Fortnightly Magazine - May 15 1995

The bad news for qualifying facilities (QFs) continues. A high-profile project in the District of Columbia appears dead, but developers won a small victory when a federal court refused to stop a suit by the developers against municipal officials for damages connected with the regulatory barriers erected by the city at the behest of concerned citizens. More damaging was the recent decision of the Massachusetts Supreme Court requiring reluctant regulators to review the ceiling price set for QF purchases in a recent bid conducted by Boston Edison Co.

The Louisiana Public Service Commission (PSC) has turned down a request from South Central Bell, a telephone local exchange carrier (LEC), to switch its form of regulation from the existing incentive-based rate plan to a pure price-cap plan. Under its proposed plan, the LEC would freeze rates for basic residential services for a three-year period, and then cap rate changes based on the rate of inflation. Rates for interconnection and nonbasic services would be market-based.

The Maine Public Utilities Commission (PUC) has decided to investigate the need for changes in existing regulations for water rates as a result of "drastically increased" water treatment, filtration, and supply costs. While rejecting calls for immediate changes in rate design, a shift to volumetric interclass cost allocation, and special low-income rate schedules, the PUC decided to open two separate inquiries to determine whether formal rulemakings were required.

Stranded costs are those costs that electric utilities are currently permitted to recover through their rates but whose recovery may be impeded or prevented by the advent of competition in the industry. Estimates of these costs run from the tens to the hundreds of billions of dollars. Should regulators permit utilities to recover stranded costs while they take steps to promote competition in the electric power industry?