You've heard talk lately about the convergence of electricity and natural gas. That idea has grown as commodity markets have matured for gas and emerged for bulk power.
If you attended any energy conference in the past year, even one on natural gas, I am confident that at least one panel was devoted to the restructuring of the electric industry. Everyone (em Congress, the Federal Energy Regulatory Commission, state legislatures, state public utility commissions, electric utilities, and large industrial users (em appears to be jumping on the restructuring bandwagon.
Statements based on little factual data or evidence (em such as "restructuring will benefit all customers" and "restructuring will lower all customers' bills" (em are accumulating faster than the snow that buried the East Coast last month. It's an accepted truism that a statement made often enough becomes a fact. However, before we create more industry "facts," we need to ask ourselves a number of fundamental questions.
What are we trying to accomplish?
If the answer is lower prices, is restructuring the electric industry the best and least disruptive solution? How many high-cost (i.e., nuclear) electric utilities are there? Has a cost/benefit analysis established the most effective means to lower prices for high-cost electric utilities?
Should all customer classes benefit immediately from restructuring? Almost all of the experimental programs currently being requested by utilities appear to focus on reducing rates for large and medium-sized industrial and a few large commercial customers. Small industrial and commercial customers and residential customers are merely being promised "benefits" some time in the next century. Will all customer classes benefit immediately from restructuring? Do CEO claims that they want theirs to be the "best" electric company translate into lower prices for all customers?
Who should bear the burden of stranded costs?
Are "stranded costs" really a euphemism for "huge debt" incurred in building nuclear generating stations?
Several utilities have suggested that 50 percent of stranded costs should be paid by departing customers that buy electricity from alternative suppliers and wheel it over the high-cost utility's transmission and distribution system. The other 50 percent would be paid by commercial and residential customers that have no choice but to remain on the high-cost utility's system. At first glance 50/50 seems fair. However, today's national usage patterns indicate that industrial customers consume 34.15 percent of electric production, but account for 23.89 percent of utility revenue. Industrial customers' share of consumption is almost 50 percent greater than their share of utility revenue. So, is a 50/50 split truly fair?
Will saddling departing customers with 50 percent of the stranded costs discourage competition and, therefore, defeat the purpose of retail wheeling? Why shouldn't utility shareholders bear part of this cost?
How should stranded costs (if allowed) be collected?
Should low-cost electric utilities be forced to "help" high-cost utilities recover stranded costs?
Should tax dollars (federal or state) be used to "subsidize" electric utilities with high stranded costs?
As incredible as it seems, according to a study in the August 1995 Moody's Investors Service Global Credit Research,
34 utilities have higher stranded costs than equity. Can these utilities survive a competitive market without a stranded-cost recovery crutch?
Is it politically astute to believe that stranded costs can be collected through a national