Regulatory Changes by the Federal Energy Regulatory Commission


FERC Orders 888 and 889

On April 24, 1996, FERC issued Orders 888 and 889, which encourage wholesale competition.  The primary objective of these orders is the elimination of monopoly power over the transmission of electricity.  To achieve this objective, FERC requires all public utilities that own, control, or operate facilities used for transmitting electric energy in interstate commerce to:

  • file open access nondiscriminatory transmission tariffs containing minimum terms and conditions,
  • take transmission service (including ancillary services) for their own new wholesale sales and purchases of electricity under open access tariffs,
  • develop and maintain a same-time information system that will give existing and potential  users the same access to transmission information that the public utility enjoys, and
  • separate the transmission from generating and marketing functions and communications.

Stranded Costs

Recovery of stranded costs is perhaps the most contentious issue confronting regulators in promoting competition.  Stranded costs (or assets) are costs that have been prudently incurred by utilities to serve their customers but cannot be recovered if the consumers choose other electricity suppliers.

One study has estimated current stranded assets at $88 billion, and estimates of projected stranded costs range from $10 billion to $500 billion.

In its Order 888, FERC reaffirmed "that the recovery of legitimate, prudent and verifiable stranded costs should be allowed." FERC's directive is grounded in the belief that the recovery of stranded costs "is critical to the successful transition of the electricity industry to a competitive, open-access environment."

For this purpose, direct assignment of costs to departing customers was selected as the appropriate method for recovery of stranded costs.



 

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