Utilities are taking advantage of a sweet spot in the capital markets, pre-funding and refinancing at record low rates. But cheap money won’t resolve overhanging uncertainties preventing cap-ex...
Electric Restructuring: An Urgent Proposal
but reflect productivity gains.
It is essential to begin the price-cap regime as soon as possible. Competitive pressures will grow as time passes, and the stronger competitive pressures become, the more difficult it will be for utilities to stay ahead of the competitive pressures and achieve earnings in excess of their allowed returns.
Open access is made available to all customers at the outset as a matter of fairness. A phase-in by customer classes would carry overtones of discrimination. With universal availability of open access, the decision to purchase services from a power marketer rather than a utility would be determined by market forces and customer preferences. Utilities would retain an obligation to offer all-requirements services to all customers. However, utilities would fulfill this obligation as marketers; they would not need to build new generating capacity.
The longer the transition is delayed, the stronger competitive forces will grow. And the more rates will be discounted once open access begins. And the smaller the compensation for stranded costs. t
Charles M. Studness is a contributing editor of PUBLIC UTILITIES FORTNIGHTLY. Dr. Studness has a PhD in economics from Columbia University, and specializes in economics and financial research on electric utilities.
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