Business & Money
An analysis of the strategic implications of the re-basing of power and utility industry valuations.
Over the past several...
THE LAST FEW TIMES I'VE HIT THE ROAD FOR A INDUSTRY conference or speaking engagement, someone invariably has come up to tell me how my picture on this page seems to be getting younger. OK, I confess. Like many other columnists, I've probably carried on too long with the same old photo.
But before we let go of that thought, wasn't it clever how, at the annual meeting of the MidAmerica Regulatory Conference in Kansas City, June 21-24, former NRECA attorney Susan Kelley found a way to connect male aging with electric utility stranded costs in her delightful talk, "Securitization and Viagra: What's the Link?"
Leave it to Kelly, the former senior regulatory counsel for the National Rural Electric Cooperative Association, who lately jumped to the private sector at the law firm of Miller, Balis and O'Neil, P.C., for the genius to recognize that we're all slowly losing interest in stranded costs. But she had the remedy:
"Securitization," Kelly explained, "like Viagra, can be a win-win prescription for some utility/ratepayer couples." But take care, she said, "Securitization, like the drug, should be used sparingly -- only for those patients who fit the profile."
Where were you on the night of Wednesday, June 24, at say, 8:45 p.m.?
According to Brant Eldridge, executive manager of the East Central Area Reliability Coordination Agreement, that was the moment when a tornado knocked out the three major 345-kilovolt electric transmission lines that serve the Davis-Besse nuclear plant in Ohio (one line had 11 towers on the ground), throwing bulk power markets into chaos in the Midwest, with prices reaching for the sky.
The day after, at his annual summer press luncheon in Washington, D.C., CMS Energy CEO William McCormick opened his talk with the news that ECAR power had jumped overnight to $4,000 per megawatt-hour. On Friday, Cinergy, Western Resources, Dynegy (formerly Natural Gas Clearinghouse) and NP Energy filed a petition describing the events and asking the Federal Energy Regulatory Commission to convene an emergency conference to examine the matter: "Many thousands of megawatts of generating capacity (possibly up to 15 percent of capacity in ECAR alone) were out of service in either forced or scheduled outages. Transmission constraints may also have impacted commodity price and availability.
"As prices increased, several market participants defaulted on their commitments. Others were exposed to paying liquidated damages in lieu of providing physical delivery." (FERC Docket No. EL98-53, filed Jun 26, 1998.)
By Tuesday, June 30, Illinois Power had joined the fray, upping the ante. Not only did it move to intervene to support the Cinergy petition, it also asked the FERC to issue an interim order imposing a cap of $200 per MWh on wholesale power sold during system emergencies.
In its motion, Illlnois Power said it "was forced to pay" as much as $4,000 per MWh, but that seller using their market-based rate schedules reportedly were demanding prices as high as $10,000. "Desperate buyers needing to serve firm retail load reportedly paid up to $7,500 per MWh," said the company in its motion.
In fact, Illinois