Message-ID: <24528690.1075860379946.JavaMail.evans@thyme> Date: Mon, 16 Oct 2000 06:54:00 -0700 (PDT) From: mary.hain@enron.com To: christi.nicolay@enron.com, robert.frank@enron.com, james.steffes@enron.com, harry.kingerski@enron.com, joe.hartsoe@enron.com, sarah.novosel@enron.com, donna.fulton@enron.com, paul.kaufman@enron.com Subject: Re: Stranded costs Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Mary Hain X-To: Christi L Nicolay, Robert Frank, James D Steffes, Harry Kingerski, Joe Hartsoe, Sarah Novosel, Donna Fulton, Paul Kaufman X-cc: X-bcc: X-Folder: \Mary_Hain_Aug2000_Jul2001\Notes Folders\All documents X-Origin: Hain-M X-FileName: mary-hain.nsf I have tracked down an old memo written by the Chief Counsel of Federal Affairs for Niagara Mohawk, summarizing positions taken in requests for rehearing of Order No. 888 to close the bypass loophole. She discusses how there would be many efforts to municipalize utilities' distribution systems in New York and how NiMo would be meeting with the FERC Staff to tell them how much money they might lose if they couldn't figure out a way to recover these costs. Maybe whoever is researching this should focus on FERC cases involving New York utilities. To: Mary Hain/HOU/ECT@ECT cc: Subject: Re: Stranded costs I needed a response!! Thanks. Mary Hain 10/10/2000 06:53 PM To: Christi L Nicolay/HOU/ECT@ECT cc: Robert Frank/NA/Enron@ENRON, James D Steffes/NA/Enron@Enron, Harry Kingerski/NA/Enron@Enron, Joe Hartsoe/Corp/Enron@ENRON, Sarah Novosel/Corp/Enron@ENRON, Donna Fulton/Corp/Enron@ENRON, Christopher F Calger/PDX/ECT@ECT, Chris H Foster/HOU/ECT@ECT, Paul Kaufman/PDX/ECT@ECT Subject: Re: Stranded costs I think I know what you're talking about. I know you weren't asking for a response but I can give a few quick observations based on my well highlighted Order No. 888 and 888-A (without any review or knowledge of subsequent cases). In Order No. 888, FERC allowed stranded costs to be directly assigned to the departing customer either through a transmission surcharge or an exit fee. Par. 31,036 at 31,797. So in general, customers can't avoid paying for stranded costs simply by bypassing. FERC allowed utilities to file for recovery of stranded costs for requirements contracts executed on or before July 11, 1994, if they did not contain explicit stranded cost provisions or provisions prohibiting stranded cost recovery. Id. at 31,810. There appears to be a loophole that, if applicable, would allow bypass. For contracts that don't contain an explicit stranded cost provision and that allow the customer to terminate service upon notice, if the customer gives notice that it would no longer purchase its requirements from the incumbent utility, the FERC does not allow the utility to amend the contract to add a stranded cost provision. However, in that case, the utility could seek to recover stranded costs through its rates for transmission services to the customer provided it could rebut the presumption that it had no reasonable expectation of continuing to serve. Id. at note 679. Accordingly, the customer could avoid the stranded costs if it could bypass transmission service. If the loophole does not apply (because the contract does not have such a notice provision), the customer could file a Federal Power Act Section 206 proceeding arguing that the contract is no longer just and reasonable, wherein the customer would have the burden of proof. But, if they do, the incumbent utility would still have an opportunity to file for stranded cost recovery but it must do so in that customer's Section 206 proceeding. Order No. 888-A, Par 31,049 at 30,400. Likewise, if the utility has already filed for recovery of stranded costs, the customer must make any Section 206 claim in that case. Id. The FERC also decided that both FERC and the states have the authority to address stranded costs that result when retail customers obtain retail wheeling and that utilities are entitled to an opportunity to recover their prudently incurred costs. However, FERC will only entertain requests to recover stranded costs caused by retail access if the state PUC does not have authority to address stranded costs when the retail wheeling is required. Order No. 888 at 31,824-25. I don't know anything about what the individual states have done. I hope this helps. To: Robert Frank/NA/Enron@ENRON cc: James D Steffes/NA/Enron@Enron, Harry Kingerski/NA/Enron@Enron, Joe Hartsoe/Corp/Enron@ENRON, Sarah Novosel/Corp/Enron@ENRON, Donna Fulton/Corp/Enron@ENRON, Mary Hain/HOU/ECT@ECT Subject: Re: Stranded costs Sarah and I will check on this because Enron did some research on it several years ago. However, the commercial people would like to market this possibly to others, not simply wholesale customers. What happens at the retail level on stranded costs? Thanks. Robert Frank@ENRON 10/10/2000 01:59 PM To: Christi L Nicolay/HOU/ECT@ECT cc: James D Steffes/NA/Enron@Enron@ECT, Harry Kingerski/NA/Enron@Enron@ECT, Joe Hartsoe/Corp/Enron@ENRON@ECT, Sarah Novosel/Corp/Enron@ENRON@ECT, Donna Fulton/Corp/Enron@ENRON@ECT, Mary Hain/HOU/ECT@ECT Subject: Re: Stranded costs This is a FERC issue because its would involve wholesale stranded costs. Joe and Sarah will correct me if I'm wrong, but I believe Order 888 provides that if the muni (or other wholesale customer) is able to bypass the transmission facilities of its former provider (and I believe there is dispute over what constitutes bypass) then they may be able to avoid stranded cost liability. From: Christi L Nicolay @ ECT 10/10/2000 01:15 PM To: James D Steffes/NA/Enron@Enron, Robert Frank/NA/Enron@Enron, Harry Kingerski/NA/Enron@Enron, Joe Hartsoe/Corp/Enron@ENRON, Sarah Novosel/Corp/Enron@ENRON, Donna Fulton/Corp/Enron@ENRON, Mary Hain/HOU/ECT@ECT cc: Subject: Stranded costs I had a question from the commercial people about whether a muni could build a new interconnection to another utility to avoid stranded costs of the incumbent utility. While the particular question happened to be in Indiana (and I sent them to Janine), they were stating that this stranded cost avoidance is something that they may want to tout as a benefit of building new interconnections. I think that we would look initially to the state restructuring law to see if this is specifically addressed. However, I recall someone saying that there may be a constitutional question as to whether an incumbent utility can charge stranded costs to someone who leaves its system, but I don't think this has been addressed at the appellate or Supreme Court level. I want to make sure that our commercial people know what is the status of the law in this area. I would appreciate any help on this. Thanks.