Moody's Investors Service has confirmed the debt ratings of California's three largest IOUs (em Pacific Gas and Electric Co. (PGE: Sr. Secured A2), San Diego Gas and Electric Co. (SDG&E: Sr. Secured A1), and Southern California Edison Co. (SCE: Sr. Secured A2) (em following passage of AB 1890, the California legislature's restructuring bill.

Moody's says that legislative endorsement of stranded-cost recovery is a favorable development for utility creditors, but notes that ultimate recovery depends on regulatory approval.

The U.S. District Court for New Mexico has ruled that the City of Las Cruces, NM, failed to meet the burden of proof required to take over through condemnation the electric facilities owned by El Paso Electric Co. (EPE) [City of Las Cruces v. El Paso Electric Co., No.

Investor-owned utility (IOU) members of the Energy Association of New York have joined in a lawsuit against the New York Public Service Commission (PSC) and its May 16 Competitive Opportunities decision, which called for a wholesale competitive market in 1997 and introduction of retail access in 1998.

The IOUs claim the lawsuit does not challenge the introduction of competition to New York's electric utility industry, but targets the "vague language" and incomplete guidelines.

The Massachusetts Attorney General and the New England Electric System (NEES) have unveiled a plan to restructure electric utilities in Massachusetts (em "Consumers First."

The plan would allow all residential and business customers of investor-owned utilities to choose their electric supplier on January 1, 1998, and mandates that all customers receive a minimum 10-percent reduction on monthly bills. Existing purchased-power contracts would be honored, and approved utility investments recovered, subject to independent market valuations.

Entergy Corp. signed a letter of intent to acquire National Security Service, a security monitoring company that operates in North Carolina and Alabama. Entergy claims the acquisition places it among the top alarm companies in the country.

K Energy, Inc. has begun "Simple ChoiceSM" (em energy, communications, and "infotainment" services in one package, paid with one bill.

The Nuclear Regulatory Commission has a five-member slate for the first time in over three years. Recently sworn in were Nils J. Diaz and Edward McGaffigan, Jr. Diaz was a professor of nuclear engineering sciences at the University of Florida; McGaffigan, a former foreign service officer, was a senior science and defense advisor to U.S. Sen. Jeff Bingaman (D-NM). William T. Russell, NRC director of nuclear reactor regulation (NRR), retired September 30. Frank J.

About a year ago I stuck my neck out to predict that electric utilities might end up with stranded investment in transmission lines. I suggested that financial commodities trading-longs, shorts, and hedges-might supplant physical product movements. It's happened in natural gas, where the interstate pipelines have suffered from "decontracting" and capacity "turnback"-a phenomenon that has tended to move from West to East.

The California legislature had taken an interest in electric restructuring from early on in the debate. Through policy committees of the Assembly and Senate, it had signaled that the CPUC would need the blessing of the lawmakers before it would be allowed to pursue the ideas spelled out in the commission's Final Policy Decision. Moreover, the December 1995 decision had drawn a divided reaction. Some parties had sought relief from the outcome of the December 1995 order.

Stranded-

Cost

Recovery: All FERC'ed Up

By Michael T. Maloney, Robert E.

McCormick, and Chad A. McGowan

The "lost-revenues" approach in Order 888 ignores the fact that cash flow drives

asset valuation . . .

. . . the key to measuring uneconomic investment.

Early on in the debate, the legislature had signaled the commission that it would need the blessing of lawmakers to pursue its agenda.This past August, during the waning days of a two-year session, the California Legislature unanimously passed a landmark bill to deregulate the state's $23-billion electric utility industry.

The new law, known as "Assembly Bill (AB) 1890, largely reaffirms the broad outlines of the December 1995 Final Policy Decision issued b