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Special Report

Fortnightly Magazine - January 1 1997

play a role in grid reliability.

He cited the "Declaration of Independence" as evidence of state regulator support for ISOs, but the declaration's wider backing had earlier been shot down in NARUC committee meetings (see sidebar).

On mergers, he said FERC hoped to have a new policy soon: "FERC's merger policy ought to build from the fundamental principle that mergers should not significantly diminish wholesale competition. If not, we're really talking out of two sides of our mouth."

The commissioner said FERC also needs a timeline for processing mergers. "We ought to be able to say any merger application we will handle within a year, maximum, including the hearing process. And the second thing is we ought to adopt what I would call a 'rocket docket,' a fast-track approach for mergers that clearly raise no competitive alarms."

Edward Tirello, senior vice president-research, NatWest Securities, predicted the future of the electric utility industry. In 10 years, he says, there will be nine FERC-regulated grid companies; there will be 50 generating companies; within each region there will be up to eight major generating companies; on the distribution side, there will be 30 to 40 companies, considered to be holding companies, that may own shares in generating and transmission companies; they'll have from two to 10 million customers; basic electric and gas will be commodity services offered by these companies at slightly above break-even; all profits will come from ancillary services offered by unregulated subsidiaries in home security, telecommunications, cable TV, and other areas.

Tirello said companies will say to customers: "Here's the deal. We will service your mortgage ... for an extra $20 a month you can have our alarm service, for another $25 a month, you can have our basic cable business, for another $10 a month, take our special long-distance deal. And I think that the ultimate determinant in who you use will be which frequent flier mileage program you have.

"You might laugh, but this is the only thing left that they aren't giving miles on. Believe me, it's coming.

"Now, in the transition, it's going to be a little tough. We've got this little stranded asset problem."

Tirello also had a mouthful on mergers: "[Electric companies are] all involved with making strategic alliances, which are always win-win. There's no win-win in this world. Somebody wins and somebody thinks they win." t

Joseph F. Schuler, Jr. is an associate editor of PUBLIC UTILITIES FORTNIGHTLY.

Committee Votes/Convention Resolutions

•  PUC Power (All For It). NARUC passed an electric restructuring resolution that reaffirms the rights of the states to introduce retail competition, determine stranded cost recovery, or impose a surcharge to fund "stranded benefits," such as energy efficiency and low-income programs. It doesn't address reciprocity or federal matching programs on energy efficiency.

•  ISO Plans (Wait and See). The electricity and energy conservation committees killed support for the "Declaration of Independence," a grassroots initiative proposed initially by Vermont board chair Richard Cowart at a NARUC meeting in Santa Fe on October 22. The proposal later won approval from 18 commissioners in 10 states.