A line-by-line case study of two high-priced portfolios, comparing fixed, variable and capital costs against forecasts of regional market prices.
A multi-billion-dollar wave of utility...
We begin the new year with a recap of the major rulings issued last year by state public utility commissions (PUCs).
Electricity took center stage as state commissioners began in earnest to examine rising competition in the power generation market. The seemingly endless number of privately sponsored seminars, conferences, and reports on the issue might suggest that regulators are following rather than leading on policy. But consensus remains far off. State PUCs are cautious (em carefully investigating retail wheeling and scrutinizing cost and service issues. This same caution shows up in the slowdown of ratepayer-subsidized conservation plans in several states in the face of excess capacity and rising energy costs.
Competition remained a focal point in telecommunications, with PUCs approving tentative openings in the local exchange market. While both natural gas and telephone utilities are farther along in reform, the level of regulatory activity has not diminished. If the past year is any guide, utilities can expect for some time to operate under prudence reviews, service standards, and least-cost planning rules. Regulators are still bound by legislation that requires rate protection for monopoly customers, while utilities continue to function under a duty to serve on demand.
Price-cap or incentive-based regulation methods are gaining converts in both energy and telecommunications markets to promote cost-cutting and other market efficiencies. Pricing flexibility is also now common in energy and telecommunications, where utilities can show competitive pressure. Nevertheless, where cost- of-service regulation has eased somewhat, regulators pick up the slack by policing the marketplace to ensure fair play among market participants.
Electricity (em Reforms Amid Hysteria
Regulatory reforms (em prompted by high power costs in some parts of the country (em range from retail wheeling programs to incentive ratemaking. Even so, new developments at the state level have turned up several roadblocks: 1) what to do about the utility obligation to serve; 2) how to maintain current subsidies for conservation and other social goals; and 3) how to allocate the costs of stranded investment?
State regulators and electric utilities have also struggled with the high-cost power contracts mandated under the Public Utility Regulatory Policies Act (PURPA) and state industrial planning policies. Cogeneration and renewable-resource power contracts that looked acceptable a few years back now place utilities at a disadvantage in meeting new sources of competition. Here, again, California exemplifies the battle (em electric utilities complained that renewable-resource contracts bid under the PUC's Biennial
Resource Plan Update (BRPU) would saddle ratepayers with millions of dollars in additional purchased-power costs, just when the state could least afford it. The battle continues, but Southern California Edison announced late last year that it had negotiated an agreement to replace 495 megawatts (MW) of mandated purchases with a contract for 375 MW of wind-generated power at a substantially lower price than the mandated BRPU energy auction.
s Retail Wheeling. On April 20, 1994, the California PUC issued a sweeping proposal to restructure the state's electric power industry. The plan makes "direct access" to power supplies (retail wheeling) for all consumers the centerpiece of reforms aimed at tapping the price-leveling powers of