Avoiding the Mistakes of FERC's and California's Full Stranded-Cost Recovery
In the first two major electricity restructurings, state and federal regulators have exaggerated the supposed regulatory bargain. As with natural gas, shared responsibility for stranded power supply costs is more appropriate. Defining the degree of sharing requires a more carefully developed regulatory record than has been seen in any deregulation to date.
John B. McArthur
I. The Problem of Full Recovery
The biggest problem in electricity deregulation to date is deciding the right treatment of current assets that are not needed in the new, competitive generating market. "At least in the short run," such stranded costs present the "most critical regulatory issue" facing the industry. 1 Unfortunately, the first two serious forays into deregulation have brought rules that were intended to pay utilities for their stranded investment mistakes, 2 even though these mistakes are what produced the need for deregulation in the first place.
n Order No. 888, the Federal Energy Regulatory Commission (FERC) abandoned the "equitable sharing" it had devised for stranded natural gas costs. Equitable sharing made interstate gas pipelines pay for many of their gassupply mistakes. In electricity, the Commission turned instead to three principles that it says require it to make sure that electric companies recoup billions of dollars in uncompetitive assets: an allegedly very
John McArthur is an attorney who
currently is enrolled in the Ph.D. program in public policy at the University of California at Berkeley. He also maintains a solo litigation practice with a heavy concentration on energy issues.