[BETA] Fortnightly

THE PRICING TURMOIL THAT STRUCK MIDWEST POWER markets during the week of June 22, with allegations of price gouging and calls for a wholesale price cap imposed by the Federal Energy Regulatory Commission (see Docket EL98-53), made for good copy but has obscured what's really going on.

"In the pleadings to FERC, I saw no evidence of price gouging," says attorney Jeffrey Watkiss, who represents power marketers who have asked the Commission for wholesale market reform.

IN A RECENT SPEECH TO A SOPHISTICATED WASHINGTON AUDIence of electric industry players, FERC Commissioner William Massey raised a difficult question: "Can ISOs become self-policing institutions, thereby allowing FERC to embrace light-handed regulation of transmission?"

In answering his own question, Massey confirmed a quasi-judicial role for independent system operators (em but only if they are "equipped with proper operational rules, including market monitoring plans that report market power abuses and contemplate enforcement mechanisms to assure compliance." %n1%n

Despite such op

MANY STATES ARE CONSIDERING THE IDEA OF opening billing and metering to competition at traditional distribution companies. %n1%n Electric utility executives can no longer assume that a regulated monopoly distribution company, or "disco," will retain control of both the "wires" function and billing and metering services. %n2%n

This new prospect raises questions: Should a disco seek to retain billing and metering as a regulated monopoly, complete with the obligation to serve all customers requesting electric connections?

IN THE EARLY 1970s, WHEN THE "ENERGY CRISIS" DAWNED, New York told electric utilities to stop advertising to promote electric use. State judges deemed such promotion as lacking in "any beneficial content," or even "detrimental to society." It took an appeal to the U.S. Supreme Court for utilities to win the right to tout their product.

Today's questions target the bottom line: Can advertising boost sales for energy suppliers? If so, what does it take?

IN THE DRIVE TO MATCH INFORMATION TECHNOLOGY SYSTEMS WITH THE

demands of "deregulatory" standards, utilities are investing billions in information technology (em some launching new business lines from their experience.

Worldwide, utilities are investing $20 billion; electric utilities pony up the most: $12 billion each year, according to Newton-Evans Research Co. An average U.S. electric utility will invest $43 million this year; a gas utility will invest $9 million.

Locational marginal pricing, even if "complex," is well worth the benefits.

In two recent issues, PUBLIC UTILITIES FORTNIGHTLY featured editorials %n1%n on restructuring of the PJM Pool. Those two articles described proposals by the so-called supporting companies, %n2%n seven members of the Pennsylvania-New Jersey-Maryland Interconnection, to use a "locational marginal pricing" model for congestion pricing for electric transmission and to continue PJM as a "tight" power pool.

Former Sen. Alan K. Simpson (R-Wyo.) has joined the PacifiCorp board of directors. Simpson retired from the Senate earlier this year after serving three terms. Also at PacifiCorp, Dennis Steinberg, a senior v.p., was named head of global energy sales, marketing and trading. John Bohling, another senior v.p., will direct customer service, among other activities. Mike Henderson will head a new group for international business, technology and planning.

John M. Deutch has returned as a member of the CMS Energy Corp. Board of Directors. Deutch served on the board from 1986 to 1993.

The electric industry hasn't seen so much upheaval since Thomas Edison threw the switch at the Pearl Street Station. Full retail access to competitive markets in generation and supply will challenge traditional ways of doing business. But no change will prove more dramatic for electric utilities than setting a competitive price (em that most fundamental of business decisions.

In anticipation of competition, utilities have been experimenting to discern what forms of the "product" (em electric power (em customers might want, and at what prices. One such experiment is real-time pricing.

Annual Annual EPS

Close Close Percent 52-Wk 52-Wk Div Div Book P/E Last

Company Region 06/28/96 09/30/96 Change High Low Rate Yield Value Ratio 12 Mos.Electric Utilities

AEP Company Inc. Midwest 42.63 40.63 -4.69 44.75 35.13 2.40 5.91 22.68 13 3.10

Unicom Corp.

By Robert J. Michaels

The Justice Department's Guidelines don't tell us very much about

today's (or tomorrow's) electric market.

However many electric utilities remain after this merger wave, competition will be forever changed.