Fortnightly Magazine - April 15 1997

Do electric utilities understand how to earn profits for shareholders in a competitive market?

Here's one way to look at the problem. Gather a group of financial experts and ask this question: If a company's long-term bonds are rated AA, and yield 8 percent, what minimum return would you require from dividend yield and price appreciation to induce you to buy that company's stock?

The typical expert will say 12 percent, indicating a 4-percent premium (or spread) above AA bond yields.

Calling a proposed Securities and Exchange Commission rule contrary to public policy and law, as well as a "de facto repeal of major provisions of the Public Utility Holding Company Act of 1935," the City Council of New Orleans has asked the Securities and Exchange Commission to withdraw its proposed Rule 58.

"For more than 60 years, PUHCA has shed light on the activities of utility holding companies," said Council President James M. Singleton.

The Natural Gas Supply Association said that electric restructuring bills proposed in Congress and by the Clinton Administration contain several provisions that could "significantly" and "unfairly" reduce the competitiveness of gas-fired electricity.

NGSA warned that utilities likely will dispatch electricity from different fuel sources in order of lowest-to-highest marginal cost, and the marginal costs of gas-fired power generally are higher than power fired by coal, nuclear and hydro.

While authorizing Nashville Gas Co. to increase rates by $4.417 million, the Tennessee Regulatory Authority has modified its existing policy on the treatment of advertising expenses in gas rate cases.

The authority abandoned a past policy limiting advertising recovery to 0.5 percent of the company's gross revenues. It also ordered a 50-50 sharing between ratepayers and shareholders. It granted, however, the LDC's request for full recovery of both payroll and nonpayroll "sales promotion" costs, rejecting allegations the costs should be treated as advertising expenses.