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Fortnightly Magazine - March 2008

People

David L. Goodin became president of Montana-Dakota Utilities and Great Plains Natural Gas. ONEOK announced three new officer appointments. Duke Energy named Bruce H. Hamilton as vice president of McGuire Nuclear Station. PJM named W. Terry Boston its new president and CEO. And others...

Capacity Markets Demystified

Emerging capacity auctions offer limited but valuable risk-management tools for asset owners.

Mark Griffith

Fast forward to today’s partially deregulated electric power markets. Wholesale electric energy often is traded in various central markets, as well as among individuals in bilateral transactions. Wholesale electric energy prices largely are deregulated, and clearly, over the past decade, market participants have become adept at routinely charging much more than their variable production costs. This “rent extraction,” as economists commonly call it, can take various forms, and while the mechanism for achieving it can be complicated, the evidence is quite clear that today’s wholesale electricity prices typically are higher than the variable costs of most or even all suppliers.

Transforming the SysOp

Strategic pain points require an artful approach.

Monica Benner and Mani Vadari

Utilities are at the threshold of some of the most significant changes they have faced in their history, rivaling the passage of PUHCA in 1935. This change emanates primarily from a handful of key business drivers associated with major technological improvements (i.e., AMI, smart grid), the need for increased customer focus, increased regulatory mandates, and a changing workforce.

Bond Bonanza

January’s debt-issue activity portends a rush on the markets later this year.

Michael T. Burr

Something seemed rotten in December. Fortnightly’s survey of utility and financial deals for that month turned up so few debt issues, we wondered if our research methods were failing. We found only one significant utility bond issue during the month; Allegheny’s West Penn Power issued $275 million in 10-year notes. December’s deathly quiet raised questions about whether we were missing most of the deals.

Coming to America

U.S. utilities are gaining valuable lessons from technology developments abroad.

Charles W. Thurston

Structural and regulatory factors have allowed utilities in some countries to leapfrog America’s utility industry in terms of technology leadership. But U.S. utilities are learning valuable lessons from international advancements.

Pay-as-Bid vs. Uniform Pricing

Discriminatory auctions promote strategic bidding and market manipulation.

Susan Tierney, et al

Some advocates claim markets can help reduce electricity prices by changing the design of wholesale auctions. However, taking a pay-as-bid approach could make matters worse.

Transmission Rights Row

Fiber optic lines expose grid companies to class action lawsuits.

Arnold Tesh and Deborah Haskell

Property owners are banding together and filing class-action lawsuits against transmission owners who sell dark-fiber capacity on their rights of way. Utilities have strong arguments against demands for hefty compensation.

Death of a Turkey

DOE’s move to ‘restructure’ FutureGen clears the way for more rational R&D.

Michael T. Burr, Editor-in-Chief

When President Bush announced the FutureGen initiative halfway through his first term, industry veterans instinctively understood its purpose. Nominally a public-private partnership to build a “zero-emissions” coal-fired power plant, FutureGen stood as a symbol for the administration’s climate-change strategy. It helped the government argue mandatory carbon constraints were unnecessary, because America will develop more green technology than any other country in the world.

Greening IOU Equities

Low-carbon strategies are yielding rewards for shareholders.

Michael Rutkowski, et al.

Low-carbon and “green” strategies have begun delivering returns for utility shareholders. Whether a company ultimately wins or loses depends on how markets are pricing the risks of possible carbon-control regimes.

The Queue Quandary

Why developers today are often kept waiting to get projects ok’d to connect to the grid.

Bruce W. Radford

Late last year FERC learned that the Midwest regional grid likely would require at least 40 years — until 2050 — simply to clear its backlog of proposed gen projects awaiting a completed interconnection agreement to certify their compatibility with the interstate power grid. But grid engineers would meet that date only by shortening the process and studying multiple projects simultaneously in clusters. To apply the process literally, studying one project at a time, as envisioned by current rules, the Midwest reportedly would need 300-plus years to clear its project queue.

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