ATTACHMENT 9 RESPONSE TO TRANSITION COST QUESTIONS 1. In broad terms, how does the existing "regulatory compact" affect treatment of uneconomic assets and obligations under a different regulatory regime? Because utility generation assets and related regulatory obligations were found reasonable under the existing regulatory structure, we must provide that the utility's shareholders with adequate protection against prospective losses. Therefore, we must allow utility shareholders to be made whole for prospective losses which would occur absent any action to institute a mechanism such as a competitive transition charge. 2. Should the utilities' shareholders take any risk for uneconomic costs? If so, how? If so, which costs? Yes. Utility shareholders would take on risks in two ways under our proposal. First, shareholders would bear risks of competition for those generation assets which would compete for entry into the wholesale pool. Second, shareholders would bear the risks associated with the remaining utility related to the performance-based ratemaking structure. 3. How does the allocation of risks for uneconomic costs affect the ability of nonutility producers to compete in a restructured environment? Our proposal creates a level playing field for nonutility producers through the merit-order bidding system to be used by the wholesale pool. Transition costs would be unbundled and separately charged on customer bills. 4. Should the Commission establish a recovery mechanism that promotes competition and more efficient utility operations immediately? Yes. Immediately upon implementation of the wholesale pool, our proposal promotes wholesale competition through the pool and allows virtual direct access through financial contracts. Further, the proposal continues our implementation of performance-based ratemaking for the remaining utility functions, and separates out the recovery of uneconomic costs so as to allow a level playing field for nonutility producers. 5. Should the Commission accelerate recovery of uneconomic costs? No. Uneconomic cost recovery should not in and of itself increase rates; all ratepayers should receive the benefits from a competitive generation market and have the opportunity to receive lower rates than those paid today. 6. If the utilities take some forecasting risk for recovery of uneconomic assets, what should be the period of the forecast? We are requesting comments from parties on the forecasting methodology. 7. Should the Commission require utility divestiture of generating costs? If so, how would the Commission accomplish that? No. However, disaggregation of most utility generation assets would be required in order to achieve a level playing field. Disaggregation could involve divestiture of these assets. We request comments from parties on the appropriate disaggregation methodology. 8. Should the Commission require utility divestiture of transmission assets? If so, how would the Commission accomplish that? We propose to disaggregate transmission and distribution assets. We request comments from parties as to how to accomplish this. 9. Should the Commission develop a CTC or other ratemaking mechanism for transmission facilities that become uncompetitive? Not at this time. 10. What are the appropriate components of the CTC? Should non-generation costs be included? That is, should customers who purchase electricity from nonutility suppliers pay for such costs as those associated with QF contracts, DSM, CARE, post-retirement benefits other than pensions (PBOPs), undercollections in fuel balancing accounts and deferred taxes? The CTC should be the mechanism to collect uneconomic costs associated with the uneconomic portion of utility generation assets, QF contracts, and regulatory obligations associated with generation. Other utility obligations should be considered separately. 11. How should nuclear facilities that have alternate ratemaking mechanisms be treated for purposes of estimating uneconomic costs or assessing a CTC? These facilities should be treated in accordance with applicable settlement agreements, or under a performance-based ratemaking system. The pool price, as determined by the competitive merit-order bidding system, would be used to calculate the energy costs for nuclear facilities, and any costs above the imputed pool revenues agreed to through alternative ratemaking mechanisms would be recovered through the CTC. 12. Should the estimates of uneconomic costs use the same assumptions for utility plant and QF contracts? No. Uneconomic costs associated with QF contracts (costs above the price established through the pool) should be collected through the CTC. 13. Should the CTC include operating costs of utility plants and other future costs? No. The CTC should be based on market considerations (or proxies) of value compared to book value. 14. If the utilities do not take any risk for uneconomic costs, should they earn a return on sunk costs associated with generation assets? No, although some sunk costs may be recovered as specified in settlement agreements for nuclear facilities. Sunk costs for other plants currently owned by utilities may be recoverable for the future utility or non-utility owner, depending on the economics of the plant in the competitive wholesale pool environment. 15. What is the appropriate discount rate for estimating uneconomic costs? We seek comments from parties on the appropriate forecasting methodology. 16. What are the appropriate assumptions in estimating market prices? We seek comments from parties on the appropriate forecasting methodology. 17. What are the appropriate load factors to use in developing uneconomic costs? We seek comments from parties on the appropriate forecasting methodology. 18. Should the Commission use the existing "EPMC" method of allocating uneconomic costs? If not, what method should it apply? The proposal uses the EPMC method. This method provides a more equitable allocation among all customer classes. 19. Should the Commission change costs allocation in the future if circumstances change? This would remain to be seen, depending upon what the changes in the circumstances were. However, EMPC remains the first choice. 20. Should the Commission use a different cost allocation method if the utilities divest their generation assets? No. 21. Should the CTC be "unbundled" on utility bills? Yes, the CTC should be a surcharge percentage on the total electric distribution company bill. This approach enables customers to compare energy prices among other competing electric generators, in order to select a supplier. 22. Should the CTC be based on usage of the transmission system or distribution system? The CTC should be levied as a surcharge percentage on the total electric distribution company bill. 23. If the CTC is added to transmission charges, how will the Commission seek approval of these charges, and their design, from FERC? The total electric distribution company bill surcharge method should not entail any jurisdictional issues. 24. Should customers of jurisdictions that establish municipal utilities continue to pay the CTC? If so, how? Customers of the remaining electric distribution company should pay the CTC. 25. Should customers who leave the utility territory continue to pay the CTC by way of an exit charge or contract? Customers of the remaining electric distribution company should pay the CTC. 26. Should self-generators pay the CTC and, if so, how would those charges be designed and imposed? Customers of the remaining electric distribution company would pay the CTC. (END OF ATTACHMENT 9)