(September 2012) Our annual financial ranking shows some remarkable shifts among the industry’s shareholder value leaders. Despite flat demand and low commodity prices, investor-owned...
IPPs and other stakeholders long have called for standards, but this time, the FERC just might oblige.
our order and said no, it is. So what this does is put the utility [in the position] of having to credit back more than it would have previously."
And that poses problems, says Lange, for a regulated entity like Consumers, which has to be concerned about factors like rate base when eyeing that bottom line. "Now why is that bad? Well, it's bad because a lot of utilities like us are in rate freezes," he says. "So, when you give the credit back, you're increasing your rate base but you don't get the rate base back unless you file a rate case to recover it. So it's just lost revenue."
A Natural Friction
It might be nice of Lange to speak on behalf of his generator compadres, but is he accurate? Listen to Hayden of Dynegy speak on the same issues: "Obviously, when you look at a project, there's so many factors that you have to weigh in-the permitting process, environmental, water access, adequate transmission access that we can plug in the plant and take your product to market. Obviously with a gas-fired unit, you need relatively close proximity to a pipeline. Then you have the community efforts, getting them comfortable with the process. So regardless of where you put this, you're going to have-and that's the short abbreviated list-issues you have to contend with, and [for] each project, anyone of those issues can be the number one obstacle, and the next project it could be another one. When we try to find that 'perfect spot,' those are some of the things that we're trying to weigh in. ..."
Lange, meanwhile, might work for one of the most familiar utility names in the business, but he is able to sum up the generator's side quite succinctly: "The merchant plants don't have a big picture look and they shouldn't," he says. Gone are the days when a vertically integrated utility can make siting decisions purely on an operational and reliability standpoint. An ideal location for a merchant generation plant might end up involving a major transmission upgrade.
Unfortunately, the often-conflicting interests of each side have created a little bit of tension and perhaps even mistrust, according to Lange. "Having seen it from both sides, it really seems to me that there's a lot of misapprehensions by both the generators and the transmission owners about each other's motivations. You really hear a bunch of generators-and I've represented generators-saying, 'The transmission owners are putting all these barriers in front of my hooking up. It wants to protect its own generation.' I'll tell you right now, I have never heard that from transmission people. ...
"I think really, what the problem is, the transmission company people are used to a public utility sort of mentality, and they want to build the facilities on a prudent basis. They've historically been concerned about state regulators second-guessing their decisions about, you know, why did you build this line or that line? Should you recover the cost? And I think that just pervades the transmission entity ... ."