A couple weeks ago, on a beautiful Sunday morning, I picked up my briefcase and wandered down to the Potomac river shoreline to catch up on my summer reading list. There, on the Virginia side, gazing across the river at the Lincoln Memorial, Washington Monument, and Capitol dome, I gathered strength to tackle a foot-high mound of paper.
A new coalition of 82 varied organizations (em including businesses, consumers, environmentalists, and utilities (em has announced support for the California Public Utility Commission's (CPUC's) majority proposal to restructure the electric industry.
For a good half a century, electric regulation has meant law, accounting, and economics. But no more. Now it's all about computers, telecommunications, and file-transfer protocols. Forget about CWIP, AFUDC, double leverage, and interest synchronization. They are all irrelevant.
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.
Close Close Percent 52-Wk 52-Wk Div Div Book P/E Last
Company Region 03/31/95 06/30/95 Change High Low Rate Yield Value Ratio 12 Mos.Electric Utilities
AEP Company Inc. Midwest 31.75 35.13 10.63 35.75 29.00 2.40 6.83 22.68 13 2.68
Unicom Corp. Midwest 23.75 26.63 12.11 27.75 20.63 1.60 6.01 24.39 14 1.90
Union Electric Co.
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).
In the alphabet soup of regulatory acronyms, performance-based ratemaking (PBR) may help shape events well into the next century. At present, PBR is being implemented, or considered by, public utility commissions (PUCs) in over 20 states. By 2000, PBR is likely to reach most of the 50 states as well as the Federal Energy Regulatory Commission. The pressures of a global economy have raised the stakes.
"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 winds of competition are blowing. Some find them chilling; others find them exhilarating. Deregulation calls on competitive markets to stand in for regulatory decisions, giving more choice to customers, reducing costs dramatically, and requiring new capabilities.
Competition is already transforming major portions of the electric industry.
Interesting times. Challenging times. Confusing times. The electricity industry and its regulators are now inextricably meshed in a tangle of interconnected reforms. With 50 states as laboratories, the process is accelerating. There is no going back. But which way is forward?
The old model of a closed system of vertically integrated electric utilities offering bundled service has been discarded in theory, and is being dismantled in practice.