may be less than healthy, unless you're ready to replace them with technology.
As competition intensifies, increasing numbers of executives are realizing that...
If Jane Austen were writing this column, she would begin something like this: "It is a truth university acknowledged, that a natural gas distributor in possession of a good franchise must be in want of an electric utility to merge with."
That's the rule of electric/gas convergence. But as an editor, my instinct when I uncover such a "rule" tell me to look for a reason why it ain't so. That's why I got such a kick from a recent conversation with Sheldon Silver, the speaker of the New York State Assembly. Silver has opposed efforts by Governor Pataki to guarantee that electric utilities can recover any costs left stranded by competition. He spent a few minutes with me to explain why New York instead should focus on customer choice and cutting electric rates. But along the way he also gave me as good a reason as I've heard yet to oppose the idea allowing electric and natural gas utilities to merge their business.
"One of the ideas that should be considered," said Silver, "is separating natural gas and electric assets.
"While there is some synergy to be gained by combining ... competition might be best achieved by separating gas and electric companies, the same way some would separate electric generation, transmission and distribution."
I asked Silver about the proposed merger between Brooklyn Union Gas and Long Island Lighting Co., and gas/electric mergers in general:
"I do acknowledge certain synergies in cost savings, but in areas like Long Island, where the ability to compete in generation is limited, competition between different forms of energy may be significant in keeping rates low."
Gambling on the Spot
Remember the 1980s? Remember long-term purchased gas contracts that were priced above market, and how gas distributors were advised to move to shorter-term deals? Well, look what happened when gas prices spiked on spot markets this past winter.
In March, regulators in Illinois opened a case to investigate last winter's high gas prices. Among other things, the commission will look at what local gas companies did not mitigate the higher spot prices, including filling storage, hedging in the futures market and contracting for the future delivery of gas.
In other words, why didn't they lock a lower price?
A similar story has emerged in New Mexico, where in February the state utility commission cited high gas prices and criticized Public Service Co. of New Mexico for moving about "99 percent" of its gas portfolio into the spot market.
Wondering what was going on, I called John Herbert, senior economist at the U.S. Energy Information Administration and an expert on gas storage and commodity markets. As a matter of fact, Herbert told me he had been the first witness called by the Illinois commission when it held hearings on the matter.
"This past winter was somewhat unique," said Herbert, "and it wasn't just to do with the spot market:
"From talking to the LDCs [it seems] there was a lot of concern over gas in storage. Instead of drawing down storage, they were going out into the cash