Fortnightly Magazine - September 15 1996


ADFITs: Not a Phantom

In his article, "Phantom Taxes: The Big Payback" (Courts and Commissions, 7/1/96, p. 41), David Wise argues that utility recovery of stranded facility costs should be reduced by the balance of accumulated deferred income taxes (ADFIT) attributable to stranded costs.

Long-distance Rates Must Track Access Charges

The North Carolina Utilities Commission (NCUC) has upheld an earlier ruling (issued May 2) that required interexchange carriers (IXCs), on a dollar-for-dollar basis, to reduce rates for basic intrastate message telephone service (MTS) so as to flow through to MTS customers certain reductions in local telephone access charges.

It denied requests by the IXCs to share the rate reductions with all switched-access customers, rather than target the rate cuts to basic toll services only.


XENERGY, Inc., an energy services company, began supplying power to 13 companies in midsummer as part of Massachusetts Electric Co.'s restructuring plan. The companies belong to the Massachusetts High Technology Council. XENERGY will supply 40 Mw of power per year. Projected annual savings to the companies run about $2.2 million, or 14 percent, a drop of 2¢/Kwh. The wholesaler is NYSEG Bulk Power Sales Group; Mass. Electric will provide customer and distribution service. A residential pilot is scheduled to begin January 1.

Rules Issued for Electric Rate Discounts

In a case involving San Diego Gas & Electric Co. (SDG&E), the California Public Utilities Commission (CPUC) has OK'd new guidelines for preapproved contracts designed to obtain, attract, or retain new electric customers. The guidelines also apply to contracts designed to stem self-generation or avoid customer flight out of state.

The CPUC also will allow SDG&E to negotiate a rate discount contract with any customer, for any purpose, as long as shareholders absorb 100 percent of revenue losses and rates reflect a price floor based on customer-specific marginal cost.

NARUC Loses an Exec, Makes Some Resolutions

One of the most influential organizations in utility regulation is seeking a new executive after its director of more than 30 years resigned in the midst of strategic planning that could change the group's future.

Paul Rodgers, executive director and general counsel for the National Association of Regulatory Utility Commissioners (NARUC), made his July 25 resignation effective August 9. He was given two year's pay as severance.

Charles D. Gray, assistant general counsel, has taken over as acting general counsel.

Board Mulls Base Line for Incentive Rates

A recent ruling by the New Jersey Board of Public Utilities (BPU) has directed Public Service Electric and Gas Co., to show that customers will be better off under the company's newly proposed program for alternative regulation (the "New Jersey Partners in Power Plan"), than under traditional regulation.

Nevertheless, the BPU declined to set a rate base or rate of return to establish a starting point for rates under the new proposed plan.

Moody's: M&A Increases Bondholder Risk

A Moody's Investors Service report, Moody's Assesses Risk in Utility Combinations and Spin-Offs, finds that mergers and acquisitions (M&A) do not mitigate the higher business risk posed by electric deregulation. The report also claims that financial risk only declines to the extent that management uses merger-related savings to reduce leverage.

Utilities pursue mergers to boost shareholder returns; regulators approve mergers to secure benefits for customers, such as lower rates. Bondholders run a distant third.

Purchased Power: How Much n the Fuel Clause?

The North Carolina Utilities Commission (NCUC) has rejected a request by Duke Power Co. to recover as a cost of fuel some 90 percent of the price of bulk power purchased from Enron Power Marketing, Inc.

Instead, it allowed Duke to recover only 59 percent Enron purchases, the level of fuel costs Enron could verify by directly contacting the generating utilities. Nevertheless, it said it would not accept "hearsay" evidence on the share of costs attributable to fuel.

Northwest Utilities Form ISO

Seven electric utilities in the Northwest have formed an independent system operator (ISO), called "IndeGo," to coordinate their electric transmission. IndeGo will operate as a single control area, responsible for the operation of transmission-grid facilities carrying 230 kilovolts or more that are owned or directly controlled by the member utilities.

Local Exchange Resale: Two Views

Two recent decisions from Hawaii and Michigan illustrate some of the issues now arising on the question of resale of telephone service by local exchange carriers (LECs).

In Michigan, the state public service commission has directed the state's LECs to offer all basic local exchange services for resale in a nondiscriminatory manner to competitors and affiliates at wholesale rates. It defined "wholesale rates" as retail rates less the avoided costs to the LEC.