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News Digest

Fortnightly Magazine - June 15 1998

The report, Potentially Strandable Investment, was prepared by the PUC for the Texas Senate Interim Committee on Electric Utility Restructuring and was released April 21. It estimates statewide stranded costs at $4.5 billion if retail competition begins by 2001; $3.3 billion if it begins in 2002; $2.3 billion if in 2003. The 1997 report had set stranded cost estimates at $15.8 billion in 1998 and $10 billion in 2000 assuming retail competition began in those years.

There are many reasons for lower stranded cost estimates. "Since this analysis uses later start dates for competition, [stranded cost] is lower because utilities are recovering those costs through ongoing regulated rates," said Dan Jones, PUC chief policy analyst and author of the report.

DIVERSIFICATION RISK. U.S. electric utility holding companies face higher risks in proportion to the debt they take on to finance their nonregulated ventures, according to a Moody's Investors Service report. As a result, there will be changes in the traditional methods of rating utilities.

The April 15 report, Ratings Gap Between Electric Utilities and Their Holding Companies Widens, notes that electric utilities and affiliates rated by Moody's are components of increasingly complex corporate structures. Many utility holding companies have financed substantial portions of nonregulated investment with debt. Yet while the debt has grown, the size of the dividend stream from the utility has not grown - in fact it may be shrinking.

ELECTRIC METERING. The National Association of Regulatory Utility Commissioners has released a white paper on metering technologies and related communications requirements needed to support direct access to consumers in a competitive retail electric market. The 97-page report, Direct Access Metering & Data Communications Requirements, was prepared by Plexus Research, Inc. and features an extensive research bibliography on data communications, technology options, and other topics. See www.naruc.org/Downloadabledocuments/metering/

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Federal Agencies

INTERNATIONAL ENERGY SALES. The California Power Exchange has asked the Department of Energy to allow it to export electricity to Mexico pursuant to section 202 of the Federal Power Act. The notice proposes that part of the power purchased through the PX would be bought by the Comision Federal de Electricidad, the national electric utility of Mexico. Electricity would be transmitted to Mexico using the international transmission facilities of San Diego Gas & Electric Co. Docket No. ea-179, April 14, 1998

FERC MERGER POLICY. Noting that it recently acted on seven "vertical mergers" between electric and natural gas companies (Enova/PE, Duke/PanEnergy, Enron/PGE, etc.), the FERC issued a notice of proposed rulemaking that would require merger applicants to analyze potential vertical market power in the same manner already required for horizontal market power under the FERC's current merger policy statement, issued in 1996 in Order 592. To facilitate the new vertical analysis, the FERC will convene a technical conference to explore using computer simulation models to delineate markets and gauge their dynamics and relative concentrations.

At the same time, the FERC will ask for comments on whether it should anticipate other, more unusual types of mergers, such as between an energy utility and a telecommunications firm. As the FERC observed, such a