NARUC CONSIDERS DISCUSSION PAPER ON AFFILIATE TRANSACTION/

NARUC CONSIDERS DISCUSSION PAPER ON AFFILIATE TRANSACTION/
COST ALLOCATION ISSUES FOR BPL
Tuesday, July 17, 2007

A discussion paper regarding BPL affiliate transactions and cost allocation issues was taken up by NARUC's Telecommunications Committee during the NARUC Summer Meeting today in New York. The discussion paper was prepared by NARUC's Staff Subcommittee on Accounting and Finance at the request of the Telecommunications Committee. With regard to affiliate transactions, it examines the approach by several states, including Michigan, California, New York and Texas, and "support[s] the early trend that appears to be developing of allowing the provision of commercial BPL services through a subsidiary or third party, rather than having the costs of operations mixed in with the cost of regulated utility operations." With regard to cost allocations, the discussion paper also explores possible cost methodologies, including historical (i.e. embedded) costs. It "suggests that, at a minimum, the direct, out of pocket costs incurred by the electric utility to allow the provision of BPL be identified in all relevant regulatory settings. Beyond the directly, attributable costs, common ratemaking practices suggest that fully allocated embedded costs would be the next most useful in regulatory settings." Ultimately, the discussion paper concluded by recommending that "regulators first look to established solutions, such as those recommended in this discussion paper, to address problems that appear to be new, but turn out to be familiar issues cloaked in new costumes." During today's Telecommunications Committee meeting, the Committee decided to acknowledge receipt of the discussion paper as part of its consideration of resolution EL-3(TC-5). The resolution and the discussion paper can be viewed on the NARUC Web site here.