New Jersey

Citing concerns about gas price volatility, the New Jersey Board of Public Utilities has ruled that Public Service Electric and Gas Co. should maintain its existing annual fuel cost adjustment mechanism rather than shift to a monthly charge as originally proposed for its local gas distribution customers.

Under a settlement approved by the board, the LDC will have the option to impose the monthly charge on its general-service and large-volume customers.

The New Jersey Board of Public Utilities has issued its final master plan on electric restructuring, which could cut electric rates by 10 to 15 percent starting October 1998. The plan allows all customers to choose electric suppliers by July 2000.

The board now will submit "Restructuring the Electric Power Industry in New Jersey: Findings and Recommendations" to the governor and Legislature.

The plan would phase in retail choice, beginning with 10 percent of all residential, commercial and industrial customers, in October 1998.

The owners of General Public Utilities Corp. are planning either to sell or shut down Oyster Creek nuclear plant, because they claim the plant's above-market electric prices will not be competitive in an open market. The selling price would be set around $700 million.

According to GPU President and COO Fred D. Hafer, the electric generated at Oyster Creek costs the utility about 1 cent to 1.5 cents more per kilowatt-hour than the current market price for energy.

The Federal Energy Regulatory Commission and the Maryland Public Service Commission have approved the merger of Baltimore Gas and Electric Co. and Potomac Electric Power Co. to form Constellation Energy Corp.

However, the stiff terms for approval (em including mandatory rate cuts (em have prompted the utilities to claim they might abandon the merger.

More than a decade ago, working at the energy laboratory at the Massachusetts Institute of Technology, the late Fred Schweppe devised a novel scheme for pricing electric transmission. His solution? Do nothing. Simply ignore transmission.

And why policy on

stranded costs defies

a traditional legal or

economic analysis.

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.

Professor Shepherd sees selective price cutting as anti-competitive, but even a monopolist should be allowed to compete on price.

As the electric industry deregulates, state public utility commissions are asked increasingly to allow the local utility to offer price discounts to large-load customers who might otherwise turn to other sellers. So far, nearly all the PUCs faced with this issue have agreed that such discounts are beneficial: They help retain large-load customers, who help pay the utility's fixed costs.

Competitors would have LDCs quit the merchant function and restrict

their dealings with affiliated marketers. But is that really good for consumers?

Those who would restrict business dealings between natural gas local distribution companies and their marketing affiliates (em going so far as to ban LDCs from the merchant function (em often overlook one critical downside: what those rules would mean for the small gas customer.

A regulatory policy for a code of conduct and LDC merchant service must improve the position of consumers.

Public Service Electric & Gas Co. has asked the New Jersey Board of Public Utilities to impose mandatory environmental disclosure requirements on all power providers who wish to compete in the state's market.

Specifically, the utility wants an environmental consumer protection standard requiring all sellers planning to compete in New Jersey periodically to disclose their system-wide emission rates or that of the source from which power is produced.

Wall Street loves stranded costs. No kidding. For stockbrokers and underwriters accustomed to selling utility issues to widows and orphans, the prospect of asset-backed financing opens a whole new world. I'm talking here about "securitizing" stranded costs.

In a securitization, a trust takes beneficial title to utility assets (tangible or intangible) that have lost their value in the market, and sells "transition bonds" to a new set of investors, funneling the bond sales proceeds back to the utility and to its equity investors. Who pays the coupon? Why, it's the customer of course.