[BETA] Fortnightly

The California Memorandum of Understanding (MOU) is an agreement between Southern California Edison Co. (SCE), the California Manufacturers' Association, the California Large Energy Consumers' Association, and the Independent Energy Producers. It tackles three major issues:s recovery of stranded assets

s market power

s market structure.

If the MOU is eventually endorsed, it might be a landmark in electric restructuring \(em and not only in California.

The U.S. General Accounting Office (GAO) has released its report on the Tennessee Valley Authority (TVA), Financial Problems Raise Questions About Long-Term Viability (em a report that TVA strongly disputes.

About 30 states have begun (em

either through the legislature, the utility commission, informal working groups, or some combination of these (em to consider issues such as retail wheeling, unbundled utility structures, and alternative rate regulation.1 California's "Blue Book" hearings have drawn the most attention, but significant efforts are also underway elsewhere. Although each state is approaching the issue in its own way, successful industry restructuring will ultimately require coordination across state lines.

Will the Crown accept the olive branch offered by its colony, or will conflict ensue? That was the question posed on July 13 by Thomas Page, CEO of San Diego Gas and Electric Co., at the "Western States Workshop on California Restructuring," the first industrywide meeting to discuss the policy proposals issued six weeks before by the California Public Utilities Commission (CPUC).The Crown sent its emissaries.

Are utilities working at top productive capacity? A novel look at 19 investor-owned electrics in the Sun Belt.

Major restructuring is expected to hit investor-owned utilities (IOUs) over the next decade. Competitive market forces, in place of rate-of-return regulation, will require many companies to evaluate their resource allocations. No longer will singular adjustments in resource use suffice when both capital and labor resources must be realigned.

Midwest Power Systems Inc. (MPS) has asked the Federal Energy Regulatory Commission (FERC) to void the Iowa law requiring Iowa utilities to pay six cents per kilowatt-hour for electricity generated by qualifying facilities (QFs). MPS

argues that the Iowa price is more than twice what federal law imposes under a market-based rate. MPS and the three other investor-owned utilities (IOUs) in Iowa had asked the state legislature earlier this year to make the Iowa law conform to federal law, but the bill was not passed.

On a purely intellectual level, it is difficult to justify the Public Utility Holding Company Act of 1935 (PUHCA). Sixty years after passage, PUHCA has become an anachronism (em a fact well articulated in comments filed in response to the Concept Release on the modernization of the Act issued last November by the Securities and Exchange Commission (SEC).1 More recently, the SEC's Division of Investment Management actually recommended a conditional repeal (see sidebar).

Moody's Investors Service has released a report, Moody's Outlines Risk Profile for Electric Cooperatives, which finds that the era of deregulation will lead to an average credit quality decline for generation and transmission cooperatives (G&Ts), just as it will for investor-owned utilities (IOUs) over the next five to 10 years. The report stresses that both G&Ts and distribution cooperatives face increased business and financial risks.

"It could have been worse."

"It says to the market, `It won't be so bad.' It will take longer now, so that's better for the utilities."

"It creates a new bureaucratic entity that will make regulatory choices."

"It's regulated deregulation. It's alarming if that's the prototype for the nation."

That's the word, respectively, from Barry Abramson at Prudential Securities, Edward J. Tirello, Jr. of NatWest Securities, Steven Fetter at Fitch Investors Service, and Dan Scotto of Bear Stearns.

The Federal Energy Regulatory Commission (FERC) Mega-NOPR1 covers four topics:

1) The FERC's jurisdictional powers to implement wholesale open access

2) The FERC's proposal for electric utilities to recover "legitimate and verifiable stranded costs" from departing wholesale customers (a small fraction of all stranded investment), and its belief that states should ensure recovery on retail bypass (the much larger share)

3) A range of measures to implement