Baltimore Gas and Electric Co. (BG&E) on September 25 announced that it would acquire Potomac Electric Power Co. (PEPCO) for $2.9 billion, creating an as-yet unnamed company with assets...
Suppose you want to reduce emissions
of carbon dioxide to lessen the chance
of global warming. Should you (a) prohibit coal burning in electric power plants, (b) encourage coal use for power generation, or (c) force electric generators to pay an "externality" surcharge to reflect the cost of CO2 emissions?Here's another one. You are an independent power producer. You want to compete more effectively against utility generation, so you: (a) encourage unbundling of electric transmission, (b) build more gas-fired plants, or (c) hire a clever rate-of-return witness to testify in utility rate cases?
Let's try one more. The purpose of deregulation is to: (a) encourage competition, (b) increase efficiency, (c) remove restrictions on mergers so utilities can consolidate and form giant companies with regional scope that will force weaker firms out of business?
Let 'em Burn Coal
In early October, at the annual meeting of the Mid-Continent Area Power Pool (MAPP), I heard a presentation by North Dakota Attorney General Heidi Heitkamp, formerly an attorney at the U.S. Environmental Protection Agency, and a woman who gives new meaning to the term "eco-feminist." Heitkamp can also claim honors for convincing the North Dakota legislature to pass the first state law prohibiting utilities from raising electric rates to recover costs associated with environmental externalities. As Heitkamp says, "What exactly is a PUC's expertise in global warming, and why should we defer to it?"
Heitkamp because concerned when, as she tells it, regulatory analysts in Minnesota began to throw around a figure of $5.99 per ton of CO2 produced by burning coal for electric generation (em a figure Heitkamp says was accurate to within a penny of the exact surcharge necessary to "back out" North Dakota's coal-fired generation from Minnesota's resource plans. But Heitkamp couldn't see the logic. She notes that North Dakota's economy represents only four one-thousandths of a percent of worldwide CO2 emissions: "So why should we pay higher rates to discourage coal use, just to make a statement?"
If you want to forestall global warming, says Heitkamp, burn more coal in the United States. That will encourage the development of clean-coal technologies, which we can then export to China, where it will really make a difference.
The North Dakota law (N.D. Century Code, secs. 49-02-23, 49-06-24) applies only to rate decisions by the North Dakota PSC. But Heitkamp says that if her office were to intervene in Minnesota's externality case (Minn. PUC Dkt. No. E-99/CL-93-583; OAH Dkt. 6-2500-86-32-2), it would be critical that Minnesota regulators understand that North Dakota was willing to stand up and be counted.
Score a point if you chose answer 1(b).
Back Door Unbundling
Did you get a chance to read the California PUC's six-month cost-of-capital case from last fall? If not, you're excused. But if you did, you will remember the case not for what the CPUC did, but for what it didn't do.
The case in question (Re Sierra Pacific Power Co., Decision 94-11-076, Nov. 22, 1994, 158 PUR4th 217) turned down what it called a "novel proposal" to unbundle the calculation of utility return on