Fortnightly’s 2013 ranking of shareholder value performance shows substantial changes, with gas prices weighing on some utilities and elevating others.
Regional Power Markets: Roadblock to Choice?
late-model nuclear power plant.
Generally, utilities near coal fields pay 60 cents to $1.20 per million Btu for fuel. Distant utilities pay nearly $1.50 to $2.00 for the same resource, and pass that increased cost onto customers (unless they happen to have a lot of hydropower). It's that simple. NERC regions are more or less concentric with respect to the coal fields. Thus transmission constraints between regions severely restrict the ability of low-cost coal plants to compete with their expensive, distant counterparts. As a result, the industry ships coal instead of its refined product, electricity. Other industries aren't limited to shipping only the raw materials.
But power lines remain difficult to build. This obstacle is not entirely NERC's fault, however, even though the most-needed lines would cross NERC boundaries. According to some experts, the single biggest step the industry can take toward promoting electric power competition, wholesale or retail, is to grant federal eminent domain for transmission lines, as was done for gas pipelines. Interestingly, the gas people may disagree.
This summer, at the Gas Summit (em the 2-day technical conference at the Federal Regulatory Commission on the future of gas pipeline regulation (em several executives from pipelines proposed a new idea. They said they would voluntarily give up their legal right to eminent domain, if the FERC would compensate by eliminating various levels of regulation, such as its certification of gas pipelines, or perhaps its rate-of-return regulation of pipelines. Nevertheless, the gas industry would probably concur with electric utilities that long-haul transmission facilities are difficult to plan and construct in either business.
Beyond geography, history lies behind the second major industry problem, which stems from high-cost, late-model nuclear plants.
Nuclear plants brought on line in the 1980s cost about four-times more than coal-fired plants per unit of capacity. These nukes were built primarily in the Northeast and North Central, and so cut across NERC regions. ECAR has coal-based American Electric Power and Allegheny Power System Inc. versus nuclear-burdened Duquesne Light Co., Ohio Edison Co./EnergyCorp. and Centerior. MAIN has the mother of all nuclear utilities (em Commonwealth Edison (em just north of the Illinois basin coal fields. But in many of these cases there are few wholesale customers. The concentration of wholesale customers and that of nuclear plants do not overlap.
Reluctant Buyers: Barriers to Change
With a few notable exceptions, like Virginia's Blue Ridge group, most wholesale buyers still appear wary of wary of competition. Two out of three of Maryland's municipal systems in 1995 (three years after wholesale power deregulation) took the bold step of insisting on having only three-year contracts with Allegheny Power, not the usual five- to eight-year terms. Now they have hired a consultant to put together a request for proposals for competitive power.
But munis in the distribution business may have a good reason to keep their local supplier, especially if it is a big IOU. In times of distress, the local IOU can supply trucks and crews. Nobody calls the muni's chief engineer at 2 am to complain about the price of power being a