While enthusiastic equipment vendors and zealous environmentalists push for the comfort of mandated modernization requirements, more thoughtful industry stakeholders are seeking to develop a...
Risk Management Forum: Desperately Seeking Liquidity
Troubled markets drive defensive tactics.
important political and regulatory risks facing Exelon? How are you positioning to address them?
Cornew: Generally the thing to think about in our industry, and for the good of the market and how it works going forward, is to continue the transition to a competitive model in the electric markets. The deregulation model proved itself, and the regulated model proved inefficient.
The competitive model is working in many parts of the country. There are well-run RTOs in many regions, and power is exchanged and efficiently optimized, especially in spot markets. It’s a big focus for us to continue advocating a competitive model, at both state and federal levels.
At the federal level the question is more about wholesale RTOs, and in the states the question is about retail access and giving customers access to the best prices and service they can get. It’s an objective to keep moving toward, and we are advocating that.
Clearly environmental policy at federal and state levels will be important elements impacting our business. President Obama recently talked about building out the infrastructure for smart grid, introducing electric-vehicle infrastructure, and building out the environmental element on the generation side. All those policies are very important to us. We believe clean energy makes sense and has to be done as economically as possible, and nuclear fits very well into that model.
At the state level, some states have competitive procurement processes for customers, and some aren’t there. Pennsylvania is in its transition mode and moving toward having competitive procurement for its customers in the 2010 and 2011 period. We’re very focused on that environment.
Fortnightly: What about rate cases? Is that kind of regulatory risk changing for Exelon, particularly in Illinois and Pennsylvania?
Cornew: Our rate-case situation has improved. In Philadelphia with PECO, we don’t see any real reason to believe there’s concern about that. We believe in a model where distribution companies get a fair return. We’re not quite there in Illinois, but we see a path to get there. That has to occur in a fair and reasonable way, and in recent months we’ve seen some positive movement. In earnings releases, we’ve called that the road to recovery.
Sempra: Liquid Position
Fortnightly: How has the credit crunch affected Sempra’s risk outlook and market risk-management strategy? How is Sempra positioning itself for financial stability in the current troubled market?
Mark Snell, Executive Vice President and CFO, Sempra Energy: As we talk about risk, consistently over time, we’ve tried to manage our exposure on a long-term basis. As an example, when we decided to get into the LNG business, we did a lot of market research and concluded that, because of its low carbon footprint compared to other fossil fuels and a whole host of reasons, natural gas would be a fuel of choice in the future, especially for electricity generation. We thought there would be an opportunity to import LNG into the West Coast and the Gulf of Mexico [so we built import terminals and regasification facilities there]. When we did that, we signed long-term,