Studies & Reports
Year 2000 Readiness. On Jan. 11 the North American Electric Reliability Council (NERC) predicted a minimal effect on electric system operations from Y2K software...
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."
How do you do that? Simple. Cut the standalone energy rate to next to nothing. Thus, even though the wholesale energy price runs about 3.2 cents, competitive energy service providers must compete against utilities charging 2.8 cents per kWh to their "standard-offer" customers - those who choose not to choose.
Consider a recent case involving Cambridge Electric Light Co., Commonwealth Electric Co., and Canal Electric Co. The DTE allowed them to defer the four-mill loss because it would accrue at a lower interest rate (the 6-percent rate on customer deposits) than unrecovered transition costs, which would accrue carrying charges at the cost of capital (about 13 percent). "This higher carrying cost would increase the total amount of transition costs customers would be required to pay," the DTE said. D.P.U./D.T.E. 97-111, March 2, 1998, at p. 20 (Mass.D.T.E.)
In theory, it's not a slam-dunk for utilities. First, there's no guarantee they can recover their deferrals. As the DTE explains, "The Act is silent on ... rate structure beyond the seven-year transition period." But the DTE also warns, "[T]o interpret [the Act] as forbidding recovery after that time could lead to a confiscation of the Companies' property in violation of the Fifth Amendment."
The DTE says competitors can get their own deal. To the extent that retail prices for standard-offer power are below wholesale costs, the law requires the DTE to consider