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Fortnightly Magazine - December 2004

Roundtable: The Future Of Generation

Meeting tomorrow’s power needs will pose tough choices.

Michael T. Burr

A group of executives and analysts tell Fortnightly that the outlook for generation is positive, because it has to be. But making generation work well—affordably, cleanly, and reliably—won’t be easy.

An Expensive Experiment? RTO Dollars and Sense

Financial data raises doubts about whether deregulation benefits outweigh costs.

Margot Lutzenhiser

This year, U.S. electricity consumers will spend more than $1 billion financing the operation of six RTOs. RTO costs have nearly doubled since 2001. Restructuring the energy industry was more costly and more risky than anticipated, and reasonable estimates of RTO costs outweigh nearly all of the benefits anticipated.

Cross-Subsidies: Getting the Signals Right

Should regulators care about the inefficiencies?

Sean Casten & Joshua Meyer

Utilities were founded to create cross-subsidies, but regulators need to address lingering uncertainties about such subsidies in a coherent, constructive way. The authors offer five recommendations.

Model Risk Management: How to Avoid an Earnings Surprise

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

John Bampfylde and David Shimko

Domestic and international groups have pushed the industry toward mark-to-market accounting, creating significant opportunities for earnings swings and distortions and making good model risk management more essential now than ever before.

The New, New Thing?

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

Richard Stavros

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, discussing the future of the electric industry.

People (December 2004)

Lawrence E. De Simone joined Northeast Utilities as president of subsidiary Northeast Utilities Enterprises Inc. Kent McCargar, vice president and CFO at DTE Energy Services, was named president of the company. Gary Stephenson has joined DPL Inc. as vice president, commercial operations. And others...

Letters to the Editor (December 2004)

While we are concerned about the effects of ratings linkage on regulated utilities, in no respect do we blame credit rating agencies. In fact, we strongly believe that the rating agencies are critical gatekeepers that point out for investors and regulators the potential linkages among holding company subsidiaries that could result in utility abuse or its credit downgrade.

A Better Measure for Profitability

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

Tom Ottem and Michael McNair

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. A better metric would measure a unit's ability to capture peak prices while minimizing shoulder period and off-peak losses. Furthermore, it would measure the extent to which a unit dispatches according to favorable market conditions.

Barriers to Entry: The Fight Against Power- Line Communications

And for a reasonable regulatory policy for new broadband technology.

Charles A. Zielinski

To achieve the benefits of broadband over power line communications platforms, policy-makers must resolve a number of issues, including: (1) harmful radio interference; (2) access; and (3) cross-subsidies. If their policies impose diseconomies on the operation, design, or financial structure of BPL, widespread deployment of the technology is unlikely.

PJM/Midwest Market: Two Rival Groups Battle Over Grid Pricing

Should transmission owners get paid extra for distance and voltage?

Bruce Radford

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, financial transmission rights, and a day-ahead market with a security-constrained dispatch, the region remains split over the pricing of transmission.

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