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Frontlines

Fortnightly Magazine - February 1 1997

Inc., the lead plaintiff in the suit, headquartered in Mission, Kan., with a trading office in Ohio, and marketing offices in California, Pennsylvania, and Virginia.

Why did Elam challenge the law? Elam isn't pushing clients to abandon Alabama Power. "We'd be more than happy to buy from them," he says. But with the experience gained at Enron and now at Solutions, he feels he can help electric customers buy more efficiently from utilities.

"We began selling swaps and option," he notes. "It became evident that utilities had no clue as to what they were buying. We watched them waste tons of money. If they don't know what they're doing, what about consumers? So we started working with municipal utilities, school districts, and other wholesale buyers, plus some big industrials. We think we can bring some ideas to help the utilities learn what their customers want."

Adds Michael Kessler, counsel for AES: "Customers might want to develop a consortium or buy power on an aggregated basis. We're working with a group of schools and munis in Pennsylvania. We might set up the same thing in Alabama, but we're not sure on whether we could under the law."

Alabama Power, meanwhile, is busy fighting its own demons. It could end up one day facing powerful competition from the Tennessee Valley Authority. In fact, TVA chairman, Craven Crowell, appeared on CNBC's Capitol Gains program on January 27 to criticize "territorial restrictions" in the electric industry and to promise to end federal funding for TVA to prepare for competition.

And, last August, Alabama Power won an important court battle to stop TVA's alleged practice of dealing with the power-marketer, LG&E Power Marketing Inc., to circumvent TVA's own territorial restrictions and market TVA power outside the "fence" established way back during the New Deal. See, Alabama Power Co. v. TVA, CV 96-PT-0097-S, Aug. 28, 1996 (N.Dist.Ala.).

Nevertheless, it was not the TVA threat that prompted passage of the bill, according to Dave Rickey, spokesman for Alabama Power. Instead, he says, the bill was needed to define clearly the power of the state public service commission to regulate private power contracts that bypass traditional utilities.

"All the PSCs in neighboring states have regulatory authority over private service contracts," says Rickey. "We assumed as much in Alabama, too, but the state supreme court said 'no' in 1988." (See, Coastal States Gas Trans. Co., Inc. v. Alabama PSC.)

"That's why we needed the statute ... to help the PSC deal with stranded costs."

I asked Rickey why stranded costs were so important for a low-cost utility like Alabama Power. In fact, Moody's famous 1995 study had put the company's stranded costs at only $215 million, well below Georgia Power and Duke Power (each at about $1.6 billion). (DOE ranked the state in 1994 as 14th-best in terms of low industrial rates.)

"It's not a mandatory process," advised Rickey. "If a customer decides to leave the system and we don't see any stranded costs, or if they are negligible, we won't fight it. We won't activate the process [under the law]