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Fortnightly Magazine - September 1 1998

Temperature, Price and Profit: Managing Weather Risk

Roxane Richter

THE SUMMER OF 1996 OPENED COOLER THAN normal in June and July, cutting electric sales. When prices for natural gas did not fall as expected, as a counterbalance Consolidated Edison Co. of New York entered a combined gas-conversion and weather-heading transaction with power marketer Aquila Energy, giving Con Ed some measure of protection against further revenue shortfalls in August.

Canadian Money Targets Power Generation Overseas

Sarah McKinley

CANADA MAY CLAIM ONLY A SMALL SHARE OF THE world's high-profile power developers, but that hasn't stopped its financial institutions from becoming big players. These public and private lenders have made available billions of dollars to nearly any project willing to use Canadian consultants or equipment.

Furthermore, the government is willing to back its country's products with political risk insurance as part of the package. In a world where power projects are becoming expensive and pose greater market and political risk, Canadian involvement is welcomed.

Frontlines

Bruce W. Radford

Did you hear the one about the utility dispatcher who downed one too many and paid too much for power? He said his system was loaded.

But his customers weren't. To learn more, I refer you to Kati Sasseville, the recently, though only somewhat, retired general counsel of Otter Tail Power Co., who believes that she and other colleagues at her former company have discovered something that everyone else has overlooked. The story begins in 1924, when Allegheny Power and Philadelphia Electric became the first utilities in the country to interconnnect their lines.

People

PERRY BAKER was appointed public information officer for the Arizona Corporation Commission. Baker is a former public information officer for both the city of Phoenix and Maricopa County.

The American Public Power Association named Walter R. McGrath president at its annual conference. McGrath, general manager of the Baintree Electric Light Department, served as APPA's president-elect during the past year and as vice president from 1996 to 1997.

William Irby was named director of the communications division at the Virginia State Corporation Commission. He succeeds Edward C.

News Digest

Lori A. Burkhart, Phillip S. Cross and Beth Lewis

FERC

MIDWEST POWER PRICES. Federal Energy Regulatory Commission Chairman James Hoecker announced July 15 that as soon as the staff presents its findings, the FERC will deal with the complaints filed by Cinergy, Steel Dynamics Inc., and others asking for regulatory relief from the late June run-up in Midwest bulk power prices (as high as $7,500 per megawatt-hour), and for a price cap set at $100/MWh. Nevertheless, Hoecker advised that the FERC was in "no hurry," and that the remedies available to it were not entirely clear. Docket No. EL98-53 (Cinergy), filed June 29, 1998; Docket No.

Perspective

Mark Lively

DURING THE WEEK OF June 22 there was a major imbalance between supply and demand for electricity in the Midwest. Although demand was high enough to set a few records, the real problem may have been the lack of supply. Many generators were out of service and a few marketers reneged on contracts to deliver power. Market prices for bulk power allegedly soared as high as $4,000 per megawatt-hour. The industry was left in an uproar over these volatile prices, especially since a competitive market has been touted as a means to achieve lower prices, not higher ones.

Off Peak

ELECTRIC UTILITIES THE WORLD OVER ARE BEGINNING to draw upon the power of Internet. But U.S. investor-owned utilities clearly are the most receptive to using the technology for a variety of applications when compared with their smaller domestic or international peers.

According to a Newton-Evans Research Co. poll of 79 sites around the world, more than half of all information systems officials at utilities planned to use or are using the Internet for customer communications. About 100 percent of U.S.

The Fortnightly 100: Which Utility Ranks the Highest?

Janice Forrester, M. Sami Khawaja, Hossein Haeri, and Michael Carter

IT TAKES LABOR, FUEL, OPERATING CASH AND INVESTMENT capital to produce and deliver electric power. Which utilities have managed to use these resources optimally to produce and sell kilowatt-hours? How do these utilities compare with each other? Is there room for improvement?

And what about financial success? Does efficiency, as measured by a ratio of inputs to outputs, serve as a reliable predictor of market-to-book ratios or merger premiums?

Some of these questions are answerable; others not.