How to Tango With a Regulator

Deck: 

Utilities and financiers want ratepayers to fund the next wave of power plants. Will higher electric rates spoil the party?

Fortnightly Magazine - December 2005
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You’ve heard the story. The local utility ought to be investing billions in new power plants, but the company CEO wants a guarantee from regulators for upfront costs and future operating expenses before laying down dollar one on the project.

What to do?

Utility CEOs attending the Edison Electric Institute’s 40th Financial Conference last month in Hollywood, Fla., were shuffling to the old rate base song-and-dance. But this time, they were working out a few new moves.

Just listen to AEP CEO Michael Morris, calling again for the “regulatory compact.” Or Progress Energy CEO Robert B. McGehee, who says that regulation today means brushing up on political skills. And Allan J. Fohrer, CEO of Southern California Edison, who still worries about after-the-fact prudence reviews.

Fear of being underappreciated affects every close relationship. Nearly every utility CEO who took the podium for his own presentation displayed a clear affection for the regulator—plus a warning for any who might dare neglect that relationship. One executive from Exelon recounted various ups and downs with the Illinois Commerce Commission. It seems that ComEd was planning to buy energy using a “reverse auction.” A research analyst at a prominent investment bank was not amused, later calling Exelon a “work-out story.”

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