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The Empire Strikes Back

Will FERC's market solution wipe out state commissions?

Fortnightly Magazine - September 1 2002

electric, gas, and oil industries, be formalized in writing to stipulate the terms of the programs and the interest associated with the loans of the subsidiaries' cash.

Of course, further restricting a holding company's ability to raise capital by insisting on investment grade ratings and having loans secured by regulated assets be paid at the holding company level changes the dynamic by which companies will be able to fund expansion.

Certainly, some independent power plant developers, like Calpine and Mirant, will applaud the proposed measures, because having a regulated utility in a diversified holding company will hold no extra advantage in obtaining power plant development funding.

While FERC's NOPR on cash management suggests it supports a less leveraged, more transparent capital structure for diversified utilities, one might keep in mind that more power plant development as soon as 2004 will be needed in certain regions. Naturally, FERC's SMD needs participation by market participants that have capital to invest in market development. No one can argue with a less indebted energy company-but alternatively we cannot complain or be surprised if no one wants to pay for the SMD party.