Regulation

Rate-Case Mania: Lessons for a New Generation

This overview of ratemaking and rate-design principles should ease the myriad tasks awaiting new rate analysts and attorneys, while provoking nostalgia among industry veterans still manning the ratemaking stations.

Letters to the Editor

Jim Lundrigan, New Haven, Conn.: After reading Gordon van Welie’s article (“New England: A Critical Look at Competition,”) I couldn’t help but think back to California in 2000. Van Welie, who is president and CEO of ISO New England, is trying to feed the citizens of New England the same brand of malarkey that the California ISO fed the California Public Utilities Commission in 2000 when wholesale and retail prices in California were perfectly linked and nearly succeeded in bankrupting the wealthiest state in the country.

John S. Ferguson, Richardson, Texas: The article of Michael J. Majoros Jr. (“Rate-Base Cleansings: Rolling Over Ratepayers,”) attracted my attention, because I perceive it to propose a solution—PUCs’ need to recognize refundable regulatory liabilities—for a problem that does not exist.

Rate-Base Cleansings: Rolling Over Ratepayers

State PUCs should recognize a refundable regulatory liability for past charges to ratepayers.

The Financial Accounting Standards Board SFAS No.143 identifies an immediate need for state public utilities commissions to recognize a refundable regulatory liability for past charges to ratepayers for non-legal asset retirement costs. Although these prior charges resulted in billions of dollars of regulatory liabilities on utilities' generally accepted accounting principles financial statements, they are almost invisible on the regulatory financial statements of the utilities. Unless the state PUCs specifically recognize the liabilities, the utilities will have the opportunity to institute a rate-base "cleansing" by transferring ratepayer-fronted money into income.

Following Up on a Capital Performance

Utility stocks have outperformed the broader market. Can the industry deliver a show-stopping second act?

The utility sector has been one of the best performing sectors in the equity capital markets for more than two years. In many respects, this has been a case of the rising tide lifting all ships.

A Low-Voltage Energy Bill

While a few provisions are worth embracing, most of its 1,724 pages represent a waste of good timber.

After four years of legislative trench warfare, contentious legal wrangling, and heated partisan rhetoric, President Bush finally got what he wanted—a really big energy bill. What he did not get, however, was an internally consistent "national energy strategy." Examination of the legislation reveals that its title—the Energy Policy Act of 2005—is less descriptive than the title popularized by Sen. John McCain: the No Lobbyist Left Behind Act of 2005.

Maintaining Control Over Outsourcing

Utilities can transform the business while managing risk.

In a survey of 305 North American utilities, 51 percent of the respondents said they either had outsourced or were planning to outsource a customer-care function in the next two years. But despite its advantages, outsourcing remains fraught with risk—the very reason that traditionally conservative utility companies have in the past shied away from letting third parties take over parts of their business.

Measuring Return on Equity Correctly

Why current estimation models set allowed ROE too low.

A material capital structure mismatch, which occurs frequently, can lead to material misestimates of the appropriate allowed return on equity, perhaps on the order of 2 percentage points. That is, a 9 percent estimate of the cost of equity can imply an allowed rate of return on equity of 11 percent.

BGS Auctions: What Price Is Right?

How to price new load-servicing contracts while incorporating market-risk analysis into such deals.

Why have basic generation service auctions historically been overly competitive given the prevailing market prices at the time? Here are four steps to determine correctly what should the bid price should be.

Barriers to Entry: The Fight Against Power- Line Communications

And for a reasonable regulatory policy for new broadband technology.

To achieve the benefits of broadband over power line communications platforms, policy-makers must resolve a number of issues, including: (1) harmful radio interference; (2) access; and (3) cross-subsidies. If their policies impose diseconomies on the operation, design, or financial structure of BPL, widespread deployment of the technology is unlikely.

Commission Watch

IOUs, RTOs duke it out over standardization.

Commission Watch

IOUs, RTOs duke it out over standardization.

Have regional transmission operators (RTOs) and independent system operators (ISOs) asked for excessive levels of credit from customers, to the extent that the burdensome requirements foreclose full market participation by competitive entities? The Federal Energy Regulatory Commission (FERC) must face that difficult question as it investigates whether to institute a rulemaking on credit-related issues for service provided by ISOs, RTOs, and transmission providers.