The past year has allowed the North American power sector to continue its recovery, but it has been a treacherous time for investing. Asset values, and the value of their associated debt...
Low Loads, Short Ride
Kevin O'Donnell's article "Aggregating Municipal Loads: The Future is Today" (Oct. 1, 1995) argues that residential and small commercial low-load-factor customers will do well in a competitive environment. Yes, I agree that the future for these customers is definitely today. Low-load customers will do much better in the short run. As long as excess capacity exists, sellers will price at little more than short-run marginal cost. Once excess capacity dries up, however, fixed costs will have to be paid.
When that time comes, the total (fixed and variable) generation cost to serve a 90-percent load factor (coincident peak) load will be in the area of 4.2 cents per kilowatt-hour (›/Kwh) (2.2› fixed + 2› variable). The generation cost for a 50-percent load factor (coincident peak) load will be in the area of 6›/Kwh (4› fixed + 2› variable). The differentials in distribution pricing will be much greater, especially in low-density areas with little diversity. In a completely competitive generation market, there will be no regulators to put fixed costs in the variable component of prices. As a result, the disparity between what high- and low-load-factor customers pay will be greater than it is under present regulation.
The municipalities O'Donnell alludes to in his article are attempting to escape their present supplier's fixed cost. This should not come as a surprise to anyone.
76 Englewood Drive
New Haven, CT 06515
ERCOT Isn't All of Texas
The October 15 issue of the FORTNIGHTLY included a short article (page 15) concerning the merger of Southwestern Public Service Co. and Public Service Co. of Colorado. For your information, unless things have changed significantly in the last few hours, SPS does not operate as part of ERCOT. SPS operates in the Southwestern Power Pool.
Houston Lighting & Power Co.
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