Southern California Edison

In two separate cases, the Federal Energy Regulatory Commission for the first time has approved an analytical framework for examining vertical market power concerns raised by convergence mergers of gas and electric companies. This new framework applies when market power in one sector (such as natural gas) threatens competition in another (e.g., electricity).

In the first case, the FERC on June 25 conditionally approved the disposition of jurisdictional facilities in the proposed merger of two holding companies, Enova Corp.

The California Public Utilities Commission has established guidelines for the recovery of stranded costs over four years through a competition transition charge collected from existing and future customers, including those who depart the system.

The June 11 order allows recovery from 1998 through 2002 for costs associated with generation plants, nuclear settlements and QF contracts (Docket No. R.94-04-031/I.94-04-032). Costs associated with purchased power contracts, including QF contracts in place on Dec. 21, 1995, can be collected for the duration of the contract.

Moody's Investors Service examines key credit considerations in the evolving independent power production industry in a new report. The report predicts greater polarity in ratings of such companies.

The Haves and the Have-Nots: Access to Capital, Diversified Portfolios says the IPP industry will become dominated by "first-tier" companies that exhibit financial flexibility needed to survive in an increasingly uncertain environment. Such companies will possess diversified assets and ability to generate cash.

California regulators have issued a series of important rulings this spring as they continue to move forward with restructuring the state's electric utility industry.

On May 6, the California Public Utilities Commission accelerated the pace of its industry reform by ordering all electric utilities in the state to allow direct access to alternate electricity suppliers for all customers on Jan. 1, 1998.

Edison International elected former U.S. Secretary of State Warren Christopher to its board and its utility company's board, Southern California Edison. Christopher was elected chair of the executive committees of both boards. Howard P. Allen retired as chair and CEO.

John T. Coughlin, former Wisconsin Public Service commissioner, was elected chair of the PJM Interconnection L.L.C.

Former U.S. Department of State Legal Adviser Conrad K. Harper was elected to the board of both Public Service Enterprise Group Inc., and Public Service Electric and Gas Co.

California's three largest investor-owned utilities have asked the California Public Utilities Commission to approve securitization of up to $7.3 billion of stranded costs.

The utilities would issue 10-year bonds through the state infrastructure bank starting by the end of 1997. The "rate reduction bonds" would be repaid through a stranded cost charge levied on present ratepayers. The amounts applied for are: $3.5 billion by Pacific Gas & Electric; $800 million by San Diego Gas & Electric Co.; and $3 billion by Southern California Edison Co.

The California Public Utilities Commission has ruled that it will not phase in direct access at different times for different customer groups, but will allow all customers, regardless of classification or amount of electricity used, to choose their energy supplier in less than two years.

"There will be no phase-in or pilot-program period for the opening of California's electricity market. In just eight months we go from a regulated monopoly to open competition in one big bang," said John Seidl, president and CEO of CellNet Data Systems Inc.

The PUC said that starting Jan.

By unbundling usage from access, utilities can maximize contribution to margin and yet still retain load.

With deregulation and industry restructuring, energy utilities face price competition from marketers, brokers, independent producers and even other utilities. To succeed in this environment, utilities will need to develop innovative pricing strategies that better meet customer needs and respond more effectively to competition. The common response by utilities to competition calls for price discounting to retain "at risk"

customers by meeting the competition head-on.

"People are starting to talk about ISOs on the gas side." So says Jerry Pfeffer, lay advisor on energy industries for Skadden, Arps, Meagher & Flom, the New York law firm well known for its work in mergers and acquisitions.

Pfeffer's comment alludes to events now unfolding in Southern California, that fount of fashion, where each round of "deregulation" only doubles the ante in billable hours. This time it's natural gas pipelines. Do they have market power too?

"It Would Not Surprise Me"

Southern California Edison Co. has now alleged that Southern California Gas Co.

Can NERC Juggle All Three En Route to Open Access?

At the year's start, the North American Electric Reliability Council decided to leave its "peer pressure" policy behind and require mandatory compliance with its reliability standards. As NERC grapples with its new policy, Public Utilities Fortnightly asked eight industry representatives how they might ensure reliability in a restructured electric industry.

It had taken time for NERC to arrive at this point, but itÆs official: Mandatory sanctions and business incentives will soon be used to enforce compliance.