Fortnightly Magazine - August 1996

KCP&L, UtiliCorp Fight Hostile Takeover

Kansas City Power & Light Co. (KCPL) and UtiliCorp United Inc. (UU), which announced plans to merge on January 22, have amended their merger agreement in response to a hostile takeover attempt by Western Resources, Inc. The revised terms create a new KCPL subsidiary, which would be merged into UU. The resulting company would then be merged with KCPL to form the combined company. UU shareholders would receive one share in the merged company for each UU share held. KCPL shareholders would continue to hold their existing KCPL shares.

Penn. Upholds Gas-cost Incentive Program

The Pennsylvania Commonwealth Court has upheld a ruling by the state Public Utility Commission (PUC) implementing a three-year, performance-based, gas-cost incentive program for Columbia Gas of Pennsylvania, Inc., a local distribution company (LDC). The program compares LDC spot-market purchases to the New York Mercantile Exchange (NYMEX) average, sharing any savings between the company and ratepayers. The court rejected allegations that state law forbids recovery in excess of prudently incurred actual costs.

PP&L Resources Seeks Piece of SWEB

Power Markets Development Co., a subsidiary of PP&L Resources, Inc., is negotiating to acquire a minority interest in British electric distribution company South Western Electricity Board (SWEB). It has submitted a proposal to purchase an interest in Southern Investments-UK, the holding company for SWEB, from Southern Electric International (SEI), which acquired SWEB last fall. Should the purchase go through, SEI intends to maintain majority ownership and management control of SWEB. t

Lori A. Burkhart is an associate legal editor of PUBLIC UTILITIES FORTNIGHTLY.

Court Considers Inflation Adjustments, Advertising Costs

The Pennsylvania Commonwealth Court has asked the state Public Utility Commission (PUC) to explain 1) why it disallowed a substantial portion of advertising costs in setting rates for National Fuel Gas Corp., a local distribution company (LDC); and 2) why it had rejected the LDC's request for a separate inflation adjustment of 2.58 percent for 17 cost elements.

The court found the PUC's rationale (em that the LDC's advertising was "in essence targeted to seek and retain load" (em insufficient, since recovery of costs associated with similar advertisements had been allowed in


Professor Peter Navarro, who teaches economics and public policy at the University of California at Irvine, writes in the Harvard Business Review (January-February 1996) that "[t]he deregulation of the electric utility industry represents an important opportunity to enhance the country's competitiveness and improve the standard of living for its citizens. ...

N.C. Assigns New Gas-service Areas

The North Carolina Utilities Commission (NCUC) has made preliminary assignments of unfranchised gas-service areas to local distribution companies (LDCs), pursuant to a 1995 state law. An earlier NCUC order sought applications from LDCs (see, Re Certificates of Public Convenience and Necessity for Natural Gas Service, 164 PUR4th 591 (N.C.U.C. 1995)).

First Nonjurisdictional Utility Uses Order 888 "Safe-Harbor"

The Federal Energy Regulatory Commission (FERC) on May 29 found that a nonjurisdictional utility's voluntary open-access tariff, with certain modifications, would meet the electric transmission comparability standards established by Order 888. In the first case of its kind, the South Carolina Public Service Authority (SCPSA) has agreed to satisfy the reciprocity requirement that it offer nondiscriminatory transmission services to obtain open-access service from public utilities (Docket No. NJ96-1-000).

SCPSA submitted the open-access tariff before Order 888 came out.

Utility Rate Filings Owe No Explanation to Investors

The U.S. Court of Appeals for the Ninth Circuit has rejected claims that Washington Energy Co., corporate parent of Washington Gas Co., a local distribution company (LDC), committed securities fraud by failing to fully explain that its current application for a rate increase was based in part on expense requests and accounting methods rejected by state regulators in the past.

Order 888 Petitions Strong on Stranded Costs

About 90 parties have filed petitions seeking changes to Order 888. Claiming "errors," the National Association of Regulatory Utility Commissioners (NARUC) asked the Federal Energy Regulatory Commission (FERC) to reverse its assertion of:

s Jurisdiction over unbundled retail transmission services

s "Primary" authority over retail stranded-cost recovery when retail consumers convert to wholesale

s "Backstop" authority to provide stranded-cost recovery when an end user changes power suppliers under a state-established retail wheeling system.

Michigan Approves LEC Rate Restructuring

The Michigan Public Service Commission (PSC) has authorized Ameritech Michigan, a local exchange carrier (LEC), to restructure its rates to comply with a new state law forbidding LECs to charge less than the total-service, long-run incremental cost for each local exchange service offered. The LEC claimed that it began with basic services because prices for that segment of the market had been set artificially low for customers in rural areas of the state.