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News Digest

Fortnightly Magazine - October 15 1999

an across-the-board 6.73 percent rate cut for customers of Public Service Co. of New Mexico, resulting in rates being cut by about $34 million. The cut led Standard & Poor's and Moody's Investors Service to upgrade PNM's bond rating to investment grade status, given that the settlement had removed a degree of uncertainty.

The settlement called for PNM's rates to remain effective until electric competition begins in the state, or until Jan. 1, 2003, if there is a delay in customer choice implementation. Retail customers are scheduled to choose suppliers beginning in 2001.

"This latest rate cut, our second in five years, brings PNM prices to their lowest level since 1985," said PNM chairman, president and CEO Benjamin Montoya.

Power PLants

Electric Restructuring Plans. The New Jersey board OK'd an overall 10 percent rate cut for Public Service Electric & Gas Co., to be implemented incrementally through August 2002, beginning with an initial 5 percent rate reduction. The next cut, an additional 2 percent at minimum, would come on or after Jan. 1, 2000, subject to the issuance of a "bondable transition cost rate order" establishing a securitization bond charge and providing for the securitization of $2.4 billion of generation-related stranded costs. Additional cuts would follow through 2002.

The board allowed the company to recover $2.94 billion net-of-tax of its generation-related stranded costs, based on a market valuation of $46 million and $1.857 billion for nuclear and fossil generating assets, respectively. Aside from the allowable $2.4 billion securitization, the company may recover $540 million through a "market transition charge."

Studies & Reports

Natural Gas Prices. National Utility Service released a survey on Aug. 23 finding that U.S. natural gas prices had dropped 6.8 percent over the prior 12 months, or about 40.3 cents per therm since Sept. 1, 1998.

And NUS expected that gas prices would drop even lower, even as the U.S. Energy Information Administration was reporting a significant reversal of recent price trends, with gas spot prices at the Henry Hub climbing significantly during the week of Sept. 6-10. EIA cited late summer warm weather in some eastern areas, indicating that gas prices were climbing with higher electric consumption.

"Supply is increasing with new pipelines form Canada adding to the currently available supply of gas in the United States," said Richard Soultanian, NUS co-president.

But Soultanian tempered the NUS predictions of lower prices, citing nuclear plant decommissioning as the "wildcard" for natural gas prices. "As these plants go off-line, new power plant construction is geared towards natural gas," he observed. "This could substantially increase demand - and reduce the likelihood of price cuts." Contact Soultanian at 800-888-2190.

Retail Energy Choice. By the start of September the number of U.S. consumers electing alternative electric and natural gas suppliers had doubled since Jan. 1 and was predicted to rise another one-third by year's end, according to a study by Cambridge Energy Research Associates.

With natural gas and electric power competition concentrated in just a few states, the number of customers choosing non-utility providers had reached 3 million, with another million projected to