Fortnightly
NARUC in Reno: Gambling on Competition
January 01, 1995By Phillip S. Cross
At the 106th Annual Convention of the National Association of Regulatory Utility Commissioners (NARUC) held in Reno, NV, on November 14-17, one message rang clear: State and federal regulators think they can manage competition.
That message shone through in a speech by Reed E. Hundt, chairman of the Federal Communications Commission (FCC) and close associate of Vice President Al Gore. Hundt had listened to the nation's voters in November's election. They wanted less regulation and he would deliver. To show his good faith, Hundt would rename the FCC the "F triple C" - that is, the "Federal Communications and Competition Commission."
Hundt's new "FCCC" would reconcile the call for smaller government with the need to protect consumers from monopoly abuses. Offering a bit of history, Hundt recounted how the FCC had moved swiftly to issue regulations allowing competitive access providers to achieve "virtual collocation" with local exchange telephone carriers after a federal court balked at the FCC's more strident physical collocation rule. He said that competition among telecommunications firms would create the best "information superhighway," with a slight push from government on the demand side.
More converts emerged from a separate presentation on restructuring in the electric industry. Kenneth Gordon, chairman of the Massachusetts Department of Public Utilities, called for retail wheeling to achieve full efficiency - but warned that regulators must first set up accessible and fairly priced transmission and distribution service. Pushed on the effects of retail wheeling, both he and President Fessler of the California Public Utilities Commission assured their audience that political realities would block any plan that brings cost savings only to one sector of the market.
Regulatory as well as political consequences of the move to competition were fully discussed. The NARUC had commissioned a briefing document on "stranded investment" - embedded costs generating costs (estimated at anywhere from $200 to $500 billion) that overhang market prices. The briefing paper was prepared by private attorney Scott Hempling, along with Kenneth Rose and Robert E. Burns from NARUC's National Regulatory Research Institute in Columbus, OH. The paper concludes that regulators should "prevent" stranded costs by not allowing customers to leave the system without paying for costs incurred on their behalf. It adds, however, that regulators need not protect utility shareholders from all economic risk. Hempling et al. acknowledge that a high level of cooperation between states and between state and federal regulatory bodies will be needed. In a floor resolution accepted by acclamation, NARUC acknowledged the stranded investment rulemaking at the Federal Energy Regulatory Commission (See, Recovery of Stranded Costs by Pub. Utils. & Transmitting Utils., Dkt. No. RM94-7-000, June 29, 1994 (F.E.R.C.). Nevertheless, NARUC's resolution maintains exclusive state authority to resolve the stranded investment issue.
A second resolution warned of troubles ahead for social programs. In its "Resolution on Competition, the Public Interest, and Potentially Stranded Benefits," NARUC declares that traditional franchise regulation has "encouraged" utilities to secure important benefits - including conservation and energy efficiency, research and development, environmental improvements, and rate designs - to promote economic development while meeting the needs of low-income consumers. The resolution concludes that regulators must protect these vital public benefits from becoming "stranded" in the new competitive market. t
Phillip S. Cross is an associate legal editor of PUBLIC UTILITIES FORTNIGHTLY.
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