Fortnightly Magazine - January 1 1998

Unbundling: An Excuse for Cost Shifting?

The article "Risk and Rates for the Regulated Distribution," by Maloney, McCormick, and Tyler (Sept. 1, 1997, p. 26) was interesting. For people with the vested interests of the authors, unbundling offers the golden opportunity of reducing regulated rates without actually having a formal rate decrease. That comes about by shifting on paper as much revenue as possible from the regulated disco to the competitive genco, while of course leaving all the costs with which that revenue is associated within the disco.

Unbundling, Take Two: No Effect on Risk

Robert Rosenberg in his comment on our paper makes a fundamental error regarding financial risk. (Rosenberg, "Unbundling Capital Costs: It Doesn't Add Up," Nov. 1, 1997, p. 46, responding to Maloney, McCormick, and Tyler, "The Wires Charge: Risk and Rates for the Regulated Distributor," Sept. 1, 1997, p. 26.)

Rosenberg claims that as utilities spin off into separate wires and generating businesses, risk will increase in both lines of business.

Retail Choice: A Race to the Bottom

A recent article laments the slow pace of retail competition for residential gas sales in New York ("Blue Flame Blues: Gas Pilots Sputter at Burnertip," Oct. 1, 1997, p. 22). Besides the meager financial incentive for a New York residential customer to switch gas companies, there is another factor contributing to the slow headway being made by gas marketers: The New York Public Service Commission failed to establish a level playing field with just and reasonable terms of sale.