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Fortnightly Magazine - September 1 1995

Global Power Projects: Evaluating Market Potential

Robert C. McFarlane

The Geneva summit between Ronald Reagan and Mikhail Gorbachev signaled the beginning of the end of the Cold War. With a diminished threat of East-West confrontation, countries throughout the world gradually reoriented their priorities (em away from politico-military security and toward economic development. To paraphrase Woodrow Wilson, the end of the Cold War had made the world "safe for capitalism."Now, 10 years later, with a few notable exceptions in the Balkans and elsewhere, evidence abounds to support that appraisal, from Argentina to Prague to Manila.

Financial News

Charles M. Studness

Traditional utility regulation has been unable to prevent the electric rates of some utilities from rising far above those of neighboring companies. Two factors are responsible for this failure. First, regulators lack the means to keep seemingly reasonable but unnecessary costs from creeping into rates. Second, ratemaking considers a utility's costs in isolation and does not use peer benchmarks to true up rates.

Political pressure helped limit rate increases for nuclear plants during the 1980s.

The Efficient Utility: Labor, Capital, and Profit

D. Thomas Taylor and Russell G. Thompson

Are utilities working at top productive capacity? A novel look at 19 investor-owned electrics in the Sun Belt.

Major restructuring is expected to hit investor-owned utilities (IOUs) over the next decade. Competitive market forces, in place of rate-of-return regulation, will require many companies to evaluate their resource allocations. No longer will singular adjustments in resource use suffice when both capital and labor resources must be realigned.

Gas Roundup

Phillip S. Cross

While setting a new gas cost adjustment rate for Delmarva Power & Light Co., a combined electric and gas utility, the Delaware Public Service Commission (PSC) found the utility's unaccounted-for-gas incentive program unnecessary because it had accomplished its objective, as evidenced by a steady decline in the rate of unaccounted-for gas. The PSC approved a $300,000 incentive award for the current adjustment. Re Delmarva Power & Light Co., PSC Dkt. No. 94-123F, March 21, 1995 (Del.P.S.C.).In another case, the PSC allowed Chesapeake Utilities Corp.

The Efficient Merger: Synergies and Strategic Position

Thomas J. Flaherty

Time to rethink conventional

mergers? For

instance, why

combine two vertically integrated utilities when the market may call for disaggregation?

All deregulating industries share the same lesson: profits eventually decline, leading to consolidation. Electric utilities are no different.

Local Telephone Competition

Phillip S. Cross

The Arizona Corporation Commission (CC) has approved new rules that allow telephone companies to provide basic dial tone service in competition with existing monopoly providers. The competitive companies may also provide intraLATA toll service.

Photovoltaics: A Dispatchable Peak-Shaving Option

John Byrne, Young-Doo Wang, Ralph Nigro, and Steven E. Letendre

PV technology combined with storage offers a cost-effective alternative to capacity additions.By John Byrne,

Young-Doo Wang,

Ralph Nigro, and

Steven E. Letendre

Until recently, both regulators and electric utilities have considered photovoltaic (PV) technology (i.e., solar cells) an unattractive

energy-supply option because of its relatively high cost. Now, however, a number of utilities have shown interest in using PV for peak-shaving.

More on Executive Compensation

Phillip S. Cross

Following an established policy disallowing rate recovery of executive incentive compensation awards, the Hawaii Public Utilities Commission (PUC) has rejected ratepayer funding for a salary plan administered by GTE Hawaiian Telephone Co., Inc. The PUC denied the carrier's attempt to differentiate its executive incentive plan by asserting that the plan was not a "bonus or extra compensation," but part of a total salary package set at a level competitive with market compensation.

Frontlines

Bruce W. Radford

For a good half a century, electric regulation has meant law, accounting, and economics. But no more. Now it's all about computers, telecommunications, and file-transfer protocols. Forget about CWIP, AFUDC, double leverage, and interest synchronization. They are all irrelevant.

LDC Must Shoulder Coal Tar Clean-up Costs

Phillip S. Cross

The Indiana Utility Regulatory Commission (URC) has denied an Indiana Gas Co., Inc. request for rate recovery of environmental costs associated with three of its instate manufactured gas plant (MGP) sites. The URC found that the local distribution company (LDC) had assumed the associated environmental liability in purchasing the properties, and that the costs were not related to providing gas service to current ratepayers.

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