Fortnightly Magazine - January 15 1996


Rail Mergers

and Market Power

Coal, railroads, and electric utilities have been closely intertwined for most of the 20th century. Today, coal fuels over 56 percent of the nation's electricity. Coal and rail transportation together cost electric utilities over $23 billion annually.

Over the past 15 years, a combination of events (em including productivity gains, technological innovations, and consolidation (em has resulted in a very competitive fuel and transportation market.

Special Contract Rate Trend Continues

As regulators continue to investigate industrywide restructuring as an answer to regional electric rate disparities and calls from large consumers for price reductions, the trend of dealing with the problem through rate discounting also remains strong. Regulators have taken steps to ensure that shareholders bear at least some of the risk for revenue shortfalls that might result under the new contracts.


jü( )l, n: A unit of energy measurement equal to a watt-second.

San Diego Gas & Electric signed a power-sales contract with Salt River Project (SRP) for 100 Mw of firm capacity and energy for 1996. SRP will gross about $12 million from the sale.

A Siemens Power generation research team claims a new world record in high-temperature, solid-oxide fuel cells for use in power generation plants. The team achieved an output of 10.7 Kw, operating on hydrogen and oxygen at 950°C.

Regulatory Reforms in Telecom Mature

Having committed to employing competition in the telecommunications local exchange carrier (LEC) market to elicit the broadest range of service offerings while ensuring fair rates, state commissions are now establishing regulations to put the new policies into effect. Current investigations focus on the proper costing and rate-setting methods for interconnection and transport services among newly competing carriers.

Mexico Promotes Natural Gas Competition

The Government of Mexico on November 8 revealed its new natural gas regulations at a special conference of industry executives in Mexico City. The new rules promote use of natural gas; create a competitive, market-driven gas industry; encourage private investment; enhance customer choice; and protect the environment. Private-sector transmission, distribution, and storage of gas were all previously controlled by the state.

Conference attendee Thomas A. Page (em chairman of San Diego Gas & Electric Co.

LDCs Test Supply-cost Incentive Mechanisms

The New York Public Service Commission (PSC) has approved its first market-indexed incentive mechanism to encourage a local distribution company (LDC) to control gas-supply costs. Brooklyn Union Gas Co.'s modified proposal for a one-year pilot incentive mechanism employs an external index as a gas-cost target (the monthly closing natural gas contract price on the New York Mercantile Exchange), rather than a series of internal cost measures based on estimated fixed and variable costs.

Two Penn. Utilities Offer Restructuring Proposal

In the second phase of the Pennsylvania Public Utility Commission's (PUC's) investigation into electric industry restructuring, Metropolitan Edison (ME) and Pennsylvania Electric (PE) have proposed a regional wholesale electricity market based on the Pennsylvania-New Jersey-Maryland power pool. All electric generators would sell into the market, which would function as a spot market, while accommodating bilateral contracts.

The pool would coordinate all power sales and purchases to assure the reliability and integrity of the regional electric grid.

Off Peak

Privatizing the grid doesn't appear to have hurt the United Kingdom any. Quite the contrary. When it comes to electricity, at least, Britannia still rules to some extent.

Industrial prices in the United Kingdom continue to be among the most competitive in the world, according to an Electricity Association (EA) survey. Industrial contract prices are now 49 percent cheaper than in Japan, and 41 percent less than in Germany. Average prices in Italy, Spain, and the United States are also more expensive.

PacifiCorp to Buy Australian Utility

PacifiCorp's wholly-owned subsidiaries, PacifiCorp Holdings, Inc. and PacifiCorp Australia Holdings Pty Ltd., have agreed to purchase Powercor, an electric utility in southeast Australia, for about $1.6 billion. Powercor is one of five distribution companies being sold by the State of Victoria in its first stage of privatizing distribution and generation utilities. Moody's Investors Service has placed the ratings of PacifiCorp and PacifiCorp Holdings on review for possible downgrade.

Merge N.Y. Utilities, Says Sithe

Sithe Energies Inc. claims that its restructuring proposal, "Energizing New York," would save ratepayers $15 billion over 10 years, while creating a favorable environment during the transition to competition.