Fortnightly Magazine - May 15 1996

Leaseback Transaction a First

Old Dominion Electric Co-op. (ODEC) has entered into a leaseback financing transaction with First Union National Bank that could save its 12 member systems about $4 million per year. First Union leased Unit One of the Clover Power Station from ODEC for 22 years with an upfront cash payment of $47.5 million, then leased it back to ODEC.

Perspective

Since the federal Court of Appeals decision in the Calvert Cliffs case over 25 years ago, no power plant may be built without a thorough socioeconomic impact statement. Yet, schemes to alter the entire supply system of a state - or even the nation - are currently proposed with only cursory attention to socioeconomic consequences.

Stranded Costs: Is the Market Paying Attention? (A Look at Market-to-Book Ratios)

Investors are taking stock

of utility exposure to price competition.The utility trade press and even the general financial press have featured the views of regulators, utility executives, legislators, and various consumer advocates on the stranded-cost question. Stranded costs easily represent the most contentious issue facing the electric industry as it moves to an era of competition.

Senate Panel Continues Inquiry into Electricity'sw Future

If the new rules of electric industry competition don't permit stranded-cost recovery, the credibility of the U.S. government would be seriously undermined. Or so an executive of one of the country's largest utilities told a Senate energy panel."We just have to keep in mind we incurred these costs based under what the rules were," said Jerry Jackson of Entergy Corp. "If the government is going to change those rules . . .

FERC: "High-Low" Gas Pricing Prevents Gaming

The Federal Energy Regulatory Commission (FERC) has approved Texas Eastern Transmission Corp.'s (TET) proposed revisions of its monthly imbalance cash-out mechanism (Docket No. RP96-142-000).

TET had asserted in February that its monthly imbalance mechanism enabled shippers to game the cash-out mechanism during the recent rapid and large price fluctuations in the spot gas market.

Evolution or Revolution? Dismantling the FASB Standard on Decommissioning Costs

If approved as proposed, the new accounting standard

for closure or removal of long-lived assets

will bring costs out into the open.

But is it rational?

On February 7, 1996, the Financial Accounting Standards Board (FASB) issued for comment an "Exposure Draft" of a new proposed statement of financial accounting standards pertaining to nuclear plant decommissioning and other similar legal obligations,

FERC OK's Affiliate Resale

The Federal Energy Regulatory Commission (FERC) has conditionally allowed QST Energy Trading, Inc., a subsidiary of Central Illinois Light Co. to make sales to nonaffiliates as well as to an affiliate, QST Energy, Inc. (FERC Docket No. ER96-553-000). In turn, QST Energy would sell power in Illinois to customers located outside the service territory of Central Illinois.

A Milestone Year: Power in the Commodity Markets

Paper trading is here, introducing an element of speculation in wholesale electric markets.The electric power industry joined the commodity markets on March 29, 1996, when power futures began to trade on the New York Mercantile Exchange (NYMEX). This first tentative step in the commoditization of electricity promises the emergence of a paper market for power, which, as in the case of other commodities, will likely prove substantially broader and more complex than electricity's physical market.