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Potentially unlimited financial obligations without the opportunity for cost recovery

Now that we have your attention, the headline is from a Utility Dive article and refers to a New York law obligating utilities to compensate customers for extended service outages. On the face, the law makes sense: people can lose refrigerators full of food and medicines due to extended power outages. The concern comes from creating an obligation for the utilities to pay their customers, with no clearly defined method of cost recovery for the utilities. Understandably, open ended obligations are challenging to financially plan for, and thus the utilities want more clarity.

In a similar and somewhat parallel vein, the current effort to hurriedly draft NERC compliance standards for extreme winter weather has generators concerned. The joint FERC-NERC-RE report states that generation "should have the opportunity to be compensated for the costs of retrofitting their units... through markets or through cost recovery approved by state public utility commissions" (emphasis added). Generators are duly concerned that this recommendation will not be followed through, and the generators will be left to bear the costs. At this time, generators are hearing plenty about their potential obligations and are calculating the associated initial and recurring financial burdens, but there has been little to no information provided to the generators regarding efforts related to addressing cost recovery.

Building consensus among the generators to approve the draft standard will be challenging without some concrete evidence that the compensation aspect will be approved first, or at least in parallel.

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