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Fortnightly Magazine - January 1 1996

Incremental-Cost Pricing: What Efficiency Requires

Alfred F. Mistr, Jr.

In thinking about transmission pricing for a competitive electric industry, we should remember that the fundamental objective of competition is to increase economic efficiency. Improved economic efficiency, after all, leads to better use of resources, lower costs, and long-term benefits for consumers.

Coalition Seeks DOE Action on Nuclear Waste

Lori A. Burkhart

The U.S. Department of Energy (DOE) has settled its lawsuit with the State of Idaho, clearing the way to resume shipments of radioactive waste from Navy ships to a DOE storage site in Idaho. DOE will pay Idaho $350 million and has promised to remove the Navy's spent fuel from the Idaho storage site by 2035 or face a $60,000-a-day penalty.

Frontlines

Bruce W. Radford

On Saturday, November 11, WPL Holdings, Inc. announced its three-way merger with IES Industries Inc. and Interstate Power Co. to form Interstate Energy. The very next day, in a full-page ad that ran in Milwaukee Journal-Sentinel, Madison Gas & Electric Co. launched its counteroffensive, featuring Boris the Pig.

"Hi (em I'm Big Boris," the ad begins. (The face of a handsome pig with a large snout stares back at the reader.) "My friends and I crave Radical Electric Deregulation.

Capitol Hill: The Bells Toll for PURPA

Lori A. Burkhart

The beleaguered Public Utilities Regulatory Policies Act of 1978 (PURPA) has a new assailant (em U.S. Rep. Cliff Stearns (R-FL). Stearns's bipartisan legislation, H.R. 2562, the "Ratepayer Protection Act," proposes repeal of section 210 of PURPA, which requires electric utilities to purchase power at avoided costs.

People

Thomas L. Yohe of Philadelphia Suburban Water Co. was appointed to the Cleanup Standards Scientific Advisory Board. The 13-member board is a new division of Pennsylvania's Department of Environmental Protection.

NorAm Energy Corp. has formed a new unregulated retail subsidiary, NorAm Energy Management (NEM), and appointed Rollie Bohall senior v.p. and COO. David Houghtby, formerly of Minnegasco, will be NEM v.p.

Financial News

Charles M. Studness

When Niagara Mohawk Power Corp. announced its competitive restructuring plan on October 6, 1995, it broke ranks with what had been a curiously united front against competition. The opposition had learned to genuflect before the altar of competition, but then fight doggedly to keep markets closed. This united front had implied that competition would produce largely the same impact on all utilities, but that is not true. Competition offers lucrative long-term opportunities for some utilities and potential disaster for others.

Mailbag

In a recent article ("The Efficient Utility: Labor, Capital, and Profit," Sept. 1, 1995), Taylor and Thompson attempt to measure the

economic efficiencies of 19 investor-owned utilities.

The authors use a method of efficiency measurement proposed by M.J. Farrell in a pioneering paper published nearly 40 years ago.

Electric M&A: A Regulators Guide

David E. and Kimberly H. Dismukes

In a little over a year, the electric utility industry has seen six significant mergers.1 This trend toward consolidation most likely will increase as the industry becomes more competitive.

Nymex Moves on Options Contracts

Lori A. Burkhart

The New York Mercantile Exchange (NYMEX) has asked the Commodity Futures Trading Commission (CFTC) to approve two applications for electricity options contracts, one based on each of the futures contracts already under consideration by the CFTC. (This past summer, NYMEX applied to offer trading in two electricity futures contracts, one for delivery at the California-Oregon border, and the other for delivery at the Palo Verde switchyard in Arizona.)

Except for delivery location, the terms of the two contracts are identical.

Market Structure Dominates State Proceedings

Phillip S. Cross

Investigations of changes in the structure of the electric utility industry are growing at the state level.

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