With the Clean Air Act Amendments of 1990 (CAAA) come many complex decisions for electric utilities. By now the majority of utilities have decided how they will comply with the clean air...
If anyone ever asks about what you read in this column, tell them you heard it somewhere else.
Of course, I don't really mean that. Let me put it another way: The FORTNIGHTLY gets invited here and there with the understanding that some things will end up in print, and others not. And while I never quote anyone if they were holding a fork or a glass, I do my best to bring back the inside story.
A while back I heard a story from the general counsel of a major East Coast electric utility. Talking about obstacles that have sprung up in his business, he complained: "Power marketers are buying up our reserve generating capacity at nonfirm rates and turning around and selling it back to our own customers at firm rates. How do they think they can get away with that?"
Well, the power marketers may have found a way. It's called leveraging. Or hedging.
Just like the junk bond kings of the 1980s, who launched leveraged buyouts to gobble up unseen asset value in much bigger companies, the power marketers have found an edge. These alchemists take standby and make it firm. They've apparently discovered that the sum of all local reserve capacity in the United States far exceeds what you would need to supply all U.S. electric needs if you ran the national grid as a single company. So how do you create your own virtual national utility? Just lock up enough nonfirm reserves with just the right mix of hedging contracts. That's what's going on when, during any 24-hour period, some commodity futures markets customarily trade many times the value of a commodity than could ever be consumed on any given day. What better proof that electric utility mergers are just lying around waiting to happen?
Recently I heard another attorney in private practice describe how marketers have invaded the transportation industry, striking their own deals between long-haul truckers, shippers, and others: "Transportation has become intermodal and seamless. All the actors are involved (em rail, motor, maritime, air. The marketers marry capacity with traffic. They operate across all sectors, courtesy of the strength of their information databases."
He added, "Motor carriers are moving toward a system like airline reservations (em don't ask, don't tell. If you ask for price you'll get price. You won't get terms and conditions of service."
After the sunset of the Interstate Commerce Commission, this lawyer sees a debate arising on the future of transport regulation, with the Department of Transportation (DOT) opposing industry moves to create a "FERC-like" agency within the DOT with multimodal authority. Yet, at the same time, he notes: "Very real forces are at work that have no sympathy for entrenched federal agencies." Meanwhile, the state commissions (PUCs) complain that if their power to regulate transportation is restricted to public health and safety (excluding economic regulation), "they'll be left with an unfunded mandate (em no revenue source to carry out their authority."
Is there a lesson here for electric deregulation?
Will electricity and gas become intermodal? One