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Fortnightly Magazine - February 2006

Letter to the Editor

Jacob Williams, VP Generation Development, Peabody Energy: While transmission built to “compete” with generation capacity is an interesting notion, it generally misses the real value of transmission. In today’s high energy-price world, delivering “affordable” energy to consumers is very important. I believe we need higher standards in the electricity market similar to transportation, where we value reliability and affordability (time).

A Constellation Of Risks

Will the deal with FPL serve the best interests of ratepayers? 

Richard Stavros, Executive Editor

Even as many hope that repeal of the Public Utility Holding Company Act (PUHCA) will lead to more efficient and rational corporate structures, they also fear that repeal could foster irrational exuberance, with mergers that fail spectacularly. Maybe that explains why every new utility merger announcement is being met with a much higher level of scrutiny than in past decades.

Are We Making Any Money Yet?

Measures of generator unit performance are uncertain.

Devrim Albuz, Hind Farag, and Mark Griffith

The news is full of stories about Calpine and the difficulty merchant generation players face from the uncertainty and volatility of power markets. Now is a good time to review key measures of performance and profitability under uncertain conditions.

Re-engaging Investors

How the World Bank Group removes generation risks in emerging markets.

Philippe Valahu

Infrastructure investors have had their share of pain over the past few years, particularly in developing countries. Aside from worries about the safety and stability of the investment itself, investors also face a more expensive cost of capital. Political risk insurance cannot remove the uncertainties associated with infrastructure investments, but the combination of sound deal structure and clear and reasonable expectations by all parties can mitigate some of these risks.

Rising Unit Costs & Credit Quality: Warning Signals

With increasing unit costs, the financial prospects and credit outlook for many utilities will depend on their success in passing along such costs to consumers.

Ellen Lapson

The utility sector still has excellent access to the capital and credit markets. Yet, it is never safe to assume utilities will continue to enjoy the same low costs of capital. This is particularly true for companies facing compressed margins, regulatory deferrals or disallowances, and rising debt leverage.

Managing Risk: Prudence Reviews and Nuclear Projects

How to avoid the billions of dollars in costs that were disallowed during the last round of construction.

Rilck Noel

With nuclear energy again being viewed as part of the solution for the United States’ energy needs, a number of companies are starting the early permitting and licensing process. Meeting budget targets means the industry must address project-management issues and the risk of end-of-project disallowances for any company or regulator to be able to move forward with new construction.

Encore for Negawatts?

Congress renews PURPA’s call for conservation and load management, but the world has changed since the 1970s.

Bruce W. Radford

The “N-word” in the title first appeared in this journal more than 20 years ago, courtesy of the celebrated environmentalist Amory Lovins and his widely quoted piece, “Saving Gigabucks with Negawatts” (Fortnightly, 1985). Scroll forward a few decades. With restructuring of wholesale electric markets at FERC, plus formation of regional transmission organizations and independent system operators, the game was changed.

China's Quest for Energy

Cooperation and coordination will help the United States avoid an energy-policy confrontation.

Michael T. Burr

China is seeking to acquire resources and infrastructure from all over the world, from the oil fields of Venezuela to new shipyards for building liquefied natural gas tankers in Shanghai. But the country’s acquisition pattern puts it on a collision course with the United States and the rest of the world.

Rate-Case Mania: Lessons for a New Generation

Ahmad Faruqui and Robert Earle

This overview of ratemaking and rate-design principles should ease the myriad tasks awaiting new rate analysts and attorneys, while provoking nostalgia among industry veterans still manning the ratemaking stations.

Natural-Gas Procurement: A Hard Look at Incentive Mechanisms

Better designs are needed to realize the goal of lower-cost gas.

Ken Costello and James F. Wilson

A gas procurement incentive mechanism that provides strong incentives for a broad range of procurement-related costs and revenues, using a benchmark that is both exogenous and adaptive to external circumstances, can benefit consumers.

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