Fortnightly Magazine - March 1 1995

What Utilities Should Expect from Competitive Intelligence

Electric utilities are informationally dysfunctional. When we surveyed electric utility managers from around the country, we found a general consensus: Individual employees may possess vital information, but typically they do not know what to do with it. They don't understand why it's important or who may need it.

FERC's Santa on "New Power Industry"

Commissioner Donald F. Santa, Jr., offered the Federal Energy Regulatory Commission's (FERC's) view of the "New Power Industry" at the 3rd annual electricity conference sponsored by the Western Energy and Communications Association and the Los Angeles Power Producers Association in Irvine, CA. Santa acknowledged current trends toward disaggregation, but said he doubted that a single, uniform, nationwide industry structure would emerge.

Making a Case for Information Technologies

Financial models within the utility industry are changing rapidly. Driven by competition, deregulation, and shareholder concern ov er profitability, North America's intermediate and larger-sized electric and gas companies are looking more closely at information technology (IT) investments.

Financial News

On December 12, 1994, Craven Crowell, chairman of the board of the Tennessee Valley Authority (TVA), issued two well-publicized announcements. First, TVA would not finish three of the nuclear units it has had under construction since the 1970s, unless it could find partners willing to share their construction costs (a prospect he subsequently characterized as "very slim,").1 Second, TVA planned to set an internal cap on its total debt at a level $2 to $3 billion below the $30-billion limit imposed by the Congress.

What Computer Information Systems Mean to Regulators

For the last eight years of my 27-year career in the military, I was responsible for merging the Air Force's computer business with its communications business. This undertaking was similar in at least one significant way to current efforts to expand the role of computers in the regulated utility environment (em education is paramount.

Utilities typically employ computer technology either by creating internal information management divisions/subsidiaries or by outsourcing the work to a company that specializes in computer information technology.

Gauging Risks: Rising Interest Rates and Industry Restructuring

How risky are utility investments today? Regulators have always faced this question when setting the return component of rates under traditional rate base/rate of return regulation. With major industry restructuring looming, risk issues have become proportionately more important and complex. California regulators, for example, have increased the return for the state's electric utilities to account for investor worries over the pace of restructuring in the "Blue Book" proceeding.

A New Index Prices the Market

California, Oregon, and Nevada have developed a regional response to pricing transparency.

The electric utility industry has turned the corner away from monopoly regulation and into the competitive marketplace. No big surprise. Since the late 1970s, consumers have faced increasing sticker shock. In addition, customers want the same choices over electricity purchases that they have with other products.

Illinois Coal Bias Slapped Down

The U.S. Court of Appeals for the Seventh Circuit has struck down as unconstitutional Illinois' 1991 Coal Act, which required state utility regulators to develop pollution control plans aimed at maximizing the use of high-sulfur coal mined in the state. The Act also allowed scrubber costs associated with the use of high-sulfur coal to be passed through to ratepayers.

Look Twice Before Diversifying into Telephony

Most electric utilities have invested heavily in building private telecommunications networks. In fact, U.S. utility telecommunication networks combine to form the largest private network, second only to that of the Department of Defense. While these networks improve power system control and operational efficiency, they typically contain excess capacity available for sale to other companies. Given increased competition in their core business, many utilities are currently reviewing opportunities to use this excess network capacity.

Midland Nuclear Project Cost Upheld

The Michigan Court of Appeals has upheld a 1991 ruling by state regulators permitting Consumers Power Co. to recover $760 million in costs associated with its abandoned Midland nuclear generating project. The utility had requested recovery of over $2 billion after it halted construction in 1984.

The court rejected claims by ABATE, a ratepayers group, that the commission lacked authority to apply a "prudent investment" test to recovery of plant costs regardless of whether the investments eventually proved necessary or beneficial.