Regulation

Indiana has enacted a new statute giving authority to state regulators to approve flexible regulation for energy utilities.

Suddenly, the U.K. electric industry holds more than academic interest for U.S. utilities. Up to now, it did not appear that many American utility executives had studied the British privatization. But the ongoing attempt at takeover of the U.K.'s South Western Electricity (SWE) by its American counterpart, The Southern Co., ups the ante considerably. If it comes to pass, Southern's acquisition of SWE will tap directly into the U.K.

Last year was pivotal for nuclear power. On May 13, 1994, the board of directors of the Washington Public Power Supply System (WPPSS) voted 9-4 to terminate reactors WNP-1 and WNP-3, triggering a dismantling of the two mothballed reactors, both about 70 percent complete. For ratepayers in the Pacific Northwest, the decision offered no relief from bills for construction of the two plants (em recently estimated at about $350 million per year for the next 24 years1. In many ways, WPPSS and its troubled history is a microcosm of the U.S.

Genuine competition - with greater efficiency and bona fide service improvements - is not unwelcome at most utilities. But spurious competition, with inconsistencies among players in the rules of the game, is a cause of frustration for utilities and customers alike.

Regulation in the natural gas industry is evolving rapidly. And on the electric side, the current flurry of activity is likely to draw on recent gas industry experience and move even faster.

Commission (CPUC) moved a tortured step closer to deciding how it will reform its regulation of the

state's electric utilities when it

adopted a Proposed Policy Decision in its proceeding on competition by a 3-to-1 vote on May 24. The Proposed Decision retreats from the free-market approach the CPUC took when it presented its "Blue Book" proposal in April 1994.

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.

federal-state tensions currently affecting energy regulatory policy in America.

Sen.

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).

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.

In the alphabet soup of regulatory acronyms, performance-based ratemaking (PBR) may help shape events well into the next century. At present, PBR is being implemented, or considered by, public utility commissions (PUCs) in over 20 states. By 2000, PBR is likely to reach most of the 50 states as well as the Federal Energy Regulatory Commission. The pressures of a global economy have raised the stakes.