It was a "classic" publicity event-long on vision, but short on substance. There he was, the Secretary of the Department of Energy (DOE), Spencer Abraham, standing toe-to-toe with each of the...
Avoiding a Train Wreck
Fundamental issues set companies and regulators on a collision course.
Industry leaders see a disaster coming, as the need for infrastructure investments collides with the economic interests of utility shareholders and customers. In a shaky economy and a politically charged campaign season, proposals for new capital expenditures are certain to cause trouble. Avoiding the train wreck will require real leadership in finding compromise solutions.
As I write this, I’m seated outside, in a camping chair with my laptop at a resort. It’s a lovely day; the sun is shimmering off the sky-blue waters of a lake somewhere in northern Wisconsin. Tall maples are whispering in a gentle August breeze. The kids are bicycling, playing and fishing with their cousins.
And me? I’m thinking about a train wreck.
Not an actual train wreck, of course, but the metaphoric train wreck that many utility industry leaders are saying they see coming.
They foresee a collision of needs and interests—namely, the need for infrastructure investments, colliding with the financial interests of utility shareholders and customers. They see troubling uncertainties—about politics, regulation and fuel price trends. And most of all they see a shaky economy, still reeling from unemployment and the housing crisis, and straining under the weight of a record-breaking national debt.
It’s a depressing topic for such a lovely day here in the north woods, where the birds are singing and the children are laughing. Actually it’s a depressing topic anytime, anywhere. But fortunately enough, the industry’s best minds are working to avoid the disaster, or at least minimize its effects.
In part, train-wreck avoidance provides the implicit story line for several articles in this issue of Fortnightly. For instance, “ Deja Vu or New Horizons ” describes how public utility commissions across the country are dealing with the challenging rate cases that are coming before them today. “ Hybrid Finance ” proposes an innovative approach to paying for power capacity additions. And of course the Fortnightly 40 report spotlights companies that are managing to deliver outstanding shareholder performance even as they balance infrastructure-investment needs with customers’ financial interests.
But as admirable and worthwhile as the industry’s efforts might be, tensions are rising between companies and regulators, with outright conflict already happening in some jurisdictions. Florida and Maryland leap to mind, but trouble is brewing in many states.
When people in the industry talk about an impending train wreck, they’re usually referring to a collision between economics and regulation. Specifically, regulators are loath to approve cap-ex driven rate cases that raise rates substantially during a time of economic hardship. At the same time, lawmakers—especially at the federal level—are waffling. Clear direction on policy has gone begging. Examples include carbon regulation, renewable incentives and the much-touted nuclear renaissance. It all adds up to a fierce battle over who bears the risks and costs.
Beyond the current uncertainties, however, a few fundamental issues have set the industry’s companies and regulators on a collision course.
First, everybody knows there’s no