David M. Wise
The restructuring debate in the electric industry has focused on nuclear assets at risk for "stranding" under deregulation, while another issue has largely eluded public scrutiny: accumulated deferred federal income taxes (ADFITs). ADFITs represent money that utilities have received from ratepayers to cover federal tax expenses not yet actually recognized and paid.
R.L. Hirsch, S.O. Dean, and R.H. Bezdek
R & D for
a Competitive Power Industry
The secret lies in gaining exclusive-use rights to protect your product or process from your competitors.
The electric utility industry is inherently a high-technology business. Those who ignore this fact for long will fall behind (em not only in using the technology, but also in contending against their higher-tech competitors.
Robert J. Michaels
Intense though it has been, the debate over stranded electric investment has addressed only half of the issue. What the utilities will do with the money is as important as whether they should recover anything at all.
Retail competition will accelerate the decline of utility-owned generation; utilities will rely less on their own production and more on purchased power to serve their remaining customers.
Joseph F. Brennan and J. Robert Malko
In an article entitled "Rate Unbundling: Are We There Yet?" (PUBLIC UTILITIES FORTNIGHTLY, Feb. 15, 1996, p. 30), authors Susan Stratton Morse, Meg Meal, and Melissa Lavinson urge regulators to unbundle the cost of capital to recognize that the business risk of electric generation exceeds that of transmission and distribution (T&D).
Gary W. Dorris and Timothy Mount
Electric utilities incur indirect financial costs when they turn to unregulated generators (NUGs) to buy power. These indirect costs can lead to lower bond ratings and undermine competitive advantage, depending upon the type of contract.
In this case we analyzed the combined effects of NUG power purchases on generating and capital costs for a representative utility (Utility A) with a relatively large amount of NUG purchased power.
Forecasts Send ROEs Wide of the Mark
In a recent "Offpeak" ("Forecasting is Just That," Jan. 1, 1996, p. 54), David Foti and Clay Denton report data showing the percentage of error found in various seven-year forecasts of natural gas prices (1988-94) produced by the American Gas Association (A.G.A.), Energy Information Administration (EIA), DRI/McGraw-Hill (DRI), Gas Research Institute, and WEFA Group. These errors ranged from approximately 50 to 95 percent.
Phillip S. Cross
The California Public Utilities Commission (CPUC) has approved a corporate reorganization plan making San Diego Gas and Electric Co. (SDG&E) a wholly-owned subsidiary of a holding company structure formed by the utility. The utility said the reorganization would provide the separation of lines of business necessary to insulate regulated utility cash flows from the volatility and risk of competitive markets.
BY VINOD K. DAR
COMPETITION, CONVERGENCE ... AND CASHFLOW? THE POWER BUSINESS IN THE NEXT 20 YEARS
APRIL 01, 1996BY VINOD K. DAR
Charles M. Studness
Nowhere are the failings of traditional utility regulation more evident than on Long Island. The New York Public Service Commission (PSC) has raised rates for the Long Island Lighting Co. (LILCO) 31 percent since 1989. Rates are now over twice the national average (em the highest in the continental United States. Meanwhile, Long Island's economy has been ravaged by defense cutbacks that have erased 100,000 jobs (em a 10-percent drop in employment.
Steven G. Kihm
Financial experts often depart from standard financial principles and practices in recommending the appropriate rate of return for public utilities. But ratemaking draws from many fields, not just finance; there may be good reasons for some alterations. In other cases, however, analysts are unaware of violating principles. This article discusses the tendency of some analysts to use historic averages of certain financial variables, as opposed to current spot values, in
return-on-equity (ROE) analyses.