Frontlines

Fortnightly Magazine - June 15 1998
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Try this: Buy wholesale power at 3.2 cents per kilowatt-hour; sell at 2.8 cents. That's the deal in Massachusetts. No wonder Enron fled, seeing no margin for profit.

In fact, when I called a friend at a power marketing company to learn more, he said his company had given up hope and was leaving the state.

Utilities can swallow this loss, he explained. They can defer the four-mill shortfall and accrue it for billing later, like a regulatory asset. The state's Department of Telecommunications and Energy allows it. Unfortunately, he adds, private power marketers and energy service companies operate on a much shorter term. Their investors can't buy high to sell low.

Will deferral work for utilities? It all depends on whether the DTE honors the deal seven years down the road.

As it turns out, that's exactly what Northeast Utilities was banking on back in 1989 when it paid a hefty premium to take over the bankrupt Public Service Company of New Hampshire and acquire the troubled Seabrook nuclear plant. NU expected to be paid later. NU has a written rate agreement, signed in 1989 by New Hampshire's then republican governor and attorney general. Will that stand up in the New Hampshire Supreme Court?

Today with the democrats holding the Statehouse, the attorney general has taken sides with New Hampshire consumers, claiming the PUC can deny s share of stranded costs. That doesn't bode well for Northeast Utilities or PSNH.

Four-Tenths of a Penny

In Massachusetts, the state restructuring law mandates a 10-percent electric rate cut, but imposes "non-bypassable" transition costs. Utilities can recover such costs, but "in a manner that does not result in an increase in rates to customers."

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