing decisions during the first rate case after the facilities were constructed. Now, the FERC will make its determination when the certificate is issued.

Whither PUHCA: Repeal or Re-Deal?

On a purely intellectual level, it is difficult to justify the Public Utility Holding Company Act of 1935 (PUHCA). Sixty years after passage, PUHCA has become an anachronism (em a fact well articulated in comments filed in response to the Concept Release on the modernization of the Act issued last November by the Securities and Exchange Commission (SEC).1 More recently, the SEC's Division of Investment Management actually recommended a conditional repeal (see sidebar).

Capacity Release Standards Issued

On May 31, the Gas Industry Standards Board (GISB) circulated for industry review and comment proposed electronic standards for capacity release. The proposed standards are based on the work of the Federal Energy Regulatory Commission (FERC) electronic bulletin board (EBB) working group, and include those formally adopted by the FERC in Order 563. GISB added easy implementation methods and expanded the definitions of the information requirements. It also included enhancements that the FERC EBB working group plans to file for FERC review in the near future.

Commentary: Pro & Con

Ferd. C. Meyer

Senior V.P. & General Counsel

Central & South West Corp.

While I agree wholeheartedly with Mr. Hawes's conclusion that outright repeal of the 1935 Act (PUHCA) is needed, I disagree with his conclusion that the odds are currently against repeal.

The general enthusiasm for deregulation in Congress and the Administration (as noted by Mr. Hawes), and the compelling case for repeal, will, I believe, overcome arguments opposing repeal of a statute that is the embodiment of unnecessary and burdensome regulation.