This fight is for the heart and soul of regulation everywhere. The Federal Energy Regulatory Commission (FERC) won the first round on February 22, but I think there's more to come.
The fight involves incentives for nonutility generators (NUGs). It also touches on PURPA (em the Public Utility Regulatory Policies Act of 1978 (em which guarantees a market to cogenerators or power producers (QFs) who qualify. But more important, this battle involves regulatory philosophy.
How risky are utility investments today? Regulators have always faced this question when setting the return component of rates under traditional rate base/rate of return regulation. With major industry restructuring looming, risk issues have become proportionately more important and complex. California regulators, for example, have increased the return for the state's electric utilities to account for investor worries over the pace of restructuring in the "Blue Book" proceeding.
(A.G.A.) forecasts a 3.4-percent increase in natural gas use for 1995, to 22.5 quadrillion British thermal units (quads) from 21.7 quads in 1994. "Such an increase would continue an eight-year trend that has seen natural gas consumption rise nearly 30 percent since 1986," Michael Baly, A.G.A. president, noted in a presentation to New York securities analysts.
The California Public Utilities Commission (CPUC) plans to issue interim rules in June 1995 allowing competitors to seek authority to offer local telephone service in the state. (The CPUC also recently completed a plan to open the "local toll" market to competition.) The CPUC directed all interested parties to seek a settlement of the issues arising under its plan to move the local market to full competition by 1997.
The California Public Utilities Commission (CPUC) has approved increases in the rate of return on equity (ROE) for the state's largest energy utilities, citing increasing interest rates and perceptions of risks in the electric industry. The CPUC approved increases of 70 to 120 basis points above the 1994 baseline ROE figure of 11 percent.
It explained that since utilities' ROEs were reduced as interest rates dropped, they should increase with the general cost of capital.
Southern California Edison (SCE) has asked the Federal Energy Regulatory Commission (FERC) to halt the state's Biennial Resource Plan Update energy auction (BRPU). SCE charges that the California Public Utilities Commission (CPUC) violated the Public Utility Regulatory Policies Act (PURPA) and FERC regulations by reinstating the auction late last year.
SCE believes that the auction, which requires California utilities to enter purchased-power contracts, could increase its potential stranded costs by up to $4 billion (in nominal dollars).
Citing credit uncertainties stemming from impending deregulation, Moody's Investors Service has posted negative ratings outlooks for the U.S. electric, telecommunications, and natural gas industries (with the exception of the pipeline segment). Moody's acknowledges, however, that the impact of deregulation will depend on market maturity, relative cost structure, degree of integration, and regulatory flexibility.
The California Public Utilities Commission (CPUC) has decided to adopt a "wait and see" approach in general rate proceedings for utilities affected by its generic industry restructuring case. Southern California Edison Co. asked the CPUC to postpone ruling on marginal cost, rate design, and cost-allocation issues in its 1995 general rate case until it issues a policy order in the restructuring proceeding.
The California Public Utilities Commission (CPUC) has reaffirmed an earlier ruling permitting telecommunications utilities subject to price-cap regulation to use accrual accounting for post-retirement benefits other than pensions (PBOPs) under SFAS 106. It also warned that it may change its existing policy, which allows recovery of the costs of the accounting change as an exogenous cost under the price-cap form of regulation. The CPUC explained that "strong arguments can be made" that PBOP costs are within the utilities' control and simply normal costs of doing business.