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Fortnightly Magazine - December 2004

An Expensive Experiment? RTO Dollars and Sense

AN EXPENSIVE EXPERIMENT?
Margot Lutzenhiser

AN EXPENSIVE EXPERIMENT?

Dollars and Sense

Financial data raises doubts about whether deregulation benefits outweigh costs.

This year, U.S. electricity consumers will spend more than $1 billion financing the operation of six regional transmission organizations (RTOs).1 RTO costs have nearly doubled since 2001 and now outweigh nearly all of the benefits anticipated by the national cost-benefit studies.

Cross-Subsidies: Getting the Signals Right

CROSS-SUBSIDIES:
Sean Casten & Joshua Meyer

CROSS-SUBSIDIES:

Should regulators care about the inefficiencies?

With the first wave of legislative utility deregulation largely complete, the bulk of market restructuring is now happening in the much less public, but just as important, realm of utility rate-making proceedings. Inside these proceedings, utility commissioners address the basic economic and contractual framework for electric utility services.

Model Risk Management: How to Avoid an Earnings Surprise

MODEL RISK MANAGEMENT:
John Bampfylde and David Shimko

MODEL RISK MANAGEMENT:

The industry is going down the mark-to-market route, creating significant opportunities for earnings swings and distortions.

Model risk is no longer the purview of quants and analysis groups hidden deep within the organization. With mark-to-market (MTM) accounting, the quants' MTM pricing models now drive earnings, and, as we all know, earnings drive CEOs.

Frontlines

At a posh dinner event and conference, industry experts speculate on the issues that could affect the industry in 2005.
Richard Stavros, Executive Editor

Frontlines

At a posh dinner event and conference, industry experts speculate on the issues that could affect the industry in 2005.

It was the most exclusive, and one might say, one of the most extraordinary dinners. Never have I seen so many prominent CEOs, regulators, and financial gurus all in one room.

People

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People

Letters to the Editor / Corrections, Clarifications

Public Utilities Fortnightly

Letters to the Editor

To the Editor:

Power Measurements

A new way to measure what matters most: how close a unit comes to meeting its total potential profit.
Tom Ottem and Michael McNair

Power Measurement

A new way to measure what matters most: how close a unit comes to meeting its total potential profit.

Approximately 65 percent of capacity additions in the last few years have been gas-fired, combined-cycle units. Recent market conditions have been hard on these new resources, which have suffered from significantly low capacity factors. But such units are popular because of their flexibility.

Perspective

Barriers to Entry:
Charles A. Zielinski

Perspective

Barriers to Entry:

Commission Watch

PJM/Midwest Market:
Bruce Radford

Commission Watch

PJM/Midwest Market:

Should transmission owners get paid extra for distance and voltage?

While the Midwest now appears set on competitive bidding for the electricity commodity, taking from PJM such tried-and-true elements as locational marginal pricing (LMP), financial transmission rights (FTRs), and a day-ahead market with a security-constrained dispatch, the region remains split over the pricing of transmission.

Business & Money

The utilities industry is in need of more equity.
Robert G. Rosenberg

Business & Money

The utilities industry is in need of more equity.

Regulated utilities, in response to increased risks and bond downratings, have de-leveraged their capital structures. According to preliminary figures from the Edison Electric Institute (EEI), in 2003 utilities cut their short-term debt by more than half compared with 2002. The EEI data also reveal that for 2003, electric utilities issued more than $10 billion of new common equity and repurchased just slightly more than $100 million of common stock.

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