Fortnightly Magazine - March 15 1996


Over the past quarter-century, the electric utility industry has undergone oil embargoes, economic recessions, increasing regulatory complexity, and great advances in technology. Perhaps the two best adjectives to describe the last 25 years are "uncertainty" and "change." With deregulation and restructuring upon us, the pace of this change and uncertainty is accelerating. But one thing remains constant: When it comes to presidential elections, growth in electric demand is a good indicator of an incumbent's chances for reelection.

LEC Price-cap Plan Fails Court Tests

The Pennsylvania Commonwealth Court has overturned major parts of a price-cap regulatory plan for Bell Atlantic-Pennsylvania, Inc., a telecommunications local exchange carrier (LEC). The court directed the Pennsylvania Public Utility Commission (PUC) to modify an inflation offset and to reexamine its classification of certain LEC service offerings as competitive.



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Three company alliances offer utilities new tools to help customers use and save on energy:

s AT&T and Andersen Consulting have developed a prototype communications system that allows utilities to offer home security, electronic billing, real-time pricing, and other energy management services.

s A new company formed by Ameritech Corp. and Wisconsin Energy Corp.

Virginia Worries About Native Load

Rapid developments in the electric industry, especially in wholesale markets, have prompted the Virginia State Corporation Commission (SCC) to extend its review of a utility's plans to add to its transmission system. Appalachian Power Co., an operating member of the American Electric Power (AEP) system, had asked the SCC for authority to construct a 765-kilovolt transmission line between substations in West Virginia and Virginia.

El Paso Electric Rises From the Ashes

After four years and four tries, El Paso Electric Co. (EPE) has finally got a plan, and a ticket out of bankruptcy. EPE's fourth amended reorganization plan has been approved by the federal bankruptcy court as well as federal and state regulators, and received near-unanimous acceptance by creditors and stockholders.

The plan proposes two alternative methods of emerging from bankruptcy. Under the preferred alternative, EPE would use the proceeds from an underwritten public offering of first mortgage bonds to repay the claims of existing secured creditors in full.

Utah Gives Monsanto Third-Party Supply Option

The Idaho Public Utilities Commission (PUC) has approved a plan by Utah Power and Light Co., partner in a merger with PacifiCorp, to offer its largest customer, Monsanto, reduced rates as well as an option to arrange for the delivery of third-party power when prices fall below state levels.

Enron Salvages India Plant

Canceled last August, Enron Corp.'s $2-billion, 2,250-megawatt power plant in Maharashtra has been resurrected. Enron's new agreement with the Indian Government specifies a lower price for electricity (5.28 instead of 6.81 cents per kilowatt-hour) and a $365-million cut in capital costs. A separate venture will cover a portion of the costs in the project's second phase, reducing the overall capital budget from $2.8 to $2 billion. Although the government has not yet rendered a formal decision, Enron expects to begin construction within three months.


Michigan Upholds Price-cap Plan

The Michigan Public Service Commission (PSC) has upheld a 1995 decision permitting Sault Electric Co. to switch to a price-cap rate plan. The plan allows the utility to roll its existing power-supply adjustment clause into base rates to set initial rates; later rate reductions are permitted with only 30 days written notice to the PSC (see, Edison Sault Electric Co., 164 PUR4th 1 (Mich.P.S.C. 1995)).

New Gas Challenges Ahead

A joint study by Arthur Andersen & Co. and Cambridge Energy Research Associates (CERA) cites this winter's dramatic spike in natural gas prices as evidence of a growing need for selective new investment in gas transmission and storage infrastructure. Natural Gas Trends, 1996 identifies three underlying trends:

s Surging demand is creating new bottlenecks.

s Technology is improving the competitive position of gas.

s Natural gas and electric power markets are becoming increasingly integrated.

California Utilities to "Unbundle" Line Extension Costs

The California Public Utilities Commission (CPUC) has directed the state's electric and gas utilities to implement a two-year pilot allowing applicants such as residential real estate developers to design distribution facilities for their projects. (Currently, utilities are responsible for designing distribution plant.) In limiting the experiment to residential projects, the CPUC rejected allegations that the limitation would unfairly deny all ratepayers the immediate benefit of savings associated with the "unbundling of engineering costs" for distribution plant.