Building upon last month’s installment, more is revealed on how, after 10 years of incentive regulation, reliability has declined in Ontario.
that each utility in the entire industry reflects an identical degree of vertical integration.
Talk about bias! It works against regions and companies with significant generation from independent power producers, and regions with very active bilateral markets. It also is biased against companies that use the competitive wholesale market as an efficient and cost effective way to meet power requirements. Finally, it counts against utility systems divesting of generation in response to state restructuring initiatives.
For example, Unitil is a small holding company system in New England, which operates three distribution systems, two in New Hampshire and one in Massachusetts. Unitil owns less than 10 percent of its generation requirements, having found that competitive wholesale purchases in New England are far more cost effective to meet customer requirements than building and financing generation. As a result, Unitil has among the lowest rates in New England. On the other hand, Unitil is also a very efficient distribution company. Analysis of the costs of distribution among New England utilities reveals that Unitil's distribution operations are the most efficient, and most cost-effective in the region. But you would never know it from this study.
It is likely that economics will continue to be known as "the dismal science" as long as its practitioners continue to forget the basic requirement of science - to observe the real world.
Robert G. Schoenberger
THE OBJECTIVE OF THE AUTHORS OF "THE FORTNIGHTLY 100" - to provide comparative measures of efficiency among electric utility companies - is a laudable one. We at Vermont Electric Power Co. have devoted considerable effort to this task because we agree that "Things that are measured tend to improve."
As a company that provides transmission only, we have been hampered by a lack of comparable data, so we have been limited to measurements of changes in (1) the price we charge for our services, and (2) the reliability and quality of service we furnish. During the past 10 years, the price we charge for our services has remained essentially flat, while the regional producer price index has risen more than 25 percent, and the consumer price index, more than 37 percent. Pursuing a zero defect policy, we also have seen a steady trend of increased reliability and quality.
We were astonished, therefore, to find ourselves posted at the very bottom of the article's top 100 companies. Notwithstanding their praiseworthy objective, your authors committed the error of failing to understand the data they used in their analysis. They define the output side of their efficiency formula as "total physical production in megawatt-hours produced and sold to all sectors." Data regarding production and sales were then taken from FERC Form 1. Owing in part to the inflexibility of FERC reporting requirements, and in part to some unique contractual arrangements, VELCO does report megawatt-hours sold to FERC. The fact is, however, that we are strictly a transmission company. We produce no power and, except via paper transactions as a pass-through entity, we sell no power. In short, the data employed by the authors