The other day I heard a short news item on National Public Radio that made me stop and think. The item ran something like this: "Maxwell House has announced it will cut the price of its loose ground coffee to reflect a drop in the coffee futures market several months out."
Wasn't that easy? Call it integrated resource planning in the espresso lane. Note what Maxwell House did not do. It did not solicit a demand forecast or run the PROMOD computer model. I bet the company didn't pay for an interest rate analysis or an avoided cost study, either. Or figure out the correlation between coffee consumption and economic growth.
Maxwell House inhabits a commodity market. Natural gas companies (pipelines, distributors, marketers) live there too. They're learning all about hedging (em the long and short of it. Eventually the electric industry will have to face the music. Caffeine all around.
Not Worth a Dime
With all the holiday rush at the end of last year, you may not have noticed: In mid-December the Federal Energy Regulatory Commission (FERC) issued its long-awaited policy statement on the decommissioning of hydroelectric dams. See, Project Decommissioning at Relicensing, Dkt. No. RM93-23-000, Dec. 14, 1994, 69 FERC 61,336. But they didn't fail to notice over at the American Public Power Association (APPA) or the National Hydropower Association (NHA), which both oppose the FERC action.
Hydroelectric plant decommissioning is a little like the stranded investment problem. But the origin is different. In the hydroelectric case, environmental factors threaten utility investment. Fish and wildlife are weighed against agriculture; ocean shipping vies against pleasure boating; stream flow battles flood control. The FERC must balance these interests under Federal Power Act section 10(a). Licenses must go to those projects "best adapted" to interstate commerce, water power development, protection and enhancement of fish and wildlife (including spawning grounds and habitat), and other uses, including irrigation, flood control, water supply, and recreation.
In its policy statement, the FERC asserted authority to require decommissioning if it decides a project should not be relicensed. That may entail simply shutting down the power operations or "tearing out all parts of the project, including the dam, and restoring the site to its pre-project condition."
The APPA has asked for a rehearing, alluding to a sort of regulatory compact not unlike the one said to justify cost recovery for nuclear stranded investment:
[B]y removing the certainty and security in the licensees' existing hydro investments . . . the Commission has committed a preemptory taking. No longer can a licensee be assured of recovering its net investment or its fair market value.
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This security was the cornerstone relied on by Congress to provide the incentives that would encourage licensees to construct and maintain their projects.
On January 13 the NHA sent a letter to the FERC stating its opposition. "The very assertion of this [decommissioning] authority raises serious concerns for the economic viability of all hydropower projects," says the NHA, which points to "the surprising conclusion . . . that the Commission's balancing mandate