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Fortnightly Magazine - March 2007

Utility M&A: Betting on the CIO

Presenting 5 critical factors in realizing merger-related savings.

Eduardo Alvarez, Donald Dawson, and Samudra Sen

Booz Allen consultants offer five critical factors in realizing merger-related savings.

Valuing Demand-Response Benefits In Eastern PJM

Sam Newell, Frank Felder, and Johannes Pfeifenberger

When summer heat waves cause electric demand to peak, they also often cause wholesale electricity prices to rise substantially above their average levels. However, since most electricity customers face retail rates that do not reflect this movement in wholesale market prices, they do not modify their consumption patterns, causing a significant drop in economic efficiency. The Energy Policy Act of 2005 calls upon states and utilities to evaluate and implement DR programs to mitigate this problem.

A Monopolist Takeover

Dominion and AEP want to put the toothpaste back in the tube, but re-regulation could get messy.

Richard Stavros, Executive Editor

Is it possible to go back to the way things were? Nostalgia for the old regulated model seems to be waxing of late, particularly in Virginia. The 70-percent rate increases in Maryland last year at the expiration of price caps—part of the transition to electric competition—has become the calamity that some state regulators fear most. Several utilities are pushing for re-regulation.

People

(March 2007) Constellation Energy named Kevin W. Hadlock vice president, investor relations, and Robert L. Gould vice president, corporate communications. Subsidiary Constellation NewEnergy appointed Emily Neill as business development manager. Dynegy Inc. announced several organizational changes related to the company’s proposed combination with LS Power. Robert W. Best, chairman, president, and CEO of Atmos Energy Corp., was elected chairman of the American Gas Foundation’s board of trustees for 2007. And others...

A New Vintage of Investor

Rothschild investment banker Roger Wood explains why those new infrastructure funds are hot on utilities.

Richard Stavros

He was quite literally the toast of last year’s EEI Finance conference. Using his bank’s diverse resources (Rothschild vineyards in France), he arranged an unforgettable wine tasting that was a big hit with utility executives. Roger Wood, the head of Rothschild’s Power & Utilities Group in North America, is one of the few true white knights on Wall Street. Whereas many banks have developed businesses that can conflict with their utility clients’ interests, Wood says Rothschild’s bankers “live and die by providing long-term independent advice.”

California's Green Wall

A new law dampens coal-by-wire prospects.

Gary L. Hunt and Richard Lauckhart

A 2007 law essentially prohibits California utilities from signing long-term contracts for power, including those from out of state, unless they emit less than 1,000 pounds of CO2/MWh of electricity produced. While the law does not specifically bar coal-fired generation, the limit is set low enough to rule out all coal-power plants. A modern, highly efficient natural gas-fired plant barely would qualify. These measures, plus the new carbon-cap law going into effect by 2012, have sent utilities—large and small, private as well as municipal or city-owned—into a frenzy as they scramble to find alternatives to coal to meet their future demand.

The Top Utility Stocks: New Challenges Ahead

Utilities showed strong gains last year, but other industries are gaining ground.

Dean C. Maschoff, Gordon Hilbun, and Jason K. D’Souza

The Dow Jones Utilities Index posted another year of solid gains in 2006. As might be expected, in connection with both the near-term and longer-term historical investor performance of the utility sector, there’s a story within the story. Further, this performance history provides a context against which the impact of both current and emerging issues can be assessed.

Building a Risky Business

The diversity in customers’ appetites should be considered by more utilities when pricing products.

Michael T. O’Sheasy

Does the volatility of the customer’s energy cost create much concern regarding the impact on the customer’s core business? One customer may be very comfortable taking on significant electricity cost risk to obtain electricity price and subsequent bill concessions. Another may be willing and anxious to pay a premium to accept less electricity cost risk than normal. Both of these customers, and all the customers in between, should be offered products that fit their needs, and these products should be priced upon sound risk fundamentals.

The Mobile-Sierra Doctrine, Part Deux

A new twist on an old doctrine.

Stephen L. Teichler and Ilia Levitine

The D.C. Circuit once observed that the Mobile-Sierra doctrine is “refreshingly simple.” In fact, however, the doctrine has become incredibly nuanced and complex over time. In two concurrently issued decisions, the court has discovered new prerequisites to the initial application of the doctrine, changed the independent “public interest” review standard into a presumption, and has jettisoned that presumption entirely when contract prices are too high as opposed to too low.

CIOs Under Pressure

IT officers are getting more efficient, but guess what keeps them up at night?

Christian Hamaker

Ever-present security concerns are keeping utility chief information officers up at night. With their IT budgets under constraints in a back-to-basics era, four CIOs speak out about their concerns over funding, staffing, and the future.

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