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Fortnightly Magazine - March 2006

The Merger Paradox

More consolidation could trim costs, but some CEOs fear a backlash from regulators.

Richard Stavros, Executive Editor

With the possible exception of keeping the lights on, the merger game dwarfs just about every other question facing today’s electric utilities. The last big wave of consolidation hit in the late 1990s. Now the forecast calls for a repeat performance, but don’t bet the farm. There’s a hitch, you see. It’s today’s high commodity costs.

People

(March 2006) FirstEnergy Corp. named Bennett L. Gaines vice president and CIO. PPL Corp. named Matt Simmons vice president and controller. NorthWestern Corp., d/b/a NorthWestern Energy, named D. Louis Peoples to its board of directors. The Nuclear Regulatory Commission’s Advisory Committee on Reactor Safeguards re-elected Dr. Graham B. Wallis as chairman, Dr. William J. Shack as vice-chairman, and John D. Sieber as member-at-large. And others...

Preparing for the Next Nuke

Using scenario analysis to help utilities map out their strategies.

Doug Buresh and Gary L. Hunt

If you were a utility executive today would you consider building a new nuclear power plant? What if the United States decided to implement the emission reductions called for in the Kyoto Protocol without adopting it? How might your business be affected by another 9/11-scale terrorist attack on a U.S. target? What would be the impact of growing reliability problems in key U.S. power markets? Some utility executives are asking themselves just such questions.

Building a Strong ERO

The North American Electric Reliability Council should be promptly certified as America’s electric reliability organization.

James Fama

To create the strong electric reliability system envisioned by Congress, FERC needs to focus on many issues, two of which are especially important: creating consistency in how compliance and enforcement programs are carried out at the regional level, and leading the transition—effectively and promptly—from today’s world to the new era called for in EPACT.

The Top Utility Stocks

A review of total shareholder returns shows how growth and merger strategies drove performance last year.

Dean C. Maschoff, Thomas F. Read, and Jason K. D’Souza

To better understand the performance of the electric utility sector from both a short-term and long-term perspective, we examined the total shareholder return (TSR)—dividends plus change in stock price—of 58 electric companies for 2005 and for three- and five-year periods. We grouped these companies into four categories to better understand the impact of alternative strategies on investor performance: Recovering, Traditionalist, Growth, and Merger.

The Art of Gas Storage Valuation

Benefits and drawbacks of the most popular estimation methods or modeling techniques.

Christopher Athaide

Before we go about trying to value natural-gas storage, we should try and come up with a list of important considerations in any valuation process. Also, the data requirements should be modest, and the calculation time should be reasonable. But not all gas storage valuations are created equal.

A Candy-Coated Grid

Incentives for transmission investment could boost postage-stamp pricing over license-plate rates.

Bruce W. Radford

FERC proposed a new set of regulations, under the new section 219 of the Federal Power Act, explaining in broad outline how it might approve generous financial incentives for new investments in transmission—incentives once dubbed as “candy.” As of mid-January, the new NOPR had spawned more industry comment than just about any other FERC proposal in recent memory.

Market Resurgence

Banks are reshaping the energy-trading landscape. When the dust settles, utility companies will face different strategic horizons.

By Michael T. Burr

Utility executives face volatile energy markets, skyrocketing fuel prices, and changing federal energy policies. How are utilities benefiting from the turnaround in energy trading?

Long-Term Transmission Rights: A High-Stakes Debate

The absence of long-term transmission rights could exclude potential competition—and cause higher electricity costs.

Laurence D. Kirsch

Power-industry restructuring redistributed financial uncertainties that discourage generation investment and ultimately raise the price of electricity to consumers.

LNG's Final Hurdle

Interchangeability issues threaten to delay vitally needed LNG projects.

Jake Dweck and David Wochner

Gas composition issues have become a significant hurdle for the industry. Resolving these challenges will not be easy, requiring all stakeholders to apply a thoughtful approach to understanding the issues.

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