Prudential Predicts Revenue Losses for All Utilities

Fortnightly Magazine - July 1 1996
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In a recent report, A Free Market for Power Would Mean Revenue Losses for All Utilities (em But Some Would Suffer More Than Others, Prudential Securities simulated a competitive electricity market (em assuming that all industrial and commercial customers would be able to choose their electric supplier by 1998 (em to find out how a completely free market for power would affect utility revenues, earnings, and dividends.

The competitive risk study statistically measured marginal costs, then created a simulated spot-market electricity price for each of the 11 geographical regions of the United States. The components of electric prices were unbundled to estimate the price each utility would charge for its power in a fully competitive market. Prudential found that potential spot prices would be surprisingly lower than the average tariffs utilities currently charge.

The findings predict that all utilities would lose revenues. Some would lose as little as 1 percent of revenues, assuming they are allowed to recover 75 percent of the cost of their uneconomic generating assets. Utilities with high rates would lose as much as 7.5 percent of revenues. (em LB

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